This year I started reading books by Clayton Christensen, a Harvard Business School professor and one of the world’s foremost thinkers on topics of disruption and innovation. “The Innovator’s Solution” is just that — an answer to the dilemmas that would-be innovators face in companies that do not always value true innovation.
Creating a new growth business is a puzzling feat that many established businesses fail to accomplish. Christensen’s “The Innovator’s Dilemma” demonstrated how the normal strategies of good business create forces that stifle potentially disruptive ideas. As “The Innovator’s Solution” summarizes it, because a company must grow its revenues in order to provide a good return to shareholders, managers too easily bypass disruptive ideas that would open new markets because their revenue streams would be too low to help meet Wall Street’s growth quota.
Then the authors present nine chapters, each addressing various questions that a manager would consider while trying to develop a disruptive business model.
For example, “How can we beat our most powerful competitors?” describes the power of focusing on a new-market disruption — serving customers who do not currently consume the product or service — or a low-end disruption — targeting customers who do not need all the features or quality of the high-end products. With either of these strategies, your competitors will likely not notice the move or will be happy to be rid of the low-end, low-margin customers. “What products will customers want to buy?” explains the importance of developing products and services that help customers accomplish a particular task or goal.
Each chapter begins with an italicized paragraph of questions and ends with an italicized paragraph that summarizes the main points of the chapter to answer those questions. This makes learning the material easier and allows for quick, efficient reviews of each topic.
The most important ideas
The most important points (or those most relevant to me) include:
- Help your customers accomplish what they want to do, not what you want them to do. We buy products because they help us do something (that we already do, or want to do). When developing a product or business idea, you must understand how customers will use the product and what job they are trying to get done. This information should inform the product development as well as marketing.
- Try to please customers who are not pleased already, or who could be pleased with something less than what they have. Consider the law of decreasing marginal utility. If customers are unhappy, the slightest improvement could work wonders for them. Their utility/happiness increases dramatically. The next improvement also increases their happiness, but perhaps not as the initial improvement. Eventually, products have been perfected so much and help the customers so well that customers do not need much improvement. You can still improve the product, but the customers will not pay premium prices for improvements. This turns your product into a commodity. Customers will buy based on price rather than features. Therefore, the authors point out, you can make the best profit while serving customers who are not happy yet. This means you don’t have to perfect the product, and you have less competition. Disruptive innovations start with a new market and then move to larger markets, eventually stealing the customers of more established competitors.
- Be impatient for profit, but patient for growth. The reverse ideology — demanding rapid revenue growth at the expense of profit — feeds the same unvirtuous cycle that causes disruptive ideas to fail.
The book includes numerous historical examples of companies that failed and those that succeeded. Although the general tone is optimistic, the authors note that no business has been consistently disruptive/innovative time and again for an extended period of time. (Sony is the closest.) But they propose that following the right set of circumstance-based theories will help managers avoid the pitfalls that normally squash disruptive ideas (or try to fit them into a mainstream business model where their profitability is limited).
I look forward to applying the ideas of “The Innovator’s Solution” to my communications and marketing work, as well as in discussions in my MBA classes, which resume in January.