Michael E. Raynor: An interview by Bob Morris

Posted on: September 28th, 2011 by bobmorris

Michael Raynor

Michael E. Raynor, Director, Deloitte Consulting LLP, provides consulting services to senior executives in the world’s leading corporations across a wide range of industries. In his client projects and research, Michael explores the challenges of corporate strategy, innovation and growth. However, as he once observed, ”Case studies of past results are a weak foundation for predicting future outcomes. And the increasingly popular ‘fail fast to learn soon’ approach to innovation can work, but is also unnecessarily wasteful.” 

His first book, The Innovator’s Solution, co-authored with Professor Clayton M. Christensen, has been on The Wall Street Journal and The New York Times bestseller lists, and won several “best book of the year” awards in 2003. His second book, The Strategy Paradox, was released by Currency/Doubleday in February 2007. In 2007, strategy+business magazine named it one of its top five picks in strategy, and BusinessWeek named The Strategy Paradox one of 2007′s 10 Best Business Books.

His third book, The Innovator’s Manifesto published by Crown Business (2011),  is now available and has already garnered much attention from the media. 

In addition, Michael has published extensively in managerial and academic journals and has taught in the MBA and Executive Education programs at the Richard Ivey School of Business at the University of Western Ontario in London, Canada, and at the IMD Business School in Lausanne, Switzerland. Michael has a doctorate from the Harvard Business School, a master’s degree in business administration from the Ivey School of Business, and an undergraduate degree in philosophy from Harvard University. He lives in Mississauga, Ontario, Canada.

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Morris: Before discussing any of your books, a few general questions. First, throughout your life thus far, who has had the greatest influence on your personal growth? Please explain.

Raynor: Like many people, I had a number of teachers early in life and, luckily, throughout my educational career who took and interest in my work and encouraged me to follow what was most interesting to me.  I can go all the way back to Grade 7 and Grenville Bray in small-town Ontario, through to John Aimers in high school, Alan  Sidelle as an undergraduate, Don LeCraw as a graduate student, and Tom Eisenmann as a doctoral candidate.  Each step along the way these people  broadened my horizons and taught me important lessons about the world and about myself.  I’m grateful for your question, as this is the first time all those folks have been mentioned in one place.

Morris: Greatest impact on your professional development?

Raynor: I think without question my collaboration with Clayton Christensen has been a defining element of my career.  The opportunity to understand deeply and assist in the development of a critically important set of ideas on innovation have been a real privilege.

Morris: Was there a turning point (if not an epiphany) years ago that you set you on the career course that you continue to follow?

Raynor: I guess I’d have to say the realization that my longtime plan to go to law school was simply a default setting.  Moving into business after my undergraduate degree was an unexpected turn but it was, for someone with my experience, the “road less traveled”, and as Robert Frost put it, “…that has made all the difference.”

Morris: To what extent has your formal education proven invaluable to what you have accomplished thus far?

Raynor: It would be difficult to overstate the importance of my formal training.  In my research and writing I try to apply the scientific method as rigorously as I can; my model has long been Stephen J. Gould, the late Harvard professor and paleontologist.  His mantra was “no compromises,” and I’ve done my best to adhere to that, while still trying to be accessible and practical.  That’s an especially tough circle to square, but it is a goal that fires my imagination.  And it is one that would be, literally, unimaginable without the extent and nature of the schooling I’ve received.

Morris: In recent years, there has been severe criticism of M.B.A. programs, even those offered by the most prestigious business schools. In your opinion, what is the single area in which there is the greatest need for immediate improvement? Any suggestions?

Raynor: For me, it’s the ability to think critically and clearly about the nature of the arguments being made and the evidence adduced in business schools and, more importantly, in the popular management books – of which there are many!  The key is not necessarily logical thinking:  very few serious thinkers make elemental errors of logic when connecting a premise to a conclusion.  Rather, deeper questions such as the rules of evidence, the meaning of probabilistic claims, and the need to accept the incompleteness of our data the insufficiency of the advice we can offer – yet still act – often go unexamined.  Something as relatively straight-forward as distinguishing between “explanation” and “prediction” is almost always overlooked, yet it is fundamental to the nature of research and prescriptions for action.  If students understood more deeply these issues I think the marketplace for ideas would quickly become much more efficient, and the signal to noise ratio would improve dramatically.

