The Innovator’s Solution: Creating and Sustaining Successful Growth by Clayton M. Christensen and Michael E. Raynor
Rating: ••••• (Outstanding book-read it now)
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There’s a lot to like in Clay Christensen’s sequel to The Innovator’s Dilemma, titled The Innovator’s Solution: Creating and Sustaining Successful Growth. I always like authors who articulate the questions they grapple with, and who recognize that the answers require time, thought and effort, and must be tailored to specific situations. Most chapters of The Innovator’s Solution begin with questions. Here are the ones from Chapter 6, “How to Avoid Commoditization”:
“What causes commoditization? Is it the inevitable end-state of all companies in competitive markets? Can companies take action at any point in their development that can arrest its onset? Once the tide of commoditization has swept through an industry, can the flow reverse back toward proprietary, differentiated, profitable products? How can I respond to this?”
After posing the questions, Christensen presents a theory that he describes thoroughly along with examples of success and failure. Then, he presents a wrap-up. Here’s part of the one from the commoditization chapter:
“The power to capture attractive profits will shift to those activities in the value chain where the immediate customer is not yet satisfied with the performance of available products. It is in these stages that complex, interdependent integration occurs - activities that create steeper scale economics and enable greater differentiability. Attractive returns shift away from activities where the immediate customer is more than satisfied, because it is there that standard, modular integration occurs.”
Finally, at the end of each chapter there are pages of footnotes that will interest academic and other skeptical readers about the basis for the theory and the sources of many statements made.
Most managers are reluctant to embrace theories. Christensen has spent a lot of time struggling with innovation. Most managers like the concept of innovation, and think they’re good at it. A few hours with The Innovator’s Solution will broaden any manager’s thinking and perspective. If you remain unconvinced that this is an outstanding book that you should read at once, sample this excerpt from the epilogue (pp. 287-292):
Who? Me? Use Theory?
While The Innovator's Dilemma sought to build a theory, our purpose in writing The Innovator's Solution has been to teach you as a manager how to use theory. If your reaction has been that theory is too complicated—that you're an action-driven manager and are not a theory-driven person—think again. Reread the passage in Moliere's The
Bourgeois Gentleman in which Monsieur Jourdain finds the writing of poetry intimidating. Remember how delighted he is to learn that he can use the other option, which is to compose his love letter in prose, because he has unwittingly been speaking prose all his life? While you may not have known it, you have been using theory for the whole of your managerial life. Whenever you have taken an action or made a plan, it was predicated upon a theory in your mind that your actions would lead to the envisioned outcome. So using theory to create successful growth businesses needn't feel strange. You are—though perhaps unwittingly—a practiced theoretician.
We conclude with a summary of our advice to executives who seek solutions to the innovator's dilemma.
1. Never say yes to a strategy that targets customers and markets that look attractive to an established competitor. Keep sending the team back to the drawing board until they've identified a disruptive foothold that established competitors will be happy to ignore or be relieved to walk away from. If you create asymmetries of motivation, your competitors will help you win. Though you may not have done this before, it should feel good if you are accustomed to bloody fights of sustaining innovation against motivated competitors.
2. If your team targets customers who already are using pretty good products, send them back to see if they can find a way to compete against nonconsumption. When your customers are delighted to have a simple, inexpensive product because their alternative is to have nothing, all the techniques for pleasing customers that you learned in Marketing 101 will be easy and inexpensive. This also should spell welcome relief compared with the alternative, which is the massive investment typically required to make disruptive technologies preferable to the established products that customers already are comfortable using.
3. If there are no nonconsumers available, ask your team to explore whether a low-end disruption is feasible. They must devise a business model that can make attractive profits at the discount prices required to capture customers at the low end of the market, who can't use all the functionality for which they currently must pay. If this isn't possible either, then don't invest—or at least, don't invest with the expectation that this will create a significant growth business.
4. If the project leader ever uses the phrase, "If we can just get the customer to . . . ," terminate the conversation. Send the team back to find a way to help customer? get done more conveniently and inexpensively what they already are trying to get done. Competing wishfully against customers' manifest priorities has shortened the tenure-in-job of some pretty good people.
5. If the team's product or marketing plan focuses on market segments whose boundaries mirror your organization's boundaries, or if the targeted market is segmented along the lines for which data are readily available (by product type, price point, or demographic category), send the team back. Ask them to segment the market in ways that mirror the jobs that customers are trying to get done. Remind the team that you still have no alternative but to hire a one-size-fits-all milkshake for at least two different jobs that arise regularly in your life. The milkshake business is stalled because quick-service restaurants keep improving the shake's attributes rather than doing each job better and better—which would grow the category by helping shakes to steal share from the real competition.
