Interesting article. Scientific theories are often proven to be obsolete -- business should be no different.
To me, this article also underscores the ever present friction between theory and practice. I recently was speaking to an advisor (in academia) and, while his input was incredibly valuable, much of it contradicted what we know to be true based on interactions with our customers.
How have you all managed this balancing act? Is there a place for academic theory in product development?
"...He rules out Uber because, from the start, it offered a better level of service than existing taxi firms, rather than something cheap but inferior... "
I believe this is exactly where the author an many people get Ubers success wrong.
Uber big disruption was in challenging legislation not in providing a better service.
Uber started by allowing limo drivers to make extra money. They then moved on making it possible almost anyone to start as taxidrivers and thus flodded the market with available rides. This wouldn't have been possible if they had used the normal channels.
They also benefitted from the popularity of smartphones and GPS removing the need for a taxi central for people to call in an order rides.
The problem with existing taxis wasn't in the quality of the service but rather with accessibility. This is what they disrupted.
Where some of Claytons theories break down is in his second book. Innovators solution. "Be patient for growth not for profit" which isn't necessarily wrong but Facebook proves that wrong.
I once asked him about this over twitter he said great question but never answered it :)
> Where some of Claytons theories break down is in his second book. Innovators solution. "Be patient for growth not for profit" which isn't necessarily wrong but Facebook proves that wrong.
While I do agree with you that his theories break down after the first book, Facebook was delivering healthy profits pretty soon after IPO. They could have made profit far earlier, but their investors chose to roll that profit back into the business and make a big bet on mobile. That bet paid off and hugely increased the available equity value and allowed them to go on an acquisition spree and diversify into other growth categories.
Facebook is also a unique business in this context because it didn't really disrupt an established market. They were just first to reach scale in an emerging product category with strong network effects. But there was no product that consumers were over / under served by. You could say advertising, but their real innovation was on the consumer side: you don't get to show lots of ads until you have lots of traffic first, and Facebook's traffic and content acquisition strategy were novel at the time.
Yes but the point I was trying to make was that. Be patient for growth not for profit turned out to not hinder Facebook (and google) making money. There were many years where they werent.
But I also don't think that Clayton was really thinking about startups back then. He was more thinking about businesses that solves actual problems, not Yo apps :)
Perhaps what is really the problem is our definition of a business/startup is lacking some extra definition hmmm...
It would better for people such as Christensen to call themselves "business historians." They make ex post facto analyses of what made a business successful. There's value to that, and it often makes for very interesting reading especially if you can incorporate all the personal drama.
To purport that you've come up a theory of business success with predictive power is another thing entirely.
The Innovators Dilemma is still completely relevant and has substantial predictive power today. I'm seeing it in spades in my current company. The problem is in fact not predictive power but deciding how to avoid being trapped by it--Innovators Dilemma is weak on actionable solutions.
I have not read the follow-in Innovators Solution but doubt it really solves the problem in anything like a general way. The trouble is that new markets are basically very uncertain. Big companies like Disney, Apple, or Boeing that have crossed into new markets executed successfully on bet-the-company products. Not everybody pulls it off.
I don't think author of this article has ever actually read anything by Christensen -- it makes zero mention of what Clay Christensen is best know for; the Innovator's Dilemma. And nowhere in this does the article actually state what his alleged thesis is, and what about it isn't being born out. It just points out a couple of cases of innovation and then waves some hands and claims Christensen is wrong a lot.
The Innovator's Dilemma is his big idea, and it's still as much a part of the innovation lexicon as it was in 1997. The accuracy of his prognostications re:specific companies is pretty irrelevant.
For some reason the article's author is fixated on the idea that Christensen's thesis has something to do with small companies; it does not. The Innovator's Dilemma deals with companies established in their industry being unable to innovate because it will disrupt their own business. Google entering the car market is a perfect example of this (because Google is NOT a carmaker), not a counterexample. General Motors is unable to create driverless cars because it's antithetical to their current business -- THAT'S the innovator's dilemma.