Morris: To what extent (if any) are the challenges that your clients face now significantly different from those of (let’s say) 3-5 years ago?

Raynor: I don’t think the basic issues ever really change.  For me, the four fundamental issues are (1) Innovation (2) Growth (3) Performance (4) Uncertainty.  Those are necessarily mutually exclusive or collectively exhaustive, but they have for me been a very helpful organizing framework.  How one addresses these questions might change in important ways depending on such contingencies as whether the global economy is in recession or not, but true theories for each of these will have within them the ingredients required to deal with transitory exigencies.  Keeping one’s eye on the evergreen questions is part of not getting misled or even duped by fads and fancies.

Morris: In your opinion, what will be the single greatest challenge that CEOs will face during (let’s say) the next 3-5 years? Any advice?

Raynor: My best guess is that it will be one of the four identified above – and getting the leadership agenda “right” will mean having the right level of emphasis on each.  I’m willing to bet innovation and growth will be first and second priorities, but I’m not prepared to say which will be which.

Morris: Please explain the relevance of Joseph Schumpeter’s concept of “creative destruction” to the modern business world.



Raynor: Economist Joseph Schumpeter’s signal contribution to economics was to put innovation at the core of economic development.  He saw beyond the field’s obsession with marginal cost analysis and price-based competition, understanding that this fixation was merely a function of the ability to model such features of the landscape cleanly, with little regard for their ultimately secondary, and perhaps even trivial, role in shaping competition among firms. In Schumpeter’s words:

“[I]n capitalist reality as distinguished from its textbook picture, it is not [price] competition which counts but the competition from the new commodity, the new technology, the new source of supply, the new type of organization…– competition which commands a decisive cost or quality advantage and which strikes not at the margins of the profits and the outputs of the existing firms but at their foundations and their very lives.” [i]

Schumpeter memorably labeled the outcome of this type of competition “creative destruction,” a term that has become for many synonymous with innovation.

Morris: For those who have not as yet read Christensen’s classic book, what is “the innovator’s dilemma”?

Raynor: I think “The Innovator’s Dilemma” is one of the most misunderstood titles around.  Large incumbent organizations often cook up wondrously innovative new technologies, but find themselves unable to commercialize them successfully because in their initial incarnations, these new technologies don’t address the needs of existing customers.  So, the “innovator” (the incumbent organization) has a “dilemma”:  they have a great new technology that could one day replace their existing business, but they cannot commercialize it because their existing customers don’t want it…yet.

Morris: For those who have not as yet read the sequel that you co-authored with Christensen, what is “the innovator’s solution”?

Raynor: Our claim in Solution is that it is possible for incumbent organizations to harness the forces of disruption rather than be victimized by them.  Although we go to some lengths to explain the organizational elements of a solution, for me, the critical first step is to understand and believe that the principles of Disruption are actually at work in a given set of circumstances.  An example of a company that as successfully applied the innovator’s “solution” is Intel.  Intel’s microprocessor business – which had for twenty years, been an engine of Disruption in the computer business – was now subject to Disruption itself.  AMD had drawn a new curve, reaching a new point in price/nonprice space, and was appealing to segments of the microprocessor market that Intel had historically seen as economically unattractive.  There was also good reason to think that AMD would be able to systematically improve the performance of those relatively low-end chips in ways that could ultimately disrupt Intel.  Certainly AMD’s early success was worrying to senior Intel management, especially Andy Grove, then CEO.

