How could Digital's collapse be so precipitous? It's because, in many ways, financial performance data is misleading. As you move up to the top of the market, you're getting rid of the less profitable products at the low end and adding business with more attractive margins at the high end. The rate of unit volume growth might be tapering off as you pursue these smaller markets, but your margins actually look better. So Wall Street rewards your stock price until you hit the ceiling.

When a technology, regardless of how different and difficult it is, sustains the trajectory of performance improvement, my research asserts that the leaders in the prior generation of technology are likely to end up on top of their industry at the end of the transition.

To prop up the stock price, managers have to turn down the screws on everybody. That forces them to cancel all the projects that would lead to future growth in order to drop money to the bottom line. This is HP's dilemma today. Once a company's growth has stopped, the game as we have known it is over. It's a scary thing.

Almost always great new ideas don't emerge from within a single person or function, but at the intersection of functions or people that have never met before.

If I know what to spec, and I can measure it, and there are no unpredictable interdependencies between what you do and what I must do in response, then an economist would say that is sufficient information for a market to emerge between you and me.

Innovation almost always is not successful the first time out. You try something and it doesn't work and it takes confidence to say we haven't failed yet. Ultimately you become commercially successful.

I was lucky enough to build on the work of a number of people who had already run laps around this theory-building track. The original classification scheme, years ago, distinguished radical from incremental change. The theory said that established firms managed incremental change well, but would be expected to founder when their industry encountered a radical change.