Clayton Christensen is the Robert and Jane Cizik Professor of Business Administration at the Harvard Business School, with a joint appointment in the Technology & Operations Management and General Management faculty groups. His research and teaching interests center on the management issues related to the development and commercialization of technological and business model innovation. Specific areas of focus include developing organizational capabilities and finding new markets for new technologies. Professor Christensen became a faculty member at the Harvard Business School in 1992. He taught courses in Technology and Operations Management, General Management, and Operations Strategy. He then developed a course called Managing Innovation. Professor Christensen currently teaches an elective course he designed called Building a Sustainably Successful Enterprise, which teaches managers how to build and manage an enduring, successful company or transform an existing organization. He is the author of the best-selling books The Innovator’s Dilemma (1997), which received the Global Business Book Award for the best business book published in 1997, The Innovator’s Solution (2003), and Seeing What’s Next (2004).
Note: Since this interview was conducted, Christenen has collaborated on three additional books: The Innovator’s Prescription, Disrupting Class, and The Innovator’s DNA. All are eminenty worthy of your careful consideration.
* * *
Morris: Clay, let’s begin by discussing some of your core concepts in The Innovator’s Dilemma. In it you examine a number of companies which were unable to stay atop their industries when they confront certain types of market and technological change. Why?
Christensen: The core finding from the original stream of research was that it was the very principles of good management that often cause great companies to fall. Managers are taught to listen to their customers, innovate to meet their needs, and collect the rewards. Companies face intense pressure from investors and managers to move up-market and earn higher profit margins. The problem is, in the pursuit of profits up-market, existing firms become susceptible to what we term “disruptive” innovations. A disruptive innovation is an innovation that introduces new benefits into a marketplace related to simplicity, convenience or low prices. Initially, a disruptive innovation is not good enough to meet the needs of the most demanding customers in a marketplace. So it takes root among customers who are delighted to accept a product that, though it may not be as good as those made by the leaders, is convenient, simple, inexpensive and good enough. Existing firms systems and processes tend to ignore and under-invest in disruptive innovations until it is too late.
History is littered with great firms that got killed by disruption. Of course, the personal computer, a technology that first took root as a toy, got Digital Equipment Corporation. Kodak missed the boat for a long time on digital imaging. Sony was slow to get MP3 technology. Microsoft doesn’t know what to do with open source software. And so on.
Morris: In Chapters 5-8, you explain what you call four “laws or principles” of disruptive technology. Are they not, also, guidelines (as well as check points by which to detect early-warning danger signs) unless and until it becomes obvious that a given technology will create sustaining rather than only temporary disruption?
Christensen: That’s an excellent point, Bob. The principles of disruptive innovation are indeed intended to be guidelines to assist managers both in introducing disruptive innovations as well as identifying disruptive developments in their market. By the time it becomes obvious that a technology will have truly disruptive impact, it is often too late to take action. This is one reason why we are such advocates of using theory to try to analyze industry change. Conclusive evidence that proves that a company needs to take action almost never exists. In fact, the data can fool management, lulling them into a false sense of security. With these guidelines in mind, managers can have a much greater chance of spotting a seemingly trivial development actually has transformational impact.
Morris: How can managers address and harness the four principles by which to prevail against disruptive technologies?
Christensen: Unfortunately, the answer is complicated. The reason why it is so difficult for existing firms to capitalize on disruptive innovations is that their processes and their business model that make them good at the existing business actually make them bad at competing for the disruption. Companies in fact are specifically organized to under-invest in disruptive innovations! This is one reason why we often suggest that companies set up separate teams or groups to commercialize disruptive innovations. When disruptive innovations have to fight with other innovations for resources, they tend to lose out. Another key to success is broad-based education. We have found that companies need to speak a common language, because some of the suggested ways to harness disruptive innovation are seemingly counter-intuitive. If companies don’t have that common language, it is hard for them to come to consensus on a counter-intuitive course of action.
Morris: Now let’s shift our attention to The Innovator’s Solution. In it, you and Michael Raynor examine a dilemma which may also seem to be a paradox: whatever has been essential to success can also cause failure. Briefly, what is the “innovator’s solution” and how can it most effectively be resolved?
Christensen: The “innovator’s solution” essentially flips the notion of disruptive innovation on its head. Most companies think of disruption as a threat. But disruptive innovations have tremendous growth potential. If incumbent companies can learn how to harness the forces of disruption, they too can improve their ability to create new-growth businesses. The Innovator’s Solution describes a series of theories, or models, to help companies bring order to the seeming chaos of the world of innovation. You know, it is interesting. People still cling to this belief that innovation is just random and unpredictable. But if you look closely, there are some real patterns.
The companies that recognize and take advantage of those patterns have the real opportunity to create competitive advantage.
Morris: In Leading Change, Jim O’Toole suggests that one of the most formidable obstacles to organizational change is what he calls “the ideology of comfort and the tyranny of custom.” Presumably you agree.
Christensen: Absolutely, although we describe it in slightly different terms. One of the factors that make great companies so great is that they have processes that allow them to solve difficult problems again and again. These processes have developed over time as teams have successfully wrestled with a certain type of challenge. Eventually, people begin to say, “This is just how we do something around here.” The problem develops when that team then has to solve a very different set of challenges. The processes that are such strengths can be crushing liabilities. Remember when the Detroit auto manufacturers first tried to introduce compact cars? Their processes just weren’t attuned to that change. So what did they create? What one colleague termed, “little big cars.”