Intel’s response was to establish a new unit in Israel, far away from the core operations in Santa Clara, California, to focus on building what would become the Celeron processor.  Ultimately launched in 1998, Celeron quickly became the largest line of processors by revenue in Intel’s history.  Based on the Pentium “chassis,” the Celeron was a deliberate attempt to fight back with a lower-cost, lower-priced, lower-performance microprocessor in order to defend Intel from nascent Disruptive attacks.  Consequently, the Celeron was launched not as a better-performing, higher-priced chip but as a “good enough” chip with an introductory price only marginally higher than the prices at which previous generations of chips had been removed from the market.  Only today, more than ten years after its launch, is Celeron beginning to be phased out of the low end of the microprocessor market, being replaced by Atom, Intel’s new line of low-price microprocessors.

Grove explicitly credited the application of Disruption with enabling Intel to see the long-term significance of AMD’s in-roads in the low-end of the market.  In addition, Grove maintains that, although Disruption did not provide the answer directly, it did give Intel’s people the tools required to discover what needed to be done, enabling them to develop competitive responses that he believes Intel would otherwise very likely have missed, or at least not seen until much later, thereby making an effective counter-attack that much more difficult.[ii]


Morris: The subtitle of The Strategy Paradox suggests that a commitment to success leads to failure. How so?

Raynor: Paradox was my second book, which came out in 2007.  The central insight there, I believe, is that there are three possible outcomes to a particular strategic initiative:  success, failure, and mediocrity.  It turns out that the kind of commitment and perseverance that is systematically associated with success is also systematically associated with failure.  That is, when we examine successes, we discover that they are highly differentiated, led by highly motivated leaders who stick to their vision, and so on.  What we tend to ignore is that catastrophic failures often have the same characteristics.  Those businesses that “muddle through” tend to be characterized by milquetoast strategies and mundane products.

Morris: In a book bearing that title, Marshall Goldsmith asserts that “what got you here won’t get you there.” As I read the book, one of your key points seems to be that “what got you here won’t even keep you here.”  Is that a fair assessment?

Raynor: I think that’s fair.  The key is remembering that all performance is relative.  It’s not good running the 100m in 9.8s any more – what used to be a world record won’t even win you the silver medal now.  What got you “here” was good enough, but the competition is always trying to catch up and best you, and one day, one of them will do it.  It’s a Red Queen effect:  running just to stay in place.

Morris: Can the strategy paradox be avoided? If so, how? By what process should a strategy be formulated to avoid or overcome that paradox?

Raynor: Attempting to answer that question as completely as I can is, not surprisingly, the project of The Strategy Paradox.  In a nutshell, my claim is that companies should indeed commit to a bold strategy, but create strategic options – other ways to compete within the parameters of that strategy – along the way.  What I describe is quite different from contingency planning or mere portfolio diversification; it’s a bone fide options-based strategy.  Organizationally, I advocate for the adoption of a variation on the principles of Requisite Organization, first articulated by Elliot Jaques.  The refinements I offer are, in my view, sufficiently different that I offer a new label for the resulting structure:  Requisite Uncertainty.

Morris: Now please focus on The Innovator’s Manifesto. Please explain when and why you decided to write it and so as a manifesto?

Raynor: Manifesto is quite different from Paradox not least in its tone and intent.  InManifesto I am advocating strongly based on unique data for the power of Disruption theory as a predictive tool.  This is quite different from the more circumspect approaches required when one is making a largely deductive argument.

Morris: Were there any head-snapping revelations while producing the manuscript?

Raynor: The foundation of the book is the experimental data demonstrating Disruption’s predictive power.  I’ve not seen anything like this anywhere else for any kind of management theory, frankly.  There are all kinds of limitations to the data and to my method, but until perfection is an option, improvement will have to do, and I think Disruption is a demonstrable improvement on existing methods.  It will be up to each reader to decide for themselves whether or not my data and arguments are compelling.  But they sure convinced me!

Morris: To what extent (if any) does the book in final form differ from what you originally envisioned? Please explain.

Raynor: The original intent was simply to write a “second edition” of The Innovator’s Solution, but when the Intel data became available and the opportunity to perform a proper experiment testing the predictive power of Disruption arose, suddenly a second edition wasn’t big enough to contain the points I wanted to make.  Thus was Manifesto born.

