06 Oct 2003  What Do YOU Think?

Is “the Innovator’s Solution” to Sustained Corporate Growth an Unnatural Act?

In their new book, The Innovator’s Solution, HBS professor Clayton Christensen and co-author Michael E. Raynor propose four guidelines for developing a "disruptive growth engine." The problem: According to the authors, few organizations have been able to achieve more than one disruptive technology in their lifetimes. Why is it so difficult?

 

Summing Up

In the judgment of respondents to the October column, repeating the development of disruptive technologies is an admirable but elusive target. Respondents commonly asked whether it is a process disrupted by too many factors—some of them a product of human nature—and all of which have to be managed effectively on a continuing basis.

As Richard Eckel put it, "'Disruptive' is the clue for why the proposed method of sustained growth will fail in most organizations ... B-schools graduate and laud those who are risk averse and self-indulgent optimizers of existing systems ... business processes [are outsourced] under the pretext of 'cost savings' ... huge compensation packages [encourage cautious leadership]." Mainak Banerjee, in concurring with Eckel's latter point, says, "The worst thing that can happen to a healthy business is to run into problems while you were spending your time on disruptive innovations!" M. P. Singh, a manager in the public sector, suggests, "Expecting corporate culture to tolerate or encourage radical change or innovation is like expecting a country to encourage rebellion against itself." Stever Robbins points out that, at its heart, the problem is a matter of "human nature. People aren't inherently fond of disruption." And Chirag Patel opines, "investors will not be easy on such companies..."

Nevertheless, most respondents thought that the pursuit of the disruptive growth engine was a worthy, if elusive, goal requiring further attention. "This is not an unnatural act but an essential feature for any business," according to K. Hariharan. As Patel points out, "... the right strategic pathways to be followed during disruptive technology adoption at the time of the introduction of this technology still remain a dilemma even after the introduction of 'the innovator's solution.' Research in this direction would be welcome." B. V. Krishnamurthy takes the idea to another level by commenting, "The heart of business success in the future may be in altogether different forms of innovation: process innovations ... innovations in the way we think ... innovations in organization structure ... and so on."

These comments pose the question of whether too many elements, many of them counter to human nature or the training we receive, have to come into alignment over too long a period of time for the disruptive growth engine to function. Can the appropriate culture be created and rewarded and the process—or as Patel terms it, the "pathways" —be designed and managed successfully over sustained periods of time? What do you think?

Original Article

Long-term growth and profitability are elusive targets for many organizations. The former often is more difficult to achieve than the latter, especially for companies competing in "mature" markets. This presents a problem for today's manager to the degree that investors reward growth more than profitability.

There are at least two antidotes to this scenario. One involves serial acquisitions. But research has suggested that most acquisitions destroy value. This helps explain why the stock of acquiring firms is often discounted by investors in expectation of long-term value dilution, at least until the acquirer proves otherwise.

The other alternative is the subject of a new book, The Innovator's Solution: Creating and Sustaining Successful Growth, by Clayton Christensen and Michael Raynor (HBS Press, 2003). It is a follow-up to Christensen's widely-read The Innovator's Dilemma. In the two books, they present evidence that successful, dominant firms are particularly vulnerable to competitors introducing disruptive technologies, those that offer customers less product capability for much less money.

Among the reasons disruptive technologies succeed is that they appeal to those customers whose capabilities and needs have been outstripped by the development of newer and more complex product features. In the face of a "disruptive technology," dominant competitors flee to the upper end of the market where their increasingly sophisticated products can enjoy higher margins until their newly spawned competitors eventually overtake them.

In The Innovator's Solution, Christensen and Raynor present a manual for managers of long-established companies wishing to generate their own disruptive technologies to help insure the periodic regeneration of growth. Much of it is devoted to identifying criteria by which disruptive technologies and their markets can be identified, and making sure that organizations and processes are fine-tuned to turn the tables on upstart competitors who might be doing the same.

The authors propose four guidelines for developing a "disruptive growth engine." They include: (1) "start before you need to," (2) "appoint a senior executive to shepherd ideas into the appropriate shaping and resource allocation processes," (3) "create a team and a process for shaping ideas," and (4) "train the troops to identify disruptive ideas" which often result from observations of the circumstances in which potential customers "hire" products or services to achieve a result.