Morris: A solution to the “innovator’s dilemma” seems to require what Joseph Schumpeter once described as “creative destruction.”
Christensen: Most clearly, with one small twist. If a company truly wants to resolve the innovator’s dilemma, it does need to be able to create wave after wave of disruptive innovation. And those disruptive innovations will typically grow to the point where they do cause some pain for leading companies. But most disruptive innovations create substantial new growth before they cause that pain. To flip Schumpeter’s language, there is a long period of creative creation before there is creative destruction.
Morris: What are the most common misconceptions about disruption?
Christensen: Well, to be honest, Bob, we chose a poor word to describe the phenomenon, because disruption is a term that has different meanings to different people. Andy Grove always used to call it “trivial” technology that disrupts the business model of the market leader. People often get the technology aspect of disruption wrong, in interesting ways. Sometimes they presume a disruption must be a big leap forward. Most of the time, that’s not the case at all. Sometimes people assume disruption must be easy because the end solutions are simple and convenient. But making the complicated simple can be one of the hardest problems there is. Take the seemingly ubiquitous Apple iPod. The end solution is elegantly simple, but making the combination of iTunes, the iPod, and Apple’s music store work seamlessly together is quite complicated.
Morris: But is there not also a continuous cycle involved, in that a solution (perhaps involving “creative destruction”) can create new problems which require new solutions which then create other new problems?
Christensen: No doubt. The world of innovation is very rarely static. Companies have to keep moving up market to meet the needs of their investors and managers. And that move up market creates room for disruptive attacks from below. But then the disruptive attacker needs to move up market. Look at the difference between Dell and Gateway. Dell raced up market to compete against Sun and other high-cost competitors. Gateway stayed at the low end of the PC business, and has languished. Now, it is important to remember that the fundamental problems that people are trying to solve, the jobs that they are trying to get done, actually change very slowly over time. But as innovators figure out new ways to make it simple to solve those problems, there certainly can be cycles of change.
Morris: Together with Scott Anthony and Erik Roth, you offer in Seeing What’s Next further development of ideas examined in the two earlier works but you also break some new ground. Specifically, to help executives make better decisions and thereby “dramatically increase the odds of getting things right in the arena where wrong decisions could be devastating.” Briefly, how should decision-makers apply Theory-Based Analysis (TBA) to their competitive marketplace?
Christensen: What we try to do in Seeing What’s Next is really show how theory can be a powerful analytical tool to look into the future. It is a tough challenge. We are all trained to be data driven people, but no hard data exist about the future. Therefore, the only way to look into the future with any degree of accuracy is to use theory, statements of what causes what and why. If executives have the right theories in their heads, they can very quickly interpret market developments. They can identify what matters and why, and act accordingly. So we suggest decision-makers should start by gaining a deep understanding of the relevant collection of theories, and then be alert for signals that indicate certain types of developments.
Morris: CEOs must be aggressive when insisting that their organization and its culture change, evaluate competitive advantages and vulnerabilities, understand the opportunities but also the perils of head-to-head battles between companies loosely classified as “attackers” and “incumbents,” and formulate appropriate strategic choices that can influence the outcome of competitive battles. Here’s my question: What are the most common mistakes made when executives embark on that process?
Christensen: Bob, that’s another excellent question. The biggest mistake is an over-reliance on data. Managers will say if there are no data they can take no action. However, data only exist about the past. By the time data become conclusive, it is too late to take actions based on those conclusions. The other mistake managers often make is defining their industry too narrowly. Digital’s market share in the minicomputer market stayed very robust even as it fell off the cliff. Disruption seems to come out of nowhere, but if you know what to look for, you can spot important developments well before the market does.
Morris: To what extent (if any) can these mistakes be avoided?
Christensen: Education is critically important. Just about nobody intentionally makes a mistake! So if we can train ourselves to monitor these areas, we can improve our chances of getting it right.
Morris: It has been more than seven years since The Innovator’s Dilemma was first published. What (if anything) do you know now that you wish you had known when you began to write that book?
Christensen: We learn more every single day. The process of building good theory is an extremely iterative one. We’ve learned so much from interacting with companies which have tried to use our work, and we continue learn from each company with which we interact. We’ve learned about different growth strategies beyond low-end and new-market disruption. For example, we’ve learned about the processes that need to be in place to support the continued creation of disruptive innovation. Also, we’ve learned how to teach the principles effectively. Moreover, we’ve learned from case studies of success as well as from case studies of failure. And we actually learn the most when we are wrong. It is only by studying anomalies that we really can build a more robust collection of theories.
Morris: Jim Collins has explained that the research for and subsequent writing of Built to Last and then Good to Great were driven by his desire to answer what he considered to be “especially important questions.” Are there any such questions which will attract your time and attention in months and years to come?
Christensen: In general, the questions that are on our mind are the same questions that have been driving our work over the past decade. How do we bring order to this messy, unpredictable world of innovation? How can we dramatically improve the chances of creating a successful new-growth business? How can we do this again and again? More specifically, it has become very clear that the fundamental paradigms of market segmentation and branding are badly broken — and we’re working on developing more useful theories for these dimensions of innovation.