Morris: What is the “five percentage-point solution”? Solution to what?

Raynor: In our experiments, the test subjects improved their prediction accuracy by five percentage points – about a 50% improvement over all.  That improvement is, I hope, a “solution”, at least in part, to the challenge of how established organizations can more consistently and effectively launch new growth businesses.

Morris: For those who have not as yet read The Innovator’s Manifesto, please explain what the core principles of a Theory of Disruption are. What is it uniquely capable of helping to achieve?

Raynor: Christensen’s first book, The Innovator’s Dilemma, introduced the world to the notion of “disruptive technology.”  Christensen described how large, successful incumbent organizations in all types of industries were toppled by much smaller start-ups.  Entrants typically succeeded by developing solutions for relatively small and unattractive markets that were of essentially no interest to successful incumbents.  This constituted the entrants’ “foothold” market.  Sometimes customers in these foothold markets were quite happy with inferior but much less expensive solutions; sometimes they required solutions with a vastly different performance profile.  Either way, entrenched players, focused on the needs of their established customers, proved systemically unable to devote investment funds to those markets.  However, driven by their desire to grow, the entrants were strongly motivated to improve their initial offerings in ways that would allow them to compete effectively for the larger, more lucrative mainstream markets.  This was the entrants’ “upmarket march,” and entrants that marched upmarket successfully eventually captured the customers that had been the incumbents’ lifeblood.

Christensen observed that when entrants attacked successful incumbents by adopting the incumbents’ models and technological solutions, they tended to fail.  They tended to succeed by combining a business model optimized for a relatively less attractive market – the entrants’ foothold – with an ability to improve their original solutions in ways that allowed them to provide superior performance in a manner incumbents were unable to replicate – the upmarket march.  Christensen called the union of these two elements a disruptive strategy.

Morris: Here’s a follow-up question. Please share you opinion of Michael Porter’s observation, ”The essence of strategy is choosing what not to do.”

Raynor: In his 1996 article “What Is Strategy,” Harvard Business School professor Michael E. Porter synthesizes over twenty years of writing, research, and reflection on the implications of microeconomic theory on business competition. He concludes that different strategies are defined by the trade-offs in the performance of the activities that define the value created by a business model. Porter illustrates this framework using two dimensions of customer value:  price and nonprice.  (Nonprice value is a really a vector of all the different dimensions of performance customers want.  In the case of automobiles, for instance, this might be safety, acceleration, styling, roominess, and so on.)

Delivering any given bundle of nonprice benefits always incurs a cost – it is tough, after all, to get something for nothing.  The minimum cost required to achieve a specified nonprice value is not some fixed Platonic ideal:  it is whatever cost is incurred by the lowest-cost provider in the market.  Similarly, the level of any nonprice value that can be provided at any cost has a maximum:  it does not matter what you are willing to pay; you cannot get from New York to Los Angeles in five minutes.  The limits of what can be provided at what cost describe the “productivity frontier” for a business model at a point in time.  It is because of these tradeoffs that a firm’s strategic positioning defines both what it choose to do, and, because of those choices, cannot do.

Morris: What are the most common misconceptions about what innovation is…and isn’t?

Raynor: The notion that innovation is whatever is new, or whatever is new and creates value, is both too limiting and not precise enough to allow the scientific study of innovation.  I’m holding out for a new definition, one that build on the notion of strategy popularized by Porter.  Trade-offs define the limits of what is possible at a point in time, not what is possible for all time.  We learn.  We improve.  We innovate.  In other words, we figure out how to get more for less.  From the pace of technological advance, captured in something like Moore’s law (which describes the declining cost and rising power of microprocessors), to process improvements captured in the “learning curve” (which quantifies the rate of cost reductions for each doubling of cumulative volume), organizations have been wildly successful in eventually breaking the trade-offs that define the frontier of any given business model.

Companies are motivated to innovate (that is, break trade-offs) because innovation holds the promise of enormous growth.  By breaking trade-offs, a company is able to reach a point in “strategic space” that competitors fundamentally cannot.  The first firm to incorporate a given innovation into its business model can deliver, depending on the nature of the innovation, performance or price that competitors simply cannot match.

