The innovator disrupts again

OUT OF THE BOX

Trust theory, not data to counter "disruptive innovators" toppling your market edge

When Clayton Christensen speaks, you quickly realise that the more measured his tone, the more disruptive his message. His hugely successful book in 1997, The Innovator's Dilemma, boldly told executives that many of the principles they used to ensure sustained growth were the cause of their companies' downfall.

The relentless quest to please customers with better products, for example, steered companies towards high-end, high margin customers, and left a vacuum in the lower tiers of the market.

"Disruptive innovators" stepped into the space with cheaper, simpler, more convenient products, and they ultimately toppled market leaders.

Six years later, the 6 feet, 8 inches tall Harvard Business School professor still talks softly and carries a big stick. He has a new book out, The Innovator's Solution, in which he reveals the secret behind every successful disruptive innovator.

"To succeed predictably," writes Christensen in the very first chapter, "disruptors must be good theorists."

When I read that, I almost laughed out aloud.

Managers and theory, huh? Everyone knows how little managers respect theory. Most openly despise it. The few who imbibe it try to hide their weakness like a guilty secret.

No one ever mentions theory at a strategy meeting. No CEO risks the credibility of his leadership by daring to quote theory in decision-making.

In fact, managers believe that to make a decision based on airy-fairy theory is to root strategy in sand. Instead, managers pride themselves on basing decisions on facts.

Numbers are the only compass that managers trust when it comes to setting a direction for strategy. And here was Christensen disrupting the dogma.

I asked Christensen why he had been so bold as to preach theory to his flock. He told me a tale that, he hopes, would be a parable for managers.

About three years ago, Christensen wrote a case study on the Harvard Business School (HBS), where he works. By applying the principles of disruptive innovation to the management education business, Christensen built a case that showed how even the world's premier management-education institution could come under threat from disruptive competitors.

For instance, Christensen saw a wave of disruption coming from on-the-job management training. IBM spends more than $ 500 million a year on in-house management training. GE trains managers at its campus at Crotonville. Intel and Motorola both have their own university.

Christensen shared the case with his MBA students. To his surprise, out of more than 100, only three students agreed that leading B-schools like HBS were in danger of innovative disruption.

Christensen turned to the majority, who were arguing that HBS could never be disrupted, and asked them why they didn't feel worried that there was a disruptive pattern at work.

Says Christensen: "Everything that the students argued related to the data. The data was that more people were applying to HBS than ever before. The salaries of HBS' graduating students were higher than ever before. The brand was stronger than it had ever been. If you looked at the data, why would you ever worry?"

Christensen then asked one of the students: "Imagine that you are HBS' dean. What data would you have to see to convince you that we need to worry?"

One of the students replied: "I'd look at HBS' market share amongst the CEOs of the Fortune Global 1000 corporations. If the market-share  the number of CEOs who were graduates of our school  began to drop, I'd worry."

Christensen then asked the students: "When you saw that data, would that signal that it was time to take action?" After a moment's pause, he added: "Or would the data signal that the game was over?"

There was a hushed silence as the penny dropped.

Christensen feels that it is time the message sinks in with managers too. "The problem is that data only exists about the past. By the time the data becomes convincing, the game is over. The only way managers can look into the future is through the lenses of management theory."

To executives looking for a one-fits-all solution, Christensen offers no sops. Instead, he urges managers to develop a mental model that allows them to recognise, categorise and deal with all kinds of problems.

It's a tough idea to digest for managers who remain squeamish about theory. But then, as Christensen gently reminded me: who doesn't use theory?

"Even when managers are basing decisions about the future on past data, they are using the theory that the future will resemble the past. When they say that the future will be the same as the past, which is the only theory you can use if it is based on data about the past, it's often a bad theory. That's why we said: let's try to give managers good theory."

The question is: will managers accept the disruption of fact by theory? With the The Innovator's Solution, Christensen firmly puts his finger on the real dilemma that managers face.