The Innovator's Solution

by Clayton Christensen

  The Disruptive Growth Engine

  The best way to do this is to budget for it—not just an amount of capital set aside to invest in disruptive growth, but a budgeted number of new businesses that need to be launched each year.12 Remember that we are not advocating establishment of a corporate venture capital fund whose structure is predicated on the belief that one cannot predict which investments will and will not pan out. We believe that the process of creating successful growth is capable of much greater predictability if managers use sound theories to shape ideas properly. The needed number of new businesses can therefore be launched each year with not just the hope but the expectation that they will succeed.

  Step 2: Appoint a Senior Executive to Shepherd Ideas into the Appropriate Shaping and Resource Allocation Processes

  Creating a successful disruptive growth engine requires the careful coaching of the CEO or another senior manager who has the confidence and the power to exempt a venture from an established corporate process, to declare when different processes need to be created, and to ensure that the criteria being used in resource allocation are appropriate to the circumstance of each venture and the needs of the corporation. This executive must be well versed in disruptive innovation theory and should be able to separate ideas with disruptive potential from those that are best deployed on an established sustaining trajectory. The primary job of this manager is to make sure that ideas that are best used to create disruptive footholds are fed into a process that maximizes their chances of success.

  As noted earlier, this executive role will change over time. At the outset it will entail monitoring and coaching individual decisions in individual growth businesses. Ultimately it will consist of monitoring the processes for collecting, shaping, and funding ideas; continued coaching and training; and monitoring the winds of changing circumstances in the company’s environment.

  Step 3: Create a Team and a Process for Shaping Ideas

  We asserted in chapter 1 that lack of interesting growth ideas is rarely a problem in companies that are in danger of losing their growth. The problem is that ideas often lose their disruptive growth potential in the shaping process that they go through in order to get funded. The challenge for this third component of the growth engine is therefore to create a separately operating process through which ideas can be shaped into high-potential disruptions.

  Processes like this can be diagrammed at a high level on paper, but they become tangible only as a stable group of people successfully solves similar problems again and again. Senior management should therefore create a core team at the corporate level that is responsible for collecting disruptive innovation ideas and molding them into propositions that fit the litmus tests outlined in chapters 2 through 6 of this book. The members of this team have to understand these theories at a deep level, stick together, and apply them frequently. This experience will help them sense which ideas can and cannot be shaped into exciting disruptions, and to distinguish these from ideas whose potential is sustaining and should be funneled through the shaping and resource allocation process of an established business.

  Despite the guidance that we hope this book provides, many dimensions of the strategy that ultimately will prove successful for growth ventures cannot be known at the outset. This means that this core shaping group cannot use the company’s standard strategic planning and budgeting processes when launching disruptive businesses. chapter 8 detailed an equally rigorous discovery-driven planning process for use in disruptive circumstances.13 Members of the core group could coach each new venture’s management on these techniques for strategic planning and budgeting. We are confident that as they do this, their intuition and understanding of the ideas will improve far beyond what we now know and can convey in a limited book such as this.

  Step 4: Train the Troops to Identify Disruptive Ideas

  The fourth component of a well-functioning disruptive growth engine is the training of the troops, particularly sales, marketing, and engineering employees, because they are best positioned to encounter interesting growth ideas and to scout for small acquisitions with disruptive potential. They should be trained in the language of sustaining and disruptive innovation and absorb a deep understanding of the litmus tests, because it’s crucial that they come to know what kinds of ideas they should channel into the sustaining processes of established business units, what kinds should be directed into disruptive channels, and what ideas have the potential for neither. This is truly a situation in which “making the lowest level competent” will pay off in spades. Capturing ideas for new-growth businesses from people in direct contact with markets and technologies can be far more productive than relying on analyst-laden corporate strategy or business development departments—as long as the troops have the intuition to do the first-level screening and shaping themselves.

  Senior executives need to play four roles in managing innovation. First, they must actively coordinate action and decisions when no processes exist to do the coordination. Second, they must break the grip of established processes when a team is confronted with new tasks that require new patterns of communication, coordination and decision making. Third, when recurrent activities and decisions emerge in an organization, executives must create processes to reliably guide and coordinate the work of employees involved. And fourth, because recurrent cultivation of new disruptive growth businesses entails the building and maintenance of multiple simultaneous processes and business models within the corporation, senior executives need to stand astride the interfaces of those organizations—to ensure that useful learning from the new growth businesses flows back into the mainstream, and to ensure that the right resources, processes, and values are always being applied in the right situation.