Morris: How and why does Disruption have “true predictive power?” What does its framework consist of?

Raynor: “True” predictive power stems from making correct predictions for the right reasons.  That is, a horoscope might get it right – and maybe even get it right with a startling frequency, but it won’t have true predictive power because its predictions are based on false premises.  My data show that Disruption improves predictive accuracy.  I also, however, present a case for Disruption’s explanatory superiority as well.  If my arguments hold water, then it is the combination of predictive and explanatory power that makes Disruption an especially compelling theory.

The table below summarizes the necessary and sufficient conditions for a Disruptive innovation.

Table 1:  The defining characteristics of Disruptive innovations
 

Characteristic Test
The company as a different business model that defines a new productivity frontier. The business can be profitable serving customers that are unattractive to incumbent players even if incumbents chose to try to serve them.
Expansions of the model’s frontier flow from improvements in key enabling technologies. The business can deliver higher levels of performance and compete for more demanding market segments without changes to the business model.
The business breaks trade-offs that define competition in established markets. The business delivers similar or higher levels of performance than incumbent providers at lower cost.

Morris: Long ago, Oliver Wendell Holmes explained that he “wouldn’t give a fig” for simplicity on this side of complexity but would give his life for simplicity on the other side of complexity. In your opinion, is there an “other side” of Disruption? Please explain.

Raynor: It is my hope that Disruption is simplicity on the other side of complexity.  The challenge of explaining if, how, and when a particular competitive battle will play out is enormously challenging, as is the task of creating successful new growth businesses.  Yet the prescriptions of Disruption can be distressingly easily summarized.  Specifically:

In other words, I need only three questions to apply Disruption theory:  is the company and entrant or an incumbent; is the innovation sustaining or disruptive; and is the business autonomous or not of an incumbent organization.  I don’t need to look at the management team, the technology, the competitive environment…nothing that business school teaches you is critical.  All I need is those three questions, and I can improve predictive accuracy by 50%.

Morris: I agree with Peter Drucker: ”There is surely nothing quite so useless as doing with great efficiency what should not be done at all.” Many of those who read this book who get all fired up about how “deliberate disruption” can achieve “transformational growth” for their company. What advice do you have for them that will help them to avoid the errors of judgment to which Drucker refers?

Raynor: I’m hopeful that Disruption theory can help would-be innovators to avoid the kinds of initiatives that are systematically least likely to succeed:  the “better mousetrap” fallacy if you will.  Better mousetraps don’t lead to the world beating a path to your door; they lead to the existing makers of mousetraps upping their game and crushing you.  If Disruption theory can reduce the enormous amount of waste in the innovation process at most organizations, it will have created enormous value right there – never mind actually shaping ideas in ways that increase their likelihood of survival.

Morris: Please explain the following: “Perhaps the best way to understand if Disruption applies to a specific competitive battle is to illustrate in detail circumstances when it does not.”

Raynor: I can’t tell you how many times I’ve heard “disruption” applied to innovations that merely succeeded, as if somehow disruption theory is true only if every success if also disruptive.  Disruptions are successful in very particular way; there are lots of non-Disruptive successes.  And so I’ve tried in Manifesto to explore what Disruption ISN’T almost as much as what it is.

Morris: In your opinion, when is incremental innovation too disruptive innovation? Why?

Raynor: “Incremental” and “Disruptive” are orthogonal concepts, not mutually exclusive ones.  Disruptive innovations can be incremental (i.e., small steps forward) or breakthrough (i.e., giant leaps forward) in nature, and be either sustaining or Disruptive in nature.  Disruption has to do with the segments one serves and the process by which one penetrates new segments of a market, not the magnitude of the advances.

If you look at it slightly differently, and ask when is sustaining innovation preferable to Disruptive innovation, I’d say that the deciding consideration is how much of an upmarket market is available to an incumbent.  If one is nearing the point of diminishing returns with sustaining innovation, then Disruption is the place to look next.

