The Innovator’s Solution: Creating and Sustaining Successful Growth / Clayton M. Christensen & Michael E. Raynor / Harvard Business School Presss
Published in The Marker
Magazine, January 2008, in "The
Management Bookworm" column written by Ari Manor, CEO of ZOOZ.
Clayton Christensen is a professor of Business Administration at Harvard University, and a world leader in Innovation. In the first bestseller he wrote,
The Innovator’s Dilemma, Christensen emphasized that the larger and more successful an organization is, the more conservative it is, the less daring its decision making, and the smaller its chances of generating a significant breakthrough. This is actually the dilemma of innovation – successful innovation leads to growth, which leads to a larger and consequently less innovative organization. This book also presents new types of innovation – disruptive innovation, which is so extreme that it conflicts with the nature of the organization and the industry in which it is growing.
In Christensen’s new bestseller, The Innovator’s Solution, he works together with Michael Raynor, a manager at the Deloitte Consulting LLP research institute. The new book describes how disruptive innovation is created, and explains how it can be managed. The book also explains that disruptive innovation is generally not promoted in large organizations, mainly because it leads to undesirable business results in its preliminary stages: low sales turnover and very low profitability. Therefore, very small companies that are already accustomed to a low sales turnover and profitability – are expected to adopt disruptive innovation.
Other parts of the book already include truly disturbing claims… in any given industry, the book explains – the competition over industry control is over the improved performance of substandard products. For example, supplying faster and more reliable computers. The book calls the innovation that makes this possible “supportive innovation”, which enables the needs of demanding customers to be met. When the products are
substandard, claims the book, the industry leaders benefit from high profitability, since customers are willing to pay for better products. However, over time, the products in the industry improve. When this happens, the entire industry changes. Commodification occurs, and the customers are no longer prepared to pay for improvements. When this happens, the control in the industry passes to leaner and more efficient companies capable of offering solutions (such as computers) that are cheaper and perform reasonably. The book calls the innovation that makes this possible “disruptive innovation”, and it is directed at
the lower end of the mass market, to the less demanding and less sophisticated customers. The former industry leaders (and the brand names) are focused on achieving high profitability, and therefore they are caught unprepared when the market changes and crumble, unfortunately. This is a bitter fortune, which can definitely be disruptive. Examples are companies such as HP and Macintosh in the computer industry.
The book also mentions a different type of “disruptive innovation”, which appeals to the
non-consumer market, and provides then with inferior, very cheap, yet simple and easy to use products. For example – very basic computers that include cheap chips, freeware operating systems and software, at a price of only $100, which will enable the poor people of the world (such as in Africa and India) to benefit from the computer revolution.
The waves of disruptive innovation (and the subsequent fundamental changes in the market) generally begin with companies at the margins of the industry, who are satisfied with low revenues. For example, companies that offer basic and simple subsystems for the car market (using outsourcing), or cheap non-brand name T-shirts. The market leaders happily give up these unprofitable market segments, and when the (profitable) companies at the bottom of the ladder try to grow and escape commodification in their market segment, they bite into market segments with slighter higher profitability (such as complete basic systems for cars, or T-shirts manufactured for brand-name fashion chains). Since these market segments are not very profitable either, the industry leaders happily give these up as well. This is how the companies that “settle for less” slowly climb the value ladder and the market leaders recede from more and more market segments. Eventually, when the “modest” companies have gained enough power, knowledge, and momentum – the conquer the majority of the market and become the new industry leaders. When they approach the top of the ladder, the previous leaders have already missed the boat, and their fate has been sealed. This is somewhat reminiscent of the dinosaur era, where smaller and more efficient animals became better adapted to the warming climate.
No less disturbing is the fact that every time the products in their industry become
good enough (such as microwave ovens, PC computers, and soon mobile phones), prices drop, and a new link in the value chain becomes more important. For example, in the computer industry, the value went from an all-inclusive system (software + hardware), to chip manufacturers (in hardware) and software separately, and later to information services and auxiliary products (printers, mice, speakers, etc.). Moreover, each time this happens a few companies fell from power (for example, Digital, who supplied all-inclusive computer systems), and new companies took control of the new profit segments (for example, Logitech of the computer mouse industry).
Although this is a very disturbing book, it also brings some good news: since the waves of change and disruption in the markets are anticipated beforehand, you can prepare for them, and large and leading organizations can do this as well. For example, IBM was wise and went from being a supplier of all-inclusive computer systems to a supplier of computerization services. Steps to cope with disruption waves are outlined in the book, and market leaders and smaller and leaner companies aspiring to grow will also benefit from the book. Each disruption wave also embodies immense opportunities. As a first step, the bookworm recommends – buy the book, read it, show it to others in the organization, discuss it during group thinking, and try to use it to disturb every manager that works with you.