  When an established company first undertakes the creation of a new disruptive growth business, senior executives need to play the first and second roles. Disruption is a new task, and appropriate processes will not exist to handle much of the required coordination and decision making related to the initial projects. Certain of the mainstream organization’s processes need to be pre-empted or broken because they will not facilitate the work that the disruptive team needs to do. To create a growth engine that sustains the corporation’s growth for an extended period, senior executives need to play the third role masterfully, because launching new disruptive businesses needs to become a rhythmic, recurrent task. This entails repeated training for the employees involved, so that they can instinctively identify potentially disruptive ideas and shape them into business plans that will lead to success. The fourth task, which is to stand astride the boundary between disruptive and mainstream businesses, actively monitoring the appropriate flow of resources, processes, and values from the mainstream business into the new one and back again, is the ongoing essence of managing a perpetually growing corporation.

  Notes

  1. In this chapter we’ll use the term senior executives to refer to men and women in positions such as chairman, vice chairman, CEO, and president. Senior executives who can perform well the leadership roles we describe in this chapter need to have the power and the confidence to declare that certain corporate rules will and will not be followed, given the circumstances that a growth venture is in.

  2. As mentioned in chapter 8, Sony is the only example we know of that was a serial disruptor, having created a string of a dozen disruptive new-growth businesses between 1950 and 1982. Hewlett-Packard did it at least twice, when it launched microprocessor-based computers and ink-jet printers. More recently, our sense is that Intuit has been actively seeking to create new-growth businesses through disruptive means. But for the vast majority of companies, disruption has been at most a one-time event.

  3. We again refer readers to Robert Burgelman’s Strategy is Destiny, an extraordinarily insightful chronicle of how the ex ante and ex post quality of high-impact strategic decisions was distributed across the layers of management at Intel Corporation.

  4. Practices such as “management by wa
lking around,” which was popularized by Thomas Peters and Robert Waterman in their management classic, In Search of Excellence (New York: Warner Books, 1982) are targeted at this challenge. The hope is that by walking around, senior managers might get a sense for what the important questions are, so that they can ask for the right information needed to make good decisions.

  5. Some would assert that senior-most executives still need to be involved in decisions about major expenditures because of their fiduciary responsibility not to spend more than the company has to spend. Even decisions like these, however, can be made through capable processes.

  6. This account summarizes a teaching case by Clayton Christensen and Rebecca Voorheis, “Managing Innovation at Nypro, Inc. (A),” Case 9-696-061 (Boston: Harvard Business School, 1995) and “Managing Innovation at Nypro, Inc. (B),” Case 9-697-057 (Boston: Harvard Business School, 1996).

  7. In our account of this history, we are using the language of our models. Lankton did not know of our research and therefore was guided by his own intuition, not our advice. His intuition was stunningly consistent with how we would have viewed the situation, however.

  8. Interestingly, despite the fact that the company has missed (so far) the opportunity to catch this wave of disruptive growth in high-variety, low-volume-per-model manufacturing, the company has done very well. It has followed the pattern outlined in chapter 6 of eating its way forward from the back end, integrating forward from component manufacturing into technologically interdependent subassemblies and even final product assembly. It (very profitably) tripled its revenues to nearly $1 billion between 1997 and 2002—a period in which several major competitors failed.

  9. The nature of these companies’ disruptions is analyzed in figure 2-4 and the appendix to chapter 2.

  10. Something else worth noting is that we have not studied the relative success rates of founder-led versus agent-led disruptive initiatives. All we can say on the basis of the analysis we have done so far is that the relative incidence of successful founder-led disruption is higher than for agent-led disruption. Just who has a better batting average we can’t yet say. For unfortunate but understandable reasons, data on failed business creation efforts are hard to come by.

  11. Clayton M. Christensen, Mark Johnson, and Darrell K. Rigby, “Foundations for Growth: How to Identify and Build Disruptive New Businesses,” MIT Sloan Management Review, Spring 2002, 22–31. We are grateful to Darrell Rigby for pointing out the possibility that an engine of growth might be created.

  12. A good tool to use in this budgeting process is called aggregate project planning. Steven C. Wheelwright and Kim B. Clark described this method in their book Revolutionizing Product Development (New York: Free Press, 1992). Their concept has been extended to the corporate resource allocation process in a course note by Clayton Christensen, “Using Aggregate Project Planning to Link Strategy, Innovation, and the Resource Allocation Process,” Note 9-301-041 (Boston: Harvard Business School, 2000).

  13. See Rita G. McGrath and Ian MacMillan, “Discovery-Driven Planning,” Harvard Business Review, July–August 1995, 44–54.