Morris: I think Chapter Seven is an especially lively as well as informative chapter. In it, you explain the relevance of several games to innovation. For those who have not as yet read the book and this chapter, please explain. First, chess.

Raynor: Sustaining/incumbent innovation is typically a battle among well-resourced, and very often nearly equally resourced, combatants.  Just as in chess, the rules of competition are relatively well specified, and competitors have a shared understanding of those rules.  Victory is essentially a computational problem, a function of understanding your competitors’ capabilities and how they stack up against your own.  When you come out ahead in that assessment, your probability of success is relatively good.  And when you do not, you will probably be able to tell in advance and so at least avoid battles you are not likely to win.

Morris: Checkers.

Raynor: A key feature of the game of checkers is that each player is required to make any jumps available to them.  Consequently, key to victory is forcing your opponent to take your pieces – something that in the short run appears in their interest – in a way that ultimately undermines their strategic position.  Similarly with Disruptions:  what allows entrants to march upmarket is the relative inability of incumbents to mount an effective counterattack in the early stages of a Disruptive incursion, thanks to the superior economic attractiveness of continuing to serve mainstream customers with sustaining innovations.  It is by targeting unattractive market segments that Disruptors are able to exploit this difference in economic attractiveness, essentially compelling incumbents to act in ways that are contrary to their longer-run interests.  A clear understanding of their business model and the improvement trajectory of the technology that drives outward the frontier defined by that business model allows entrants pursuing a Disruptive strategy to determine what their chances for survival are with materially better accuracy than entrants with a sustaining approach.

Morris: Bingo

Raynor: Good bingo players are able to increase their odds by playing a large number of cards simultaneously.  They scan every card quickly and accurately and never miss an opportunity to place a marker when their number comes up.  But luck is the defining feature of a winner – a novice with one card can still win, if it is the right card.  The best you can do is be willing to place enough bets and be able to monitor them closely enough to improve your chances of winning.  Sustaining attacks on new markets are much the same:  an innovator with more resources is more likely to succeed, and one that can monitor closely and accurately shifts in customer preferences (the analog to one’s number coming up in bingo) will be able to deploy those resources successfully.

Morris: Finally, backgammon

Raynor: Intel’s launch of the Celeron processor would not have made sense while the company was still reaping the benefits of a growing business and its would-be competitors had shown no ability or desire to launch their own Disruptive attacks.  It was only after AMD and others had found their foothold – but before they had begun their upmarket march – that Intel’s self-Disruption became a strategically sound path.  In other words, one hardly wants to employ a scorched-earth policy when the enemy has yet to muster its troops.

Self-Disruption is perhaps best seen as fundamentally a defensive measure, launched at a time when Disruption by competitors seems merely possible, since by the time it is clear that a Disruptive threat looms it is too late to respond effectively.  Consequently, businesses with a mandate to Disrupt their core businesses are necessarily subject to higher degree of uncertainty than Disruptive attacks targeted at new markets:  there, one can bet on the inability of incumbents to respond effectively, and so pursue Disruptive attacks based on a clear sense of when and how Disruption will be possible.

(There is the problem of what to do if incumbents in markets you hope to enter with Disruptive attacks adopt the advice offered here and set up their own self-Disruptive units, thereby cutting off your Disruptive opportunities.  Although few things would make me happier than for these ideas to prove so popular and compelling that your company faces this problem in the near future, I fear this objection will remain at best a slim possibility for some time to come.)

In short, your willingness to launch innovations that are potentially Disruptive to your core operations is a function of the probability of others launching such attacks and your own organization’s tolerance for strategic risk.  One can, thanks to Disruption theory, assess these risks with a much higher degree of accuracy than with, say, sustaining/entrant strategies (characterized above as a game of bingo) and play the game in a way that achieves the desired level of exposure.  Success is therefore a function of understanding the range of possible outcomes, assessing the likelihood of each, and having a high degree of self-awareness regarding how much risk you are willing to tolerate and how much you are able to invest to reduce that risk.  It is, in other words, a game of backgammon.

