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Howard Dresner recently spoke with Dr. Clayton Christensen, a Harvard Business School professor and the preeminent expert in the area of disruptive innovation and business strategy. Their discussion covered a broad range of topics from identifying and creating a disruptive strategy to protecting oneself from disruptive competitors. The resulting interview was so content-rich, we found it necessary to divide it into two parts. In this second installment, Dr. Christensen and Howard discuss opportunity posed as threat, the filtering of data through theories, and the fostering of disruptions as innovations. The first installment can be found here. Interview conducted 26 April 2004
Howard Dresner: You suggested in The Innovative Solution that — I assume — for an established organization, when constructing a business plan, they frame the opportunity initially as a threat, and then once they get the resources, to shift the focus to growth. Now I understand the sentiment. It seemed a little bit like bait-and-switch. Clayton M. Christensen: [Laughs]... That's true. Dresner: Can you give some examples of where this should be employed, and where it's worked and hasn't worked — and what does management think of that?
Yeah, if they know you're gaming the system, will they somehow resist. I just think it's almost a law of nature. Konamen and Taversky showed individuals react that way. Same phenomenon posed as a threat, elicits a far more intense response. The reason it's relevant here is what we were talking about before: the new game begins before the old game ends. The old game is generally still very profitable and successful during the time when the new one has to start, so the business almost has no appetite for opportunity when it's being fed. But if you frame it as a threat, which ultimately it will be, there's nothing dishonest about that at all. It's really the only way you can get a successful organization to be motivated. Then you just need to get it into an environment where the people in charge don't feel the threat. All they see is the opportunity. Dresner: So different audiences, perhaps. Christensen: Yeah. The fellow who did that research we cited there, Clark Gilbert, just did a masterful study of the online newspaper industry. He was one of my doctoral students. Those ones that set up a separate organization; after they got the funding and everything, as soon as they separated it, they could think, "Now who wants to learn about Boston? Who's not in Boston? Who would like to advertise it, not advertising in The Globe, and who would like to use this, that doesn't subscribe to The Globe?" All of a sudden, there are all these opportunities they can see, where when they were in the Boston Globe newsroom, they just couldn't see those things.
That's a good example. You talk a bit about data analysis, or what we would call business intelligence, and to some degree, how it might actually work against the disruptive innovative process because it causes what I would consider somewhat of a myopic addition. Where would data analysis be used in the innovation process? Certainly it has some role. Christensen: Absolutely. I overstate the case sometimes. In a typical company, 80 to 90% of its money ought to be spent executing sustaining innovations. I only write about disruption, just because I don't have much to say about sustaining innovation. The established leaders, they have a very good track record in doing that. There, an analytical data approach to decision making is absolutely critical, because the data is valid. Data does have a problem, in that it's only available about the past. But when you're on a sustaining trajectory, the extrapolation of the past into the future is really, not a bad way to look. It's just when a disruption happens, and there is a reliable data that exists, and then you try to base your decision upon data, then you get in trouble.
Dresner: But presumably, when somebody comes up with a bright idea, you'll want to start measuring something. Now we have a disruptive business opportunity, and we can start collecting relevant data, now that we understand and we've framed the opportunity. Arguably, we want to come up with some metrics. What would those metrics be? Christensen: Well, I'm not sure I would call them metrics as much as pattern recognition. Any piece of data only has meaning when you filter it through some theory in your mind, so we're always interpreting the meaning of data. One of the things I tried to achieve in this book is to say, if you've got a model or a theory, and then you see a piece of data, then you can interpret it: is this signal or noise? If signal, what does it portend about the future?
Dresner: Okay. That's also helpful. One of the things I pulled out of your books is that, in some ways, the IT organization can be an obstacle — certainly for a disruptive innovation. First of all, is that always true? Second of all, is there anything IT can do to not be in that position? Christensen: Yeah. Where the problem comes is, you generate data from the IT organization to measure performance in the past. Usually, that's a critical role. The data comes structured in a particular way, and almost always, it comes structured by product line and by business unit. All of this is good, but then the error comes, not necessarily from the IT organization, but from the executives who hire it. They come to think the market is structured along the lines in which the data are given to him. And so you start to measure market share by product category, because I have data by product category. It's that translation of measuring the performance of what we have, to now thinking the market is structured in the way we collect the data, and then using that to kind of drive your consumer understanding, at which you target the next markets. It's in those two translations the data becomes counter-productive in an organization. You're using it for things the IT organization did not generate it for. Dresner: So certainly, if you have a company that established IT sort of being a proxy for the business, in many cases, it really could not do anything easily beyond the boundaries of what business management has to find as their scope. What about IT in the context of a disruptive company? Where can they help? What can they do to facilitate the disruptive innovator? How is their charter different? Does technology even play a role in aiding a.... Christensen: Boy, that's a great question. In Chapter 8 of the book, we talk about how — and what you really point out is, I've thought about parts of the problem, and not all of the problem. It's a great question. In Chapter 8, we describe how strategy comes from two directions. It emerges from the bottom of the organization, as your people are just out there trying to close sales and satisfy customers. Strategy also comes from the senior ranks as they analytically figure out, "How do we get to where we need to be?" And the two things collide in the allocation process, and then whatever merges from that is the actual strategy. You remember that model?