Exactly. I think the author's example of Uber is also way off the mark. Uber did not disrupt the cab industry the way PCs disrupted the mainframe industry. Cabs did not provide a good service; they provided a bad service that was protected by a government backed monopoly. The cab industry was never worried that it would cannibalize existing businesses by allowing people to hail cabs on their phones. They just didn't care if people had a good experience because they had a captive market.
The Uber story really isn't a "good" business case because there are only so many regulated monopolies. Entrenched businesses, on the other hand, are everywhere.
Uber is disruptive -- to the municipal authorities who regulate taxis. Other than that, they're a taxi company with an Internet dispatch system.
There are even fewer regulated monopolies that can follow the Uber path (Airbnb is one of them). Uber was uniquely able to disrupt a bunch of municipal taxi regulators because a single taxi regulator does not have a very large budget. Uber can outspend them, set a few precedents in case law, and it was over. The strategy doesn't work in an industry with centralized regulation (USDA, FDA, FCC) or in an industry with a colossal amount of money involved (anything health care related).
Is there evidence that disruption is happening less often? It makes sense that companies aware of it would take steps to prevent it, such as those suggested by Christensen, e.g. a separate organization with limited budget (so small opportunities are attractive to them), One can also aggressively buy up potential competitors - perhaps explaining recent apparently ridiculously overpriced acquisitions.
e.g. Intel's Andy Grove had a blurb on the cover of the Innovator's Dilemma, and Intel has certainly tried to combat ARM with ATOM. At least, they didn't lose the laptop market. Similarly, MS acted aggressively to curtail netbooks. (Through chromebooks have had some success.) Neither have had success with smartphones - but smartphones/tablets also don't seem to have had any success at all in invading laptop/PC territory, despite being more than powerful enough.
BTW: having read Christensen's first three books, I feel that he became solipsistic and over-abstact, and tried to make disruption a business theory-of-everything; coinciding with his move from academic to consultant. It amounted to: people buy what they want/need, and when that changes, a different business organization may be more suitable to serve it (accounting for things like improving different attributes; faster release cycles; different business models etc). Did it seem like this to anyone else?
I preferred his early PhD work, and e.g. his graph showing that market supply for improvements increases more quickly than market demand for improvements (so is eventually over-served, and customers shift focus to other attributes). Though I could never find his HDD data or detailed justification for this, which (IIRC) involved HDD capacities in computers at average vs median prices.
I love Clayton Christiansen. I believe his real contribution was to identify the properties of bureaucracies that make it difficult for them to deal with changing business conditions. Everybody who has worked in a big company has seen the behaviors he describes like feature overshoot and chasing high margins to the detriment of emerging markets. What's amazing is how well he put the pieces together into a cohesive model.
Given that he's talking about institutions in general it's not surprising there are many cases where the model does not work. Start-ups are an obvious example because they can shift strategy quickly. However even large companies like Microsoft in the 1990s that have "Napoleonic" leadership can react very quickly to changing business conditions.
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[ 3.3 ms ] story [ 43.6 ms ] threadTo me, this article also underscores the ever present friction between theory and practice. I recently was speaking to an advisor (in academia) and, while his input was incredibly valuable, much of it contradicted what we know to be true based on interactions with our customers.
How have you all managed this balancing act? Is there a place for academic theory in product development?
I believe this is exactly where the author an many people get Ubers success wrong.
Uber big disruption was in challenging legislation not in providing a better service.
Uber started by allowing limo drivers to make extra money. They then moved on making it possible almost anyone to start as taxidrivers and thus flodded the market with available rides. This wouldn't have been possible if they had used the normal channels.
They also benefitted from the popularity of smartphones and GPS removing the need for a taxi central for people to call in an order rides.
