Clayton Christensen

Professor, Harvard Business School

Capturing the Upside
108 minutes, 37.3mb, recorded 2004-03-17
Clayton Christensen
Every company needs to grow, and innovation is the ticket to sustainable and profitable growth. What decisions can managers take to increase their probability of successfully building innovation-driven growth businesses? Many are convinced that it is impossible to predict with confidence whether an innovation will succeed, so they feel they need to place a number of bets with the hope that some will be winners. Others believe that the best way to create new growth businesses is to meticulously search for detailed quantitative data to identify opportunities and develop a rigorous plan to attack those opportunities. But many times conclusive data is only available after the game has already been won. Professor Clayton M. Christensen of the Harvard Business School has another way. He suggests using theory. A theory is a statement of what causes what and why. Whether managers know it or not, they are voracious consumers of theory. Every action a manager takes, every plan a manager makes is based on some belief of cause and effect.

Managers have historically struggled to successfully manage innovation. They get a bewildering array of often conflicting and confusing advice. What has been lacking is a collection of well-grounded theories that explain the actions managers should take in particular circumstances. Through his recent research, Professor Christensen has developed a set of theories to help guide managers as they seek to answer seven critical questions when trying to build new growth businesses, again and again:

  • How can I beat powerful competitors? Companies should look for situations where they can introduce disruptive innovations that harness asymmetries of motivation. In other words, they should pick the fights that powerful competitors either cannot or will not contest. They can do this by either seeking out non-consumers who will welcome a simple product or by launching an attack on the low-end of an incumbent's market among customers the incumbent is actually happy to lose.
  • How can I connect with customers? Customers hire products to perform jobs that arise during their day-to-day life. Companies succeed when they develop a product that successfully matches a circumstance that customers find themselves in. Traditional means of defining markets � like product categories or demographics � often run counter to how customers live their lives and therefore do not help companies successfully connect with customers.
  • How integrated should I be? In circumstances where products are not good enough to meet customer needs, a company needs to be integrated to improve the product's functionality. In circumstances where the product is more than good enough, focused firms can beat competitors with speed, responsiveness and customization.
  • How should I set strategy? In highly uncertain situations that typify disruptive innovations, following the typical strategy-making process just doesn't work. In these uncertain situations, some companies believe they need to fly by the seat of their pants. However, companies can follow a rigorous process by using an emergent strategy supported by a discovery-driven planning process that enables them to adjust their strategy when they encounter unanticipated opportunities, problems and successes.
  • From whom should I get funding? A company's financing source should match its circumstances. Disruptive innovations that need to take root in niche markets need investors Investors that are impatient for growth will push a potentially disruptive innovation towards large obvious markets where the innovation's inherent strengths are actually weaknesses.
  • Where should the innovation reside? A company's resources, processes and values define its capabilities and resultant disabilities. When an opportunity fits a company's capabilities, the company should run the innovation internally. When opportunities do not fit a company's capabilities, the company either needs to acquire the requisite capabilities or house the innovation in a separate organization.
  • What is the role of the CEO? Many CEOs have a simple theory to help them decide how to spend their time. "Big-ticket" decisions that involve a lot of money, they think, require my close careful attention. Another approach suggests the size of the decision is irrelevant. It suggests that the CEO needs to get involved in circumstances when a company's standard processes are not designed to do what needs to get done.

[See also comments and additional graphics posted by Mark Madsen. See the complete list of OSBC 2004 presentations on IT Conversations.]

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