The catch is that no organization, in the opinion of the authors, has ever been able to create a "disruptive growth engine." This is a significant departure from much conventional research wisdom that relies on the study of select groups of companies representing best practice. In fact, near the end of their carefully reasoned presentation, the authors acknowledge that few organizations have been able to achieve more than one disruptive technology in their lifetimes. Why is it so difficult? Does it require too much continuity of leadership, focus on long-term performance, willingness to cannibalize existing products, organization disruption, or investor patience? If so, is this one of those unattainable ideals that looks good only on paper? Or will these ideas spawn the first generation of disruptive growth engines? What do you think?

Comments

    • M. P. Singh
    • Commissioner of Finance, Government of Haryana (North India)

    Expecting corporate culture to tolerate or encourage radical change or innovation is like expecting a country to encourage rebellion against itself.

    How can companies manage innovation? By its very nature, innovation charts out a new path. Radical innovation often signals a break with the past. Change is always disruptive of the established patterns. But disruptive innovation turns conventional wisdom upside down. It essentially seeks a fresh, new way of looking at products and processes. It is beyond the capacity of most companies to understand and assimilate radical change.

    But if there is no magic formula to encourage disruptive innovation, creation of an enabling environment appears to be a vital ingredient. Like the primordial soup from which life originated, the spark that triggers innovation cannot be made to order. But the existence of the “soup” is essential for the spark to do its magic. Companies have to get these vital ingredients within striking distance of each other to get results.

     
     
     
    • Mainak Banerjee
    • Strategic Planning Manager

    From most managers' point of view, when you already have businesses generating steady revenue and profit, a lack of innovation is not the worst thing that can happen under your watch. The worst thing that can happen to a healthy business is to run into problems while you were spending your time on disruptive innovations! Not surprisingly, only under crises do most companies innovate.

     
     
     
    • Chirag Patel
    • Marketing Department Faculty, Rennes International School of Business (France)

    The ideas in The Innovator's Solution are definitely useful. However, there is no easy pathway in adopting a disruptive technology. And debate will continue on the validity of adopting disruptive technologies even if top management thinks they have identified such technologies. Investors will not be easy on such companies as Nokia, which is in the process of adopting the potential disruptive technology of digital convergence.

    Controversy will continue regarding the strategic pathway to be followed during the acquisition of such technology, considering the uncertain situation. Technology acquisition options will oscillate between in-house development, acquisitions, and use of alliances. The answer to this question would be welcome. But uncertainty at the introduction of a disruptive technology probably makes it impossible to come up with a "correct" answer due to pressure from investors.

    Hence, the right strategic pathways to be followed during disruptive technology adoption at the time of the introduction of this technology still remain a dilemma even after the introduction of "the innovator's solution." Research in this direction would be welcome.

     
     
     
    • Stever Robbins
    • President, Leadership Decisionworks, Inc.

    Check out the work of HBS professor Donald Sull and his work on how companies become entrenched via the commitments they make. I strongly suspect that his work is relevant.

    Also, let's go back to human nature. People aren't inherently fond of disruption. Stability is achieved by feedback mechanisms that suppress disruption, rather than introduce it.

    In the computer industry, Lotus introduced several product concepts that were incredibly groundbreaking, but it took so long to educate the market that Lotus had to turn to other product lines to keep their cash flow going. (Agenda = world's first and, alas, only personal information manager. Improv = very sophisticated, powerful financial modeling tool. Notes = collaboration-ware.)

     
     
     
    • B. V. Krishnamurthy
    • Executive Vice-President & Professor, Alliance Business Academy, Bangalore, India

    The heart of business success in the future may be in altogether different forms of innovation: process innovations that have the potential to deliver the same performance at a lower cost/price; innovations in the way we think—inductive as opposed to the traditional managerial process of deductive reasoning (Hammer and Champy); innovations in organizational structure—flat, web-like structures where the CEO is merely the first among many equals; innovations in the seamless integration of value-creating activities across countries, cultures, and continents; and so on. The list can be as long as one's imagination permits. These could be more crucial than product innovations.

    In fact, all the four guidelines proposed by Clayton Christensen and Michael Raynor have been highlighted in one form or another by various experts. The only difference is perhaps in terminology: Be proactive, identify champion evangelists, foster process ownership, and encourage intra-organization competition by having concurrent teams working on the same project.

    The day is not far off when organizations, to survive, would be forced to think of solutions first and then identify the problems that the solutions might be able to address.

