How To Escape The Innovator's | Keen On... Clay Christensen

we've all heard about something called the innovators dilemma but we on TechCrunch have never had the opportunity to talk to be author the inventor of the idea of the innovators dilemma professor clay Christensen who is a professor at the Harvard Business School invented the term innovators dilemma and we've caught him to talk more about this dilemma on TechCrunch TV clay welcome to TechCrunch TV delighted to be with you thanks for thinking of me well I'm sure you get this question a hundred times a day clay but for our audience for the 1% of the people in the audience who don't know what the innovators dilemma is tell me what it is and how you invented it well the puzzle that I was trying to understand is if you look across the sweep of business history most companies which are just widely regarded as unassailable a decade or two later we find him in the middle of the pack or the bottom of the heap and always it had been attributed to well the management team just kind of found found themselves out of the league but man I know a lot of CEOs of companies that went through that process and they are very smart and so the puzzle was geez how is it that even the smartest people find success so hard to sustain and I reach the strangest conclusion and that was that that there truly is an innovators dilemma doing the right thing will kill you so I never anticipated that that would be the result give me some examples particularly in the technology community using IBM Microsoft or perhaps even Google as models for your theory boy they're very they abound can I start with Cisco absolutely okay so before Cisco there was a technology called circuit switching and the leaders in making that equipment were Lucent north Alcatel and boy these machines were just powerful very fast very high reliability and Cisco came up with this product called a router and the router packetized what you were gonna send and then just spanned it out over the internet and it took about four seconds to collect itself and reorient itself at the other end and so you really couldn't use packet switching for voice so but at the bottom of them of this market data holy cow routing was so much faster than first-class mail you know it said that cisco started down at an undemanding application for this new technology and Lucent would listen to their customers and ask the customers could we use a root router technology for you and for them it made no sense because it was cheaper not as profitable to loosen and so at least loosen just kept listening to their customers making faster and faster and ever more reliable equipment and the router just got getting better and better and all of a sudden the router was fast enough that it could do voice and loosen looked at that and it made no sense at all to to go after lower quality products and then the customers just were evacuated from one to the other and now underneath Cisco you see blade servers and soft switches and Huawei coming up both them and so they used advantage of the innovators dilemma to kill Nortel and Lucent and now these guys are trying to use the same tools to go after cisco this why Toyota came in at the bottom of the market with little rusty little subcompact and General Motors and Ford were me we're making big cars for big people and when General Motors would look down in Toyota it made no sense to go after the subcompact market when the the profits that they could get on bigger SUVs and bigger pickup trucks made all the sense in the world but Toyota just made their products better and better and better and better until one by one customers that had the use cost their buy bigger General Motors cars now they could buy a cheaper one here and now Toyota's making the best in the world now look at the bottom here is Kia and Hyundai the Koreans and they've stolen the low end of the market and it's not because Toyota's asleep at the switch that is they have to decide should we go down and compete against Kia or should we go up and compete against Mercedes it makes no sense can some companies escape the innovators dilemma I'm thinking of course of Apple I'm sure everybody asks you this question I worry about Apple but there are some examples so for example disruption has happened over and over again in the computer business so there were about nine companies that made mainframes the mini computer disrupted the mainframe only one of the mainframe computers of IBM made it into the mini computer business the other eight were killed the way IBM did it was they made the mainframes in Poughkeepsie went to Rochester Minnesota to make the minis and that was a different business model gross margins of 60 cent 60% in mainframes 25 or 45 percent in the minis and there were about eight companies that made many computers when did the personal computer disrupted the mini computer all of the other ones got killed except IBM an IBM went to Florida and set up yet again a different business model that could make money at twenty-five percent mark so under the corporate umbrella one gender gendered gross margins of sixty percent one forty five percent one twenty five percent and it's kind of and everybody else got killed and you kind of get this sense that like in in biological evolution individual organisms don't evolve they're born they die but the the population evolves as the mutants gain more market share and you get the same sense in corporate evolution business units aren't designed to evolve they have a business model they make money in a particular way serve a particular group of people but a corporation can evolve if it sets up and shuts down business units and so that's how IBM evolved into now a very successful servicing company none of the individual entities evolved they would just did what they were to do and when that game was over there was Shep they shut them down and that's the only thing that historically has worked so what would you teach Google now who are trying to reinvent themselves well my sense is that they have one beautiful business unit and they know how to make money and they know how to sell what they're doing that business unit cannot be expected to launch new business units or new business growth ideas they need to have the ability to have multiple types of business units all around the company and I think what I worry about is that they focus on they think the innovation is the great idea and in fact their team comes up with extraordinary new great ideas but the other part of busy innovation is there needs to be a new business you that has the flexibility to generate profit in the appropriate way and stick this new idea in a business unit and let it go to the market and find its way and what I worry is that it's the business unit innovation that they haven't been able to do clay I know you're doing more and more work and writing in the area of innovation of education and healthcare yeah what are you discovering there were the essential challenges and opportunities for innovators both in the educational and health fair healthcare spheres great question I guess in a nutshell disruption is critical in both in in health care do we think that it is plausible ever that healthcare will become affordable and accessible by expecting the expense the existing providers to become cheap it just won't happen and so what we need to do is bring technology to outpatient clinics so that you can do they're the simplest of the things that have to be done in a hospital and then keep driving technology into that venue so that you could book go provide more and more sophisticated things and technology to doctors offices so they can do their the simplest of the things that previously had had to be done in a clinic or a hospital bring technology to nurse practitioners so that they can do more and more of the things that previously required a doctor to do and so each of these is disruptive but we need to bring technology that enables lower-cost venues of care and lower cost caregivers to do more sophisticated things to go up market and that's the way healthcare becomes affordable and accessible not by expecting the expensive ones to become cheap and education education so much is determined by the success in it's supplanting traditional teaching with online learning and it doesn't mean that dr. that tent that teachers are going to be made redundant but online learning allows the teachers to take a very different raw rather than standing in front of people and just delivering content in a monolithic way the delivery comes online and the duct that the teacher becomes a tutor and you can see when done properly in K through 12 a big difference but I think the biggest impact of online learning will be amongst the universities my final question you as a business professor of course treat disruption always as a good thing do you worry about it at all particularly in the way in which the cycles seem to be increasing and more and more people seem incapable of reinventing themselves and catching up with the economy I worry a lot I I worry the most that the business professors and those who write business books really confuse people and cause good people who could be very successful not to catch these things because you look at the typical business book or article it's a snapshot at a given point of time these guys are doing better than those and therefore all you idiots ought to emulate what the successful ones are doing and five years later the whole thing has changed and a snapshot doesn't tell you how things happened the way they did and what's going to happen in the future you need to have models you need to have in a sense movies that allow you to predict over time what you have to do in order to be successful so if you have in a movie if as snapshot you'd say app it'sjust unstable the son of a tun unassailably successful actually in the future there are some very big challenges that they're gonna confront not because somebody took a snapshot of the future but if you look at what causes success to happen the causal mechanism there's a lot in their future and there's a lot in the future relating to outsourcing the wrong thing means that you essentially liquidly l'addition liquidate your business model I had a stroke and sometimes I can't remember the right words but a lot of people are killing their own companies because they don't have a sense of the dynamics of their industry they just see this net static view well clay Christensen the Aventa of the innovators dilemma on that fascinating note about the unpredictability of the future thank you so much for appearing on TechCrunch TV delighted to be with you thanks so much

Channel: TechCrunch

Views: 17,441

Rating: 4.7948718 out of 5

Keywords:

Id: gfr3uLbC22Y

Length: 14min 21sec (861 seconds)

Published: Mon Apr 02 2012