Clayton M. Christensen is regarded currently as the most respected management thinker in the world by Thinker’s 50 list. Professor of Business Administration at the Harvard Business School, and is regarded as one of the world’s foremost experts on innovation and growth. One of his famous books is the Innovator’s dilemma (see further).
We get his story via a life transmission from Harvard. He starts with a story about the flee or fight response to profit in the steel market and the disruptive innovation that happened. Disruptive markets come in from the bottom at the market and take a piece of the business step by step. Disruptive innovation makes a product/service a lot easier so accessible to a bigger market.
Sometimes companies are stuck in creating better and better products (also more complex) instead of creating a worse product that’s accessible to a larger audience (more affordable). Eg mainframe – personal computer – smartphone …
It looks like that the rebound to grow again after a recession in the societies gets longer. The reason for this longer recessions have something the do with the three types of innovation.
Three types of innovation:
+ Disruptive innovation (make something new) – creates jobs and uses capital
+ Sustaining innovation (make it better) – few new jobs and limited capital
+ Efficiency innovation (make it cheaper) – eliminate jobs but generates new capital
And then … the connection broke down 😉 … And problem solved again. Tx technicians.
It’s a flow: efficiency innovation frees up capital to invest in disruptive innovation which results after a while in sustaining innovation and then … But in the last years, managers aren’t investing in disruptive innovation but invest the free capital in another round of efficiency innovation and do this over and over (maximize free cash flow and capital but eliminate more jobs). The reason why managers don’t dare to invest in market-creating innovations is that it takes a long time to enjoy the fruits of the investment.
Only 1/3 of the money is going to the new markets. Capital is at this moment abundant and cheap so ‘you can waste it’. It has only added value for the financial markets.
We need to invest again in the disruptive (market-creating) innovations. There are enough ideas that are very interesting to invest. We need to measure success in different ways (not only financial metrics). Interest rates are going down and revenues for banks are going to zero. The purpose of investment banking has to change dramatically.
Summary of the book ‘The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail’:
1. What business are you really in? Go a step further than product level but look at a conceptual level (eg you’re in the domain of transportation instead of
2. What’s the biggest benefit for your client and focus on that one (eg going in the fastest way from A to B)
At that moment the Innovators dilemma gets in because part of the company don’t want to compete with their own product. But out-innovating yourself is always better than being out-innovated by a competitor 😉
Great short video about this story.
His website: http://www.claytonchristensen.com/