6. If your team's product improvement road map assumes that the basis of competition won't change—that the types of improvements that merited good margins in the past will continue to merit those margins in the future—look at the low end. Often you can see there the opportunity to change the basis of competition.
7. If your disruptive product or service is not yet good enough and your team seems enthralled with industry standards and the attendant outsourcing and partnering deals, raise a big red flag. If you prematurely pursue modularity and open standards, or if you keep a proprietary architecture closed while the basis of competition changes, you'll struggle to succeed. Remember what made Wayne Gretzky so good. It is better to develop competencies where the money will be made in the future than to cling tenaciously to those skills that made you successful in the past.
8. If your team assures you that you'll succeed because a new venture fits your company's core competence, tell them that you can't deal in fuzzy concepts. Ask for answers to three specific questions:
• Do we have the resources to succeed?
• Will our processes—the ways we have learned to work together to succeed in our established businesses—facilitate what needs to be done to succeed in the new business?
• Will our values, or the criteria that folks here use to prioritize one thing over another, enable the critical people to give the needed priority to this initiative when compared with the other initiatives that compete for their time, money, and talent?
Use the answers to these questions to choose the right organizational structure and the right organizational home for this project.
9. Ask these three questions about each of the entities that constitute the venture's channels as well. It's not just you. The channel companies' processes and values—their methods and motivations—can cause your venture to come off the rails or even stall before leaving the station.
10. Unfortunately, you may need to distrust the managers whom you have learned to trust. The managers in your organization who have most consistently delivered results in the past may be the least skilled at delivering success in new-growth businesses. In choosing the management team for your new venture, don't look at the attributes that describe the people you might tap to lead a new-growth venture, or at the magnitude of their past responsibilities. Search their resumes for the problems they have grappled with, and compare them to the problems that you know this venture must confront.
11. Be sure that in the beginning years after a venture is launched, the development team remains convinced that they aren't sure what the best strategy is, in terms of products, customers, and applications. Insist that the team give you a plan to accelerate the emergence of a viable strategy. Call a halt to decisive plans to implement any strategy before there is evidence that it works.
12. Be impatient for profit. When someone tells you as a senior executive that you must endure years of substantial losses before a new business will become huge and profitable, this flags a plan to cram a disruptive technology into a sustaining role in an established market. Some investments in sustaining technologies with extensive interdependencies across the value chain can indeed require years of massive investment. Let established competitors tackle those. In disruptive circumstances, patiently enduring years of losses generally allows a team to pursue the wrong strategy for a long time.
13. Keep your company growing so that you can be patient for growth. Disruption—and competing against nonconsumption in particular—requires a longer runway before a steep ascent is possible. If corporate growth slows and you then force the new businesses to attempt too fast a takeoff, you will force the management to make other fatal mistakes. The other side to this mandate is important as well. If you're slated to lead a new venture and corporate management says you need to become very big very fast, what you really are hearing is that management is going to make you cram your disruptive technology into an established market. When you sense this, don't take the job. You are very likely to fail.
Note that there is no mandate on this list that executives be brilliant strategists in order to supervise the building of new disruptive growth businesses. That's the whole point of this book. The disruptive companies listed in chapter 2 didn't succeed because their founders foresaw the entire strategy. If it depended on the brilliance of the founders and the correctness of their strategies, then success would be unpredictable indeed.
Many successful companies have disrupted once. A few, including IBM, Intel, Microsoft, Hewlett-Packard, Johnson & Johnson, Kodak, Cisco, and Intuit, have disrupted several times. Sony did it repeatedly between 1955 and 1982, before its engine of disruption got shut down. To our knowledge, no company has been able to build an engine of disruptive growth and keep it running and running. That reality has made this a risky book for us to write: Few business books say "Do this; no one's ever done it before." But there is little choice. Creating and sustaining successful growth has, historically speaking, vexed some great managers.
Given the existence of principles but no precedent, we have simply done our best to suggest how successful growth can be created and sustained. We have offered an integrated body of theory derived from the successes and the failures of hundreds of different companies, each of which has illuminated a different aspect of the innovator's dilemma. And so we now pass the baton to you, in the hope that you will find our efforts to be a valuable foundation upon which to build your own innovator's solution.
The advice in The Innovator’s Solution will provide any managers with lots of ideas to think about in helping your organization grow. Read it once right away, then think about it for a while, and you’ll want to read it again. Your competitors will be reading this book.
Steve Hopkins, December 22, 2003
ã 2004 Hopkins and Company, LLC
The recommendation rating for this book appeared in the January 2004 issue of Executive Times
URL for this review: http://www.hopkinsandcompany.com/Books/The Innovator's Solution.htm
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