A new collection of work from renowned management thinker Clayton Christensen provides lessons on innovation, disruption and helping others.
Everyone has their own list of the heavy hitters of management theory, but most lists would have Clayton Christensen near the top. A long-time professor at the Harvard Business School in Boston, he has spent two decades writing and teaching about disruptive innovation and his work has significantly helped explain the field.
In 1997, his first book, The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail, outlined a game plan for would-be disruptors and a defensive strategy for those facing disruption.
Now a new collection, The Clayton M. Christensen Reader (Harvard Business Review Press, A$32.99), has assembled his key articles, with a new essay showing the direction of his current thinking.
The term “disruptive innovation” – coined by Christensen – is often thrown around loosely, but the real story is much more nuanced: not every new technology is disruptive and neither is every change in the business landscape. With disruptive innovation, a product or service takes root initially in simple applications at the bottom of a market and then moves relentlessly upwards, eventually displacing the previously successful players.
“He underlines the importance of thinking about basic business principles rather than being overwhelmed by the daily tasks of management.”
Established companies tend to innovate faster than their customers’ needs evolve, so many organisations end up producing products or services (“sustaining innovations”) that are actually too sophisticated, too pricey and too complicated for many customers in their market – but with the best margins and the greatest profitability per sale.
This strategy opens the door to “disruptive innovations” at the bottom of the market. An innovation that is disruptive provides a whole new population of consumers at the bottom of a market with access to a product or service that was historically only accessible to consumers with more resources or expertise.
At least in their initial stages, the businesses doing the disrupting tend to have lower gross margins, smaller target markets and simpler products and services, making them unattractive to other firms moving upward in the market. Christensen finds this pattern again and again in products and services ranging from milkshakes to medical clinics.
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Working from this principle, Christensen asks why established companies find it so difficult to respond to disruptors. His answer is they don’t understand their current business model well enough to know if it would suit a new opportunity or hinder it, and they don’t know how to change models when they need to.
In one of his key essays, Why Hard-Nosed Executives Should Care about Management Theory, he underlines the importance of thinking about basic business principles rather than being overwhelmed by the daily tasks of management.
He believes a crucial task for senior executives is to understand their business model, look at the industry’s growth future and be aware of the strengths and weaknesses of their company.
In one of his most controversial articles, Innovation Killers: How Financial Tools Destroy Your Capacity to Do New Things, he argues an undue emphasis on metrics such as discounted cash flow and earnings per share can make a company dangerously conservative and insular. He looks instead to evaluations of future value.
Christensen’s theories embody his practical experience. He entered academia at age 40 only after stints as a Mormon missionary in South Korea and a consultant for Boston Consulting Group, as an adviser to the US Secretary of Transportation and as co-founder of an advanced ceramics company. He has provided consulting services to all sorts
of companies, often co-authoring with industry experts. He has made a point of keeping up with technological shifts.
The final essay in The Clayton M. Christensen Reader finds the author looking in a different direction. In How Will You Measure Your Life?, Christensen uses concepts from business to challenge readers to manage their careers and personal lives in a way that provides deep-seated satisfaction. Business is a way to serve others, he says, and when you look back you should not ask how much money you have made but reflect on how much you have made a positive difference.
It’s a coda that gives his body of work an emotional depth and resonance.