  EPILOGUE

  PASSING THE BATON

  Managers rarely can exercise unbridled free agency. Powerful and predictable forces act upon them. These forces include the need to move up-market to maintain profit margins; the need to satisfy existing customers; the forces of commoditization and decommoditization; the mandate to grow from an ever-larger revenue base; and the fact that the processes and values that define the capabilities of one business model simultaneously define disabilities for other business models. These forces do not Calvinistically predestine managers to take a particular sequence of actions, but they strongly influence the types of choices that managers do and do not confront, and they shape the attractiveness of the different choices relative to the managers’ situations. In this book we have tried to show that when companies face the wrong side of these forces, they lead to predictable growth pathologies. But when companies harness these same forces, they can put wind in their sails. The predictability of these forces makes it possible to capture them and turn them to your advantage in seeking, exploiting, and sustaining new growth opportunities.

  If this were a book for mariners, it would be filled with discussions of sailing with or against tides and currents, and how to set sail in order to take advantage of the prevailing winds. Such a book would make it easy to see that where and when you start, relative to the direction that those forces want to carry you, can make a huge difference in how easy it is to get where you want to go.

  Similarly, we hope that this book makes it easy to see that where you start, relative to the direction of the competitive, technological, and profit-seeking forces acting upon you, can make a huge difference in the probability that you will succeed. This view simplifies the challenge of creating new-growth businesses. It means that when you start a new business you do not need to envision accurately the details of your strategy or predict foresightedly how technology will evolve. Rather, you need to focus primarily on getting the initial conditions right. If you start from a good place, then the choices that lead to success will look like the right choices. In order to exploit these choices, you need to create a business model whose resources, processes, and values can harness these forces so that they propel you toward success rather than blow you away.

  Accurately researched and written histories would reveal that many founders of successful companies—including many of the disruptive companies arrayed in figure 2-4—had the wrong strategy in mind when they started. But due to some combination of intuition and luck, they put themselves in a situation in which they were confronted with attractive choices. Doing what made sense led to a next set of attractive choices, and so on. The initial conditions under which they started and the business structures that they created allowed them to catch the trends and forces that subsequently propelled them toward successful growth.

  The structures and initial conditions that are required for successful growth are enumerated in the chapters of this book. They include starting with a cost structure in which attractive profits can be earned at low price points and which can then be carried up-market; being in a disruptive position relative to competitors so that they are motivated to flee rather than fight; starting with a set of customers who had been nonconsumers so that they are pleased with modest products; targeting a job that customers are trying to get done; skating to where the money will be, not to where it was; assigning managers who have taken the right courses in the school of experience and putting them to work within processes and organizational values that are attuned to what needs to be done; having the flexibility to respond as a viable strategy emerges; and starting with capital that can be patient for growth. If you start in conditions such as these, you do not need to see deeply into the future. Attractive choices that lead to success will present themselves. It is when you start in conditions that are opposite to these that attractive options may not appear, and the right choices will be difficult to make.

  We also believe that the overwhelming odds that corporations will stop growing and be unable to restart growth can be deferred much longer than has so far seemed possible. Executives who understand how these forces create growth pathologies can counteract them better when the tide of these forces begins to shift from opportunity toward threat.

  A principal refrain in this book is that blindly copying the best practices of successful companies without the guidance of circumstance-contingent theory is akin to fabricating feathered wings and flapping hard. Replicating their success is not about duplicating their attributes; it’s about understanding how to generate lift. Good theories are circumstance-based. They describe how managers need to employ different strategies as circumstances change in order to achieve the needed results. The use of one-size-fits-all processes and values historically has made the creation of growth torturous. One of the most valuable contributions you can make in the growth-creation process, therefore, is t
o keep watching for changes in circumstances. If you do this, you can understand when and why changes need to be made long before the evidence is clear to those whose vision is not clarified by theory.

  Who? Me? Use Theory?

  While The Innovator’s Dilemma sought to build a theory, our purpose in writing The Innovator’s Solution has been to teach you as a manager how to use theory. If your reaction has been that theory is too complicated—that you’re an action-driven manager and are not a theory-driven person—think again. Reread the passage in Molière’s The Bourgeois Gentleman in which Monsieur Jourdain finds the writing of poetry intimidating. Remember how delighted he is to learn that he can use the other option, which is to compose his love letter in prose, because he has unwittingly been speaking prose all his life? While you may not have known it, you have been using theory for the whole of your managerial life. Whenever you have taken an action or made a plan, it was predicated upon a theory in your mind that your actions would lead to the envisioned outcome. So using theory to create successful growth businesses needn’t feel strange. You are—though perhaps unwittingly—a practiced theoretician.

  We conclude with a summary of our advice to executives who seek solutions to the innovator’s dilemma.

  Never say yes to a strategy that targets customers and markets that look attractive to an established competitor. Keep sending the team back to the drawing board until they’ve identified a disruptive foothold that established competitors will be happy to ignore or be relieved to walk away from. If you create asymmetries of motivation, your competitors will help you win. Though you may not have done this before, it should feel good if you are accustomed to bloody fights of sustaining innovation against motivated competitors.