And we point out, that almost always, a company starts out in a direction conceived by the founder, and in 93% of companies that ultimately end up being successful, they figure out the original strategy doesn't work. But by kind of thorough experimentation and trial-and-error in the market, they happen upon or iterate towards a strategy and a business model that really is viable. At that point, companies that continue to kind of flounder and experiment in the market place, kind of fade away. And the ones that know, really get ahead of the pack, because in a disruption, you're rarely the only one who's trying this. There are five to fifty of you, trying to swim upstream here, and the one that gets out ahead fastest, is the one that really emerges as the winner. At that point, we have to flip the business around and drive the implementation of a deliberate — of the strategy that you now know works; drive it from the top. There, the ability to measure how successful you're being, given you know what to do, is very critical. Dresner: If I were to ask you what the moral to The Innovator's Solution is, what would you say it is? If I were to take something away, I'd say, "Maybe we should just accept what we are in the jungle of business." Some organizations are innovators, and some just simply aren't. And maybe some just want to be comfortable. Or the moral, "We should all find a way to innovate, because that's the key to our future success." What would you say the moral is?
Christensen: It would be much closer to your last one, and it would be that innovation is actually not nearly as risky and random as historically has seemed to be the case. There isn't anything about the process of innovation per se, that makes it unpredictable. The problem in the past is, we just haven't quite known what are all the variables that affect whether we can succeed, nor have we known how to manage those variables well. What I hope we do here, is highlight for innovators, a bunch of these variables that really lie at the root of many innovative failures. If they can understand why this stuff happens, and control it well, they actually can be successful at innovation, much more frequently than historically has seemed to be the case. It's not yet a cookbook, but I'm hoping that we can bring it forward and already, there are some pretty significant victories established companies have logged. Even without The Innovator's Solution — just having read The Innovator's Dilemma, they're going to see this. And once you see it, it's like gravity. When you see an airplane fly, it doesn't disprove the law of gravity. They're just a bunch of engineers who got their heads together and said, "We understand what pulls planes down; let's figure out a way to help them fly despite that." There really are quite a few companies flying quite well these days. Dresner: So what are some good examples we haven't spoken about already?
Christensen: Well, Intel. Probably $18 to $16 billion of their revenue today, comes from projects they launched in response to seeing disruption in their world. Kodak, with their digital photography initiatives, heavily shaped by their consciousness of this. EMC, this data storage company? They have this massive and expensive symmetrics system the founders were just absolutely wed to. There are a bunch of folks in the company that read The Innovators Dilemma and said, "Holy cow, you guys. This is going to hit us." They went off and bought Data General, which had a mid-range storage solution. Now, 70% of their revenues come from that product line. The company would have vaporized had they not done that. The US Department of Defense. The unmanned aircraft is now a very important part of their military arsenal. That got commercialized, really fed by this thinking. The Washington Post now is an online learning company. It generates more revenues and profit from online learning, which they launched in response to this, than they generate from The Washington Post newspaper. Dresner: You also mentioned Boeing in your book, and how the Canada Air regional jets were in fact a disruptive influence. Boeing is the bellwether of that industry, at least for the U.S. For quite a while, they kept building bigger and bigger aircraft, while smaller manufacturers like Bombardier, were building smaller aircraft and competing very effectively in certain markets. So it sounds like a classic disruptive innovation. Christensen: It is a classic disruption, and it's very hard. Actually the man who pointed that out to me, was Phil Condit, the Chairman of Boeing. He said, "This is happening to Boeing." He hadn't quite thought of it in these terms, but this helped him visualize, and it — even the fact the chairman could see it happening, didn't solve the problem. That's why it's a vexing problem for most of us to deal with. Dresner: It seems to me that a lot of companies that recognize it perhaps, might, if they have the assets, go out and buy a disruptive company — and in most cases, they absorb it, and they destroy the disruptive innovation that's occurring.
That's perfect; that's right. Dresner: Is that the norm? Christensen: It is, unless they get it. For example now, Cisco, having studied this problem a lot, they just went out and bought Linksys, right? Linksys is the next generation disrupter to Cisco. This is just piddly little wireless routers that will only work in your home, and a little office. But you know exactly what trajectory they're on. So Cisco bought them, but they're keeping them very separate. Historically, Cisco's acquisitions were just systematically integrated into the corporation. But, if they do this right, they'll catch the next wave, even while they maximize the profitability from the current wave. Dresner: Presumably, this applies to the public sector as well.
Christensen: It does, in a lot of ways. We've done a lot of thinking about healthcare for example, and basically, the reason the healthcare industry is so expensive and inconvenient is it hasn't been disrupted. The hospitals have moved to the very high end of their markets; very capable of dealing with extremely sophisticated problems and physicians, similarly, become very capable. The policy-makers' solution is just to somehow get these things to become cheap. It'll never happen. What has to happen is we need to bring technology to less expensive venues of care, to enable them to become more capable. And the same thing to bring technology to nurses, so they can do things they used to need a doctor to do. That's the solution. We studied education a lot, and the problems transforming K-12 education. In many ways, you can understand why historic reform efforts have failed. If you think about the resources processes values model in Chapter 7, you can see why charter schools are such a critical component of the future solution. Dresner: Great. Thank you, this has been good. Christensen: Great questions, Howard. Dresner: Thanks. Excellent stuff.
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