Are Crummy Products Your Next Growth Opportunity?
Clayton M. Christensen, author of The Innovator’s Dilemma, talks about his upcoming follow-on book on creating sustainable new-growth businesses. His conclusions may surprise you.
How's this for a mission statement: We make crummy products for non-consumers.
But if you think that's the idea for an "F" paper in business school, you haven't been paying attention to success stories ranging from Henry Ford's first Model T to Sony's transistor radio, says Harvard Business School professor Clayton M. Christensen.
At the Harvard Business School Entrepreneurship Conference 2003, Christensen provided an advance peek at his new book, which follows on his influential The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail. In that 1997 work, Christensen explored how great companies often lose their ability to innovate and eventually fail at the hands of much smaller, "disruptive" competitors.
"Basically any stock you wish you have owned started out as a disruptive company," Christensen said.
The new book, The Innovator's Solution:Creating and Sustaining Successful Growth, written with co-author Michael E. Raynor, looks at the keys to creating new-growth companies that can sustain their competitive advantages. It is scheduled to be released in the fall by Harvard Business School Publishing.
Basically any stock you wish you have owned started out as a disruptive company.
— Clayton M. Christensen
Copying the management best practices of leading firms isn't necessarily the answer, Christensen said. When inventors in the Middle Ages tried to invent a contraption for man to fly, they copied the best practices of nature: birds. But developing feather-covered wings didn't get the job done. Rather, it was understanding the circumstances of what made flight possible, starting with Bernoulli's theory of lift, that led to experimentation and ultimately manned flight.
The same idea is true in helping managers understand and identify new-growth business opportunities, Christensen said. Look beyond correlation to causality. "Creating a new-growth business is not nearly as big a crapshoot as people think ," he said. The new book, he said, will help managers understand the causal circumstances that lead to success as well as failure.
Christensen noted several models for creating a new-growth business. First, you can bring better products into an established market, although this approach is extremely risky, he said. Another approach he termed low-end disruption: addressing an over-served customer with a lower-cost business model. This strategy has worked well for Wal-Mart, for example, but you still remain vulnerable to competitors disrupting your success from below.
The third model Christensen termed new-market disruption, whereby you create a product for a customer who hasn't been able to participate because of low skill level or low wealth. The initial product for this new market usually isn't very good; in fact, it's usually "crummy," Christensen said.
But it's good enough. When Sony in 1955 developed the first transistor radio available in Japan, the sound was awful. But Sony sold them to teenagers, a group that couldn't afford the nice-sounding, floor-standing radios their parents enjoyed. For them, a transistor would do just fine.
Once the initial crummy product has kick-started a market, follow-on products become better and better, eventually drawing in customers from above. As transistor radios evolved into the Walkman, parents bought them, too.
Some other examples of crummy products finding a market with non-consumers:
- The first digital cameras were expensive and competed against existing high-quality cameras. Sales were limited. But the latest digital cameras are almost expendable devices, offering much less quality but good enough to be incorporated into cell phones and PDAs reaching mass markets.
- Solar cells met limited success as alternative energy sources to the power grid, but could be breakthrough products in some Third World markets where electric power is scarce.
- IBM's voice-recognition technology is being targeted at secretaries as a replacement for typing. The problem, said Christensen, is that VR technology is limited—administrative assistants can type much faster and with greater accuracy than voice recognition can work. But where VR is really starting to take hold is in interactive toys, where voice technology's limitations aren't as important. And expect to see voice recognition become used more in applications such as chat rooms and wireless e-mail.
Think of China as a hot spot of non-consumption, Christensen told his audience. Even though the climate can be hot and humid, few Chinese residents have air conditioners; they are too expensive. So even a crummy but inexpensive air conditioner that could service a 10-foot-by-10-foot room could be a big seller there.
Another key in identifying potential markets is to never compete against the customer's manifest priorities. Instead, he said, facilitate them.
In the electronic learning industry, for example, textbook publishers have invested great sums into creating elaborate products with Web links that add to the student's knowledge of, say, the Amazon rain forest, Christensen said. However, additional information is not what students want. In fact, many would prefer to pass the course without having to read at all. What product would allow a student to pass a course without doing the required reading? Think Cram.com, a mythical online service that provides, at the last possible moment, just the information from the required books you need to pass the course.
With Cram.com you would have no need to even buy the book. That may not be a desired outcome from society's perspective, but it is a product aligned with the customer's manifest priorities.
The conference took place April 5.