 
|
This article originally appeared
in the July 1997 issue of PDBPR
HARVARD RESEARCHER SAYS
BEST PRACTICES CAN HURT YOU:
AN INTERVIEW WITH
CLAYTON CHRISTENSEN
Harvard Business School professor Clayton Christensen
has just written a new book that should cause product developers and strategists to sit up
and take notice. It centers on a provocative and radical thesis: great firms can fail
because they do everything right! In The Innovator’s Dilemma: When New
Technologies Cause Great Firms to Fail, the one-time chairman and president of
Ceramics Process Systems Corp. argues that there are not-uncommon
circumstances—particularly when emerging technologies mean a potential disruption in
the marketplace—in which faithful adherence to many of the best practices chronicled
in this newsletter can cause you to fail over the long haul. Based on his look at
practices in leading companies, Christensen has a compelling point: training a laser focus
on current wants and needs of today’s best customers can mean that you cede the
future to someone more entrepreneurial.
BPR: The "innovator’s dilemma" is the paradox that the
same practices that allow a great company to succeed can also lead it to fail. Can you
explain this?
Christensen: "Sound market research, skillful planning, and a strong
customer focus, followed by diligent execution according to plan, are readily accepted as
the classic hallmarks of good management. And it’s true—when applied to
sustaining an existing business, such practices are invaluable. But blindly following
these maxims can be a fatal mistake. For example, business planners need to conduct
careful market research. And the evidence is strong that in existing markets they can
forecast demand quite accurately. But when new markets for new technologies emerge,
companies have consistently dismal records in forecasting demand for innovations that can
ultimately lead to the new markets and customers that secure long-term growth. In fact,
the only thing we know for sure when we read experts’ forecasts about how large their
emerging markets will become is that they are wrong."
BPR: So then do radical new innovations somehow cause good firms to fail?
Christensen: "Not always.
But when good firms fail, it is not the technology itself, rather the firm’s reaction
to these new ideas, that lays the groundwork for eventual failure. I describe such radical
innovations, in The Innovator’s Dilemma, as ‘disruptive
technologies.’ Although they initially emerge in small markets that seem remote from
the mainstream, they are disruptive because they subsequently can become full-blown
competitors against established products.
"Ironically, it’s the firms with the strongest customer relationships that find
it the hardest to convert disruptive technologies into new revenue streams. It’s not
that pleasing your best customers is itself dangerous, but pleasing them exclusively means
that the growth opportunities presented by new markets will go ignored and uncultivated.
It is difficult to find the resources to focus energy and talents on small markets, even
when logic says that they will be big some day.
"Of course, keeping close to customers is critical for current success. But long-term
growth and profit depend upon a very different managerial formula. Quite simply,
disruptive technologies are often the catalysts for emerging markets. And finding new
markets—and exploiting them—is crucial if a company is to enjoy continued growth
well into the future."
BPR: How do companies fall into
the trap of the innovator’s dilemma?
Christensen: "Many
high-performing companies have well-developed systems for killing ideas and products that
their customers don’t want. It’s part of an entrenched philosophy that focuses
resources on the most lucrative markets of the moment. As a result, these companies find
it very difficult to invest in disruptive technologies—lower-margin opportunities
that their customers don’t want at this time—until their customers realize they
want them. And by then it’s too late.
"Companies that demand market data and financial justification before pursuing a new
possibility are vulnerable—in fact, their hesitation actually helps faster,
more-entrepreneurial companies to catch the next great wave of industry growth. And yet,
the cycle inevitably repeats itself once these aggressive, entrepreneurial companies
succeed and grow, making it progressively more difficult for them to enter the even-newer
small markets destined to become the larger ones of the future. Finding new applications
and markets for your products seems to be a capability that many successful firms
exhibited once, only to surrender it as they establish a strong customer base and fall
victim to the ‘good company’ practices that brought down their
predecessors."
BPR: Is it possible to manage disruptive technologies?
Christensen: "Managers can
be extraordinarily effective with even the most difficult innovations if they work to
understand and harness the principles of disruptive technology. There are, in fact,
sensible ways to deal effectively with this challenge. With few exceptions, the only
instances in which mainstream firms have successfully addressed a disruptive technology
were those in which the firm’s managers set up an autonomous organization charged
with building a new and independent business around the disruptive technology. Such
organizations, free of the power and influence of the mainstream company’s customers,
can align themselves with a different set of customers—those who want the products of
the disruptive technology.
"It is very difficult for a company whose cost structure is tailored to compete on
high-end markets to be profitable in low-end markets as well. The only viable way to
address this is to create an independent organization, a sanctioned ‘skunk
works,’ if you will, with a cost structure honed to achieve profitability at the low
margins characteristic of most disruptive technologies."
BPR: Does this mean firms need to radically reinvent their organization?
Christensen: "No—companies must not throw out the capabilities,
organizational structures, and decision-making processes that have made them successful in
their mainstream markets just because they don’t work in the face of disruptive
technological change. The vast majority of technology challenges they will face will
require just such established and reliable practices. Managers simply need to recognize
that these practices are not appropriate for meeting every challenge."
BPR: Are there any warning signs that might indicate a company is
susceptible to the innovator’s dilemma?
Christensen: "The biggest red flag is when a cheaper, simpler
version of your product is introduced by a new company somewhere, only to be rejected by
your customers, marketing managers, and finance staff as unattractive and inefficient.
They reach these conclusions because they’re comparing the disruptive technology with
the established technology, and are giving the right answer to the wrong question.
"The important question is whether the disruptive technology is on a trajectory of
improvement such that some day it might be good enough to meet what is needed in the
market. Often, disruptive technologies take root in lower-end markets or entirely new
ones.
"Historically, the more successful approach to commercializing disruptive
technologies has been to find an entirely new market that values the disruptive technology
for what it is. That’s the primary goal of The
Innovator’s Dilemma, to help established companies overcome the powerful
obstacles they face when presented with an opportunity to do what does not fit their
proven model for making money.
Related article: Solving
the Innovator's Dilemma
Learn more about Disruptive
Technology
and Innovation Management!
Don't miss Tony Ulwick as he leads a special
pre-conference workshop, "Solving the Innovation Equation" at
MRT's upcoming conference, "Strategic Management of Technology and Product
Lifecycles" - November 13-15, 2001 in Santa Clara. [more] |
