THE INNOVATOR'S SOLUTION
Creating and Sustaining
By Clayton M. Christensen
and Michael E. Raynor
Harvard Business School Press
Harvard Business School professor Clayton M. Christensen sent many executives and managers at established companies into a funk with his 1997 book, The Innovator's Dilemma. He showed that an upstart with an innovation that disrupts existing business models can beat out big guys nearly every time -- be it Intel (INTC) Corp. with the microprocessor in the 1970s or steel mill Nucor (NUE) Corp. with a way to reuse scrap in the 1990s. What's more, he said, venerable companies seal their doom by doing just what they're supposed to do: pleasing their most valuable customers. There seemed no way out.
Christensen's accessible and rigorous new book, written with Deloitte Research Director Michael E. Raynor, provides a survival manual for corporate managers. The Innovator's Solution makes a credible case that established companies can defy the odds after all, provided they offer disruptive new products of their own. By channeling innovation into fast-growing new areas, posit Christensen and Raynor, businesses will be able to reel in new customers, time after time.
The authors don't pretend that overcoming the innovator's dilemma will be easy. The essential problem is that companies naturally improve their products, so they can earn better profits. But invariably at some point, an upstart with a new technology or low-cost process appears, and as it in turn makes improvements, it eats into the established company's core market. The lowly transistor, for example, killed the vacuum tube, while PCs, once derided as toys, snuffed minicomputers and currently threaten servers from the likes of Sun Microsystems (SUNW) Inc. Yet there's no intrinsic reason, the authors assert, that even large businesses can't seize the day themselves.
How? Although The Innovator's Solution is less a how-to book than a how-to-think book, Christensen and Raynor offer systematic approaches for treating innovations in a new way. Instead of just turning a new idea or technology into a better mousetrap, they suggest ways to transform it into a product that completely changes the game, capturing brand-new customers and thus producing much higher growth. Procter & Gamble Co., for instance, does more than simply offer "new and improved" toothpaste. In 2001, it launched Crest Whitestrips, a home tooth-whitening product that created a new market of 10 million users with nearly $300 million in sales.
Just as crucial, say Christensen and Raynor, is making sure corporate processes help rather than hobble a new idea. They suggest a twofold approach: First, early on, managers should talk about a possible innovation as something that could threaten their core business -- if someone else were to do it first. Research indicates that threats, rather than opportunities, mobilize resources much faster. Then, once the project is under way, it should quickly be spun off into an independent group that isn't beholden to the company's established ways of dealing with more incremental new ideas. Hewlett-Packard (HPQ) Co. did this with its highly successful inkjet printers, for instance, and so did Johnson & Johnson (JNJ) with the angioplasty instruments and portable blood-glucose meters that it acquired.
There's also good advice on how to keep a project on track once it's launched. In stark contrast to the "get big fast" mantra of the 1990s Internet boom, the authors counsel that companies should be "impatient for profit but patient for growth." While the profit imperative is obvious today, the authors say too many companies forget the second part. When bad times hit, they lose faith, and, instead of giving a new product time to gather speed, they force it into a seemingly more certain, established market. This, they say, results in certain failure.
The only problem with the book is a paucity of examples showing how established companies have overcome the dilemma and capitalized on new innovations themselves. The authors offer some hypothetical cases, such as how Xerox (XRX) Corp. might use its promising printing technologies to undercut HP's inkjet business. But they aren't entirely convincing. In fact, the authors admit that "no company has been able to build an engine of disruptive growth and keep it running and running." Surely if this were possible to do, as Christensen and Raynor believe, a few companies would have done so.
Nonetheless, the book makes a strong case that there's not much choice but to try. Christensen's research indicates that the odds of creating a successful growth business jump from 6% to 37% when a disruptive strategy is used instead of an incremental one. Even if The Innovator's Solution offers no guarantees, its clear-eyed advice comes at just the right moment for an economy still struggling to recover. By Robert D. Hof