China Rising

Why does China owe a huge debt of gratitude to a little known US trucker?

In 1953, Malcom McLean, a trucking magnate in the United States, got tired of seeing his trucks stuck in traffic jams. He hit on the idea of driving them onto ships at one end of the states and shipping them to a port at the other end where they could continue their journey.

Malcom soon realised that he was wasting a lot of money shipping the engine and wheels together with the goods. As soon as he left these at the harbour, the shipping container was born. As is usually the case, others had similar ideas and for a number of years there was competition around the format (size and shape) of the containers.

Eventually, McLean's company won significant contracts to ship supplies to the Vietnam-war effort. This led to a ready acceptance of container shipping. The US Government imposed standards on the format of containers used in these efforts.

People realized that not only was containerization feasible but the innovation dramatically reduced shipping costs. Manufacturing started moving from high-cost areas to low-cost areas, first domestically and then internationally. This allowed companies to take advantage of low labour costs and not have the savings eaten up in exorbitant shipping charges.

Over 50 years of this process has led to seismic shifts in economic development with the phenomenal growth in the economies of Japan, followed by India and now China.
This clear example of disruptive innovation illustrates some key ideas in innovation. First, the length of time these developments can take; second, the far reaching industry changing consequences of a seemingly simple initial change; third, the resistance to such a change when it is noticed by the incumbent powers.

The management challenge in these situations are enormous. First, how do you recognize that what you are looking at is a disruptive innovation that cannot be ignored? Second, and perhaps more importantly, how do you allow both the old and the new to develop side-by-side during the transition?

I believe that it is almost impossible for an incumbent to recognize a disruption until it is too late. Instead all firms should develop an experimental capability in which a reasonable amount of scanning and prototyping becomes a constant part of the organization.

This is not a trivial thing. Organizations taking this route will need to develop significant dynamic and deep learning capabilities. They will have to develop cultures that are flexible and reflective, that tolerate mistakes, regarding them as failed experiments from which much can be learnt.