Morris: How best to organize for innovation? Any do’s and don’ts to keep in mind?

Raynor: When it comes to innovation in established companies, the rage has long been to try and achieve this by emulating the behaviors of entrepreneurs and the swashbuckling investors who back them.  After all, it was not DEC’s internally developed AltaVista that dominated the search engine space but the venture-backed Google, and this is but one of hundreds of salient examples.  And so the explicit belief for many is that the ecosystem that flourished along Massachusetts’s Route 128 in the 1970s and 1980s, and in Silicon Valley for much of the last four decades should and can be replicated inside companies with similar efflorescence.

The result has been, in many companies, a series of “idea hunts” or the launch of “innovation tournaments” designed to elicit or find ideas resident within, or for that matter beyond, the boundaries of the company.  These ideas are evaluated and the best ones funded, with the new ventures typically given high degrees of autonomy to pursue their strategies.

Why do so many companies have such a difficult time adapting the behaviors that work so well in the venture capital ecosystem to the corporate environment?  I believe that the root cause lies in some very real differences between established companies and start-ups that no amount of organizational redesign or process creativity can overcome.

By way of example, consider that when fish abandoned the sea for the land and evolved into amphibians, reptiles, and eventually mammals, they gave up gills for lungs.  Some land-dwelling mammals subsequently returned to the sea, and some of those evolved into whales and dolphins.  Whatever the proven benefits of gills in extracting oxygen from water, these aquatic mammals could not go back to that solution:  too many other hard-to-change characteristics were dependent on lung-based breathing, and it proved easier for other elements of their physiology to adapt – e.g., body mass and myoglobin concentrations in their blood –  than to backtrack across millions of years of evolution and recover their gills.  That is why cetaceans hold their breath.

When we argue that corporations need to act more like VCs, we are, in a manner of speaking, arguing that in order to return to “the sea” – innovate successfully – corporations should “recover their gills” – replicate the VC-like investing environments that spawned them.

I have come to believe that corporations can no more do this metaphorically than early cetaceans could do it literally.  Consequently, the key to achieving better results lies not in the close approximation of the venture capital ecosystem but in a fundamentally different approach to an innovation strategy.

An alternative model is emerging, also with three stages, but each is very nearly the polar opposite of its analog in the VC paradigm. Instead of variation, there is focus, an identification of specific opportunity areas that are strategically important to the company. Instead of selection, there is shaping, the crafting of a solution over time through an iterative learning process of small experiments. And instead of retention there is persistence, the commitment of an organization to a given market, making both success and failure a collective enterprise.

Morris: Back to Joseph Schumpeter for two additional questions about his concept of “creative destruction.” First, if anything, the concept seems more important today than it was when introduced in Capitalism, Socialism and Democracy (1942). How to explain its durability?

Raynor: I think the idea has hung around and continue to generate insight because it is true.  Schumpeter captured a timeless aspect of economic competition.  I believe Disruption will prove to have a similar long-term impact.

Morris: Throughout the past two decades, it has been my great pleasure as well as privilege to work closely with the owner/CEOs of hundreds of small companies. That is, companies with annual sales of about $25-million or less. Here’s my question. Of all the information, insights, and recommendations that you provide in abundance in The Innovator’s Manifesto, which will be – in your opinion – of greatest value to owner/CEOs and associates in companies such as these?

Raynor: Any small organization that seeks significant growth will be best served, if my research is to be believed, by pursuing Disruptive innovation.  There is a lot of room in the economy for small businesses that serve a niche effectively and never grow beyond that, and I have a great deal of respect for the difficulties and the merits of that approach.  For anyone seeking significant growth, however, Disruption is an indispensible part of your strategic planning toolkit.

*     *     *

Michael Raynor cordially invites you to check out the resources at this website:

www.michaelraynor.com

Notes: 

[i] Schumpeter, Joseph A. (1942).  Capitalism, Socialism and Democracy.  This quotation from pp.84-86 of the Harper Colophon edition of 1975.

[ii] Conversation with Clayton Christensen.

 

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