Clayton Christenson - The Innovators Solution

Clayton Christenson summarizes The Innovators Solution - the non-sequel to The Innovator's Dilemma.

Managers are big users of Theory, but not always consciously. Predicting success for new ventures needs a new theory.
Epistemology now - how theory is built - read Kuhn and others to see how theory is made. Initially observation and description. Second phase is categorization - simplifying by clustering. Then you have a Theory of causation. Use the theory to predict, and feed forward - Popperian.
Observe, then eliminat anomalies. The big challenge is getting the categories right.
IBM used to be a hailed as a success for vertical integration; then when it stumbled the non-integrated companies were hailed - too broad categorizatiion.

A lot of management books are inductive - observe a few cases, state a theory, then look for supporting cases and summarize as a fad. Management reserach is impatient for a one size fits all theory and ignore categorization.

Case study - the big Idea group toy company - hold a big idea hunt in a hired high school in the midwest, and gather any ideas they hear from 30 minute pitch from anyone who comes. If they like the idea by intuition, they'll license it, make a plan and sell it - very successful. A quote from toy CEO 'Toys is a dead category - no new ideas in 15 years'. How can this be? Is the CEO not creative, or does he employ fools? No - it is a process problem. The lack of great ideas is not the constraint.

Ideas bubble up, but get shaped to fit the rules that middle mangers know about - they only want to propose successful ideas - they don't want rejection form senior management - they don't want their judgment questioned.

Sustaining innovations get through, but disruptive ones don't. Pattern recognition is needed for disruptive ideas - you need a theory for recognising this. You need 2 processes - one for sustaining ideas; one for disruptive ones. This way you can be a serial disruptive.

You need to recognise disruptive situations - there is an asymmetry of motivation, which is easier in a new business. Steel example from ID. Minimills started out making bad quality steel, which could only be used for rebar., and the big mills moved up to the more profitable high quality stuff. Minimills had a 20% cost advantage, so they drove the big mills out, then their prices collapsed. This repeated through angle iron, structural steel, and sheet steel. In each case, driving the integrated mills out led to a price collapse - they had to keep moving upmarket to chase the profits, and the big mills moved ahead of them.

When you enter a market, the established competitors are motivated to leave if there is an asymmetry of motivation - if they have a place to move to that is higher margin they will. With a sustaining tech the incumbent will win about 100%. You need to harness the asymmetry.

Current customers are no good for a new opportunity. A type 1 disruption is finding the new, low cost market that the established busines doesn't want. eg personal computer vs minis/mainframe.

Type 2 disruption is compete against non-consumption - find a new plane of competition. Cisco packet switch not good enough from telephony to start with, so market was open.

non consumers are the ideal initial target. Established companies try to improve the disruptive tech to fit their existing markets - vacuum tube manufacturers trying to raise power switching, while Sony found that low power could be used in battery powered radio. A low technical hurdle - it just has to be better than nothing. The existing companies didn't see this happening.

Voice recognition is similar - IBM invested in ViaVoice - someone speaking instead of word processing - target person is someone who already at 80 WPM - needs patience; competing against consumption, and this is a high hurdle.

Simple command-based speech works - phone calls, speech recog for IM chat. Maybe blackberries are next - typing with thumbs is about as good as speech recog. Why did IBM aim at the wrong place? To get funded in IBM they needed big financial projections they needed to justify millions of AAs typing for hours a day to invent a value proposition for the business plan.

Never compete against customers manifest priorities - facilitate them.If it says 'if we can just get the customers to...' that is a red flag.
Digital cameras - people used to order double prints, keep a few 98% of photos only get looked at once -we're not virtuous enough to put them in albums. If you just learnt he etch you can get red-eye out of all those image you look at once.
Sending images over the net is what people want to do - photos to grandma, but quicker.

College textbooks have overshot the market - 100s of millions spent on online augmentation. What are students trying to get done? They're trying to not have to read the book, so making it easier to take shortcuts - cram.com. Summarize the problems with the textbook they know about. Cram later with less effort.

Market segmentation obscures the targets for innovation - segment by goal, not by demographic.

Categorising of capital is wrong - you want impatience for profit but patience for growth in a disruptive business. Not much in venture funds - they like growth. Some in corporations.

Choosing a team - standard way is to use adjectives like visionary etc. Skills are developed by the problems they have previously wrestled with. In a successful business, the problems they have wrestled with aren't the right kind for new growth companies. Look for experiences needed to be successful in a new business. Need to provide these experiences.

Big co's successfully disrupting - Sony did it 12 times up to 1979 with Walkman - haven't done it since - now all innovations are sustaining. When Morita left in 1980, they stopped. He had a policy of not doing market research. In1982 they hired their first MBA, and then never found new markets afterwards.

Johnson & Johnson acquire early stage device companies that enable new facilities.

How do you compensate a disruptive team in a large organisation? Hasn't seen correlation with stock options - offer excitement of building something big and new.