In The Innovator’s Solution Harvard professor, Clayton Christensen, begins by summarizing his previous book, The Innovator’s Dilemma. As the financial community keeps demanding higher returns, decision makers in established companies must confront a difficult choice: they may continue to improve their operations and boost shareholder returns in the short-term, or, they may decide to launch new businesses in low margin market niches to diversify revenue sources, yet failing to meet growth targets in doing so. Ultimately, they are faced with two problems:
- if they already have customers willing to pay a higher price for better quality products?
- just don’t add up in terms of market and revenue potential.
So this is the dilemma that incumbent companies are facing.
In a much overlooked segment of the first chapter, Clayton Christensen mentions the need for developing an “innovation theory.” A theory helps to provide predictable outcomes in a given set of circumstances. He writes: “We can trust a theory only when it’s a statement of what actions will lead to success describe how this will vary as a company’s circumstances change.”
The Innovator’s Solution also provides multiple principles to develop an effective innovation strategy.
Principle 1: Never attack an incumbent with a sustaining solution
Incumbents are betting their company on their existing business and fight off with much determination any new entrant that penetrates their market segments. As established companies have accumulated capital talent technology, and distribution channels, they enjoy a strong competitive advantage surpass any startup who would aim to eat their lunch.
As a consequence, Clayton Christensen suggested startups target markets that incumbents show no desire to defend.
Principle 2: Customers hire products to get specific jobs done
While most companies believe that clients go for their products because of the company’s brand or because of an enduring relationship, Clayton Christensen shows that, in the consumer’s mind, a decision to buy a product is above all a practical one. He or she has a number of things to get done every single day and will go for the product or service that helps him or her achieve the desired outcome in cheap, simple and efficient way. Uber was able to displace taxi drivers because they made the job of getting from one point to another easier than traditional cab drivers, as the waiting time appears on the app, as the pricing and the chosen route to the destination.
However, most leading companies tend to value core competencies. But Clayton Christensen points out that core competencies amount to a very much “inward-looking” frame of mind when disruptions occur outside of company boundaries. Plus, as markets keep changing dynamically, what could be a core competency today may turn into a core liability tomorrow. The author talks about IBM who decided to stick to its core competency of assembling and marketing computers while outsourcing the operating system to Microsoft and the microprocessor to Intel. Only a few years later, these two former minuscule companies took the lion’s share of profits in the PC industry.
Principle 3: Proprietary Architecture Ends Up Surpassing Market Needs
Established companies excel at continuous improvement. But they eventually build a product that’s far superior to what clients want. At that point, when the need for functionality and reliability is met, market demand shift to lower prices, greater speed, more convenience and increased customization. In this scenario, modular architecture, enabling companies to pick and choose the most relevant components is a more fitting than a proprietary one.
Principle 4: Form the right team based on people’s ability to learn not their track record
Incumbents tend to look at past data to assess a manager’s abilities. But when faced with disruption, operational excellence-related qualities don’t do the job. As a consequence, Clayton Christensen suggests that the ability to learn be the most sought-after quality in an innovation team.
Principle 5: Leaders must be patient for growth and impatient for profit in this role of innovation
Disruptive innovation targets low margin markets, thereby failing to participate in a significant manner in an incumbent’s ambitious growth target. To ensure that innovation is executed effectively, Clayton Christensen suggests that managers be impatient for profit and patient for growth.
Principle 6: Turning disruptive innovation into a repeatable process
Clayton Christensen suggests that companies put in place four recommendations to innovate effectively:
- First, incumbents should start innovating before they are in dire need of it as this will provide them more time
- Second, companies must appoint a senior leader in charge of selecting the most promising ideas and allocating resources accordingly
- Third, creating a team in charge of following an innovation process is also critical
- Finally, training the sales, marketing and engineering teams is also very important to deploy disruptive innovations when they’re ready for market launch.
To sum up
In The Innovator’s Solution, Harvard management professor Clayton Christensen offers a deep analysis of the “Dilemma” facing decision makers in large companies. To succeed at innovation he recommends that companies look beyond their core capabilities and understand that customers go for products that make their lives easier. In addition, he suggests that disruptive innovations target low margin market niches and that senior leaders be impatient for profit and patient for growth. He also recommends that a dedicated team reporting to an experienced executive in the company is in charge of turning disruptive innovation into a repeatable process to keep established companies building novel offerings before new entrants do.