The problem with existing taxis wasn't in the quality of the service but rather with accessibility. This is what they disrupted.
Where some of Claytons theories break down is in his second book. Innovators solution. "Be patient for growth not for profit" which isn't necessarily wrong but Facebook proves that wrong.
I once asked him about this over twitter he said great question but never answered it :)
While I do agree with you that his theories break down after the first book, Facebook was delivering healthy profits pretty soon after IPO. They could have made profit far earlier, but their investors chose to roll that profit back into the business and make a big bet on mobile. That bet paid off and hugely increased the available equity value and allowed them to go on an acquisition spree and diversify into other growth categories.
Facebook is also a unique business in this context because it didn't really disrupt an established market. They were just first to reach scale in an emerging product category with strong network effects. But there was no product that consumers were over / under served by. You could say advertising, but their real innovation was on the consumer side: you don't get to show lots of ads until you have lots of traffic first, and Facebook's traffic and content acquisition strategy were novel at the time.
But I also don't think that Clayton was really thinking about startups back then. He was more thinking about businesses that solves actual problems, not Yo apps :)
Perhaps what is really the problem is our definition of a business/startup is lacking some extra definition hmmm...
To purport that you've come up a theory of business success with predictive power is another thing entirely.
I have not read the follow-in Innovators Solution but doubt it really solves the problem in anything like a general way. The trouble is that new markets are basically very uncertain. Big companies like Disney, Apple, or Boeing that have crossed into new markets executed successfully on bet-the-company products. Not everybody pulls it off.
The Innovator's Dilemma is his big idea, and it's still as much a part of the innovation lexicon as it was in 1997. The accuracy of his prognostications re:specific companies is pretty irrelevant.
For some reason the article's author is fixated on the idea that Christensen's thesis has something to do with small companies; it does not. The Innovator's Dilemma deals with companies established in their industry being unable to innovate because it will disrupt their own business. Google entering the car market is a perfect example of this (because Google is NOT a carmaker), not a counterexample. General Motors is unable to create driverless cars because it's antithetical to their current business -- THAT'S the innovator's dilemma.
The Uber story really isn't a "good" business case because there are only so many regulated monopolies. Entrenched businesses, on the other hand, are everywhere.
There are even fewer regulated monopolies that can follow the Uber path (Airbnb is one of them). Uber was uniquely able to disrupt a bunch of municipal taxi regulators because a single taxi regulator does not have a very large budget. Uber can outspend them, set a few precedents in case law, and it was over. The strategy doesn't work in an industry with centralized regulation (USDA, FDA, FCC) or in an industry with a colossal amount of money involved (anything health care related).
e.g. Intel's Andy Grove had a blurb on the cover of the Innovator's Dilemma, and Intel has certainly tried to combat ARM with ATOM. At least, they didn't lose the laptop market. Similarly, MS acted aggressively to curtail netbooks. (Through chromebooks have had some success.) Neither have had success with smartphones - but smartphones/tablets also don't seem to have had any success at all in invading laptop/PC territory, despite being more than powerful enough.
BTW: having read Christensen's first three books, I feel that he became solipsistic and over-abstact, and tried to make disruption a business theory-of-everything; coinciding with his move from academic to consultant. It amounted to: people buy what they want/need, and when that changes, a different business organization may be more suitable to serve it (accounting for things like improving different attributes; faster release cycles; different business models etc). Did it seem like this to anyone else?
I preferred his early PhD work, and e.g. his graph showing that market supply for improvements increases more quickly than market demand for improvements (so is eventually over-served, and customers shift focus to other attributes). Though I could never find his HDD data or detailed justification for this, which (IIRC) involved HDD capacities in computers at average vs median prices.
Given that he's talking about institutions in general it's not surprising there are many cases where the model does not work. Start-ups are an obvious example because they can shift strategy quickly. However even large companies like Microsoft in the 1990s that have "Napoleonic" leadership can react very quickly to changing business conditions.