     
     
     
    • Anonymous

    God gives us two brains: the left brain and the right brain. There is a good reason to have both because one is in charge of logic and the other is responsible for innovation. That's what we use in our business operation. We need strategies for long-term growth and those for "disruptive" success.

    It is always a question of how to carefully blend and balance the two, rather than just using one or the other.

    If we only needed one, we wouldn't have two brains, right?

     
     
     
    • K. Hariharan
    • Financial Controller, Perstorp

    Innovator's solutions are imperative in a competitive environment where specialties get commoditized very quickly.

    The growth curve flattens with the entry of more players. And to sustain a high growth rate, it is inevitable that any corporation differentiate itself from competition. This is a not an unnatural act but an essential feature for any business.

     
     
     
    • Harsimran Singh
    • Assistant Manager, Emco Switchgears Ltd., Chandigarh, India.

    However much they profess to foster innovation, few companies go so far as to deliberately encourage ideas that are overtly radical. An organization's rules and procedures are basically meant to perpetuate the status quo, not to overturn the prevailing scheme of how things are done.

    The guidelines for innovation in The Innovators' Solution are thought provoking but need to be implemented with proper precautions to prevent chaos. These guidelines essentially boil down to encouraging two parallel cultures in an organization—one that encourages perpetuation of successful formulae, the other that encourages the radical opposite. Senior management's dilemma is how to balance the two diametrically opposed cultures. As the authors concede, in practice hardly any organization has managed this balancing act.

    Nonetheless, the ideas generated are thought provoking. The nimbleness and flexibility with which an organization attempts this balancing act will determine its ability to survive or thrive in a disruptive and uncertain environment.

     
     
     
    • Douglas Rothstein

    As a [well diversified] investor, I do not care whether it is existing organizations or new ones which capitalize on disruptive technologies. In fact, it is probably more efficient for some companies to specialize in milking cash cows while others engage in the quite different business of bringing new technologies and ideas to market.

     
     
     
    • Tammy Doty
    • Business Development Manager, Poelmann Chan Group (Hong Kong)

    How do you get an elephant into a refrigerator? Most of us will immediately focus on breaking down the elephant into pieces in order to solve the challenge.

    This fact answers the question "Why can’t most companies create ongoing disruptive technologies?" Business people have a tendency to overthink and overengineer instead of solving basic customer needs. We are a culture of "more is better."

    The answer to the elephant/refrigerator question: open up the refrigerator door and put the elephant inside.

    As my grandmother says, "Don’t try to be too clever. You’ll think yourself right out of the ballgame."

     
     
     
    • Richard A. Eckel
    • President, Systems Synergy, Inc.

    "Disruptive" is the clue for why the proposed method of sustained growth will fail in most organizations.

    Business lifecycles start with the risky development of a product to take advantage of a unique opportunity. Successful results are high-margin revenue streams with relatively low marketing and sales expenditures, i.e., a money engine. These developments have innovators as the leadership force in their creation. As companies progress, the innovators are supplanted by professional management types who exploit the money engine while the innovators find fulfillment elsewhere.

    B-schools graduate and laud those who are risk-averse and self-indulgent optimizers of existing systems, rather than risk-taking creators of wealth-making money machines. Upon reaching "C" levels, they disrupt the innovative process by actively reducing risky internal investments, like R&D or changes to production processes, to minimize the corporate expense. Another identifying behavior is the outsourcing of business processes, under the pretext of "cost savings," that are belatedly recognized as functional business assets providing distinct competitive advantage.

    An empowered board of directors achieves balance between disruptive innovation and sustained exploitation—by maintaining a level of revenue to be reserved for disruptive innovation. CEOs counter this situation by consolidating their control of the board as chairman. Too often, huge compensation packages serve as the attractant and reward for this achievement.

    Comparison of Apple Computer's failure (innovator/marketer Steve Jobs forced out in favor of John Sculley, "professional" CEO) against Microsoft's long-term success ("We have three years until failure," Bill Gates, College dropout) is strong evidence that professional senior management is detrimental to the long-term success of a corporation. It remains to be seen whether that successful approach can be permanently set into the governance culture or whether Microsoft will succumb to the same complacency plaguing boardrooms today.

    Christensen and Raynor provide incredibly obvious (at least to me) means of generating the disruption to fuel the continuous growth engine. They neglect to identify the key environmental characteristics that nurture and sustain that engine.