Doyen of 'disruptive innovation'

IN OUR furiously-paced world where once-iconic companies fall by the wayside and even disappear, entire industries are reinvented and countries lose their competitive mojo with frightening speed, probably the most compelling business idea is what has come to be called "disruptive innovation".

As a phenomenon, this is not new. The motor car disrupted the horse-drawn carriage, the telephone disrupted the telegraph, the word processor disrupted the typewriter.

But in the age of globalisation and the Internet, disruptive innovation has accelerated and spread with an unprecedented ferocity. Among its victims are companies in industries as diverse as travel, aviation, publishing, telecommunications, consumer electronics, retail, financial services and even parts of manufacturing.

The intellectual pioneer of the mechanics of disruptive innovation is Clayton Christensen, who is Kim B Clark Professor of Business Administration at Harvard Business School. In a rare accolade, Thinkers50, a biennial ranking of the world's most influential management thinkers, named him the top "thought leader" in the world for the second time running in November 2013. Among many CEOs, he has a cult-like status.

Sixty-two-year old Dr Christensen's life has been rich in both variety and adversity. He has been a Christian missionary in Korea, worked as a management consultant with the Boston Consulting Group, and as a special assistant at the White House. Even as he taught at Harvard, he founded startups, ran a consulting business, co-founded a boutique investment firm and a think-tank, was active in church work (he is a devout Mormon), wrote nine books and hundreds of articles and served on corporate boards.

Astonishingly, he has done all of this despite facing a series of life-threatening health challenges. He has had Type 1 Diabetes, viral pneumonia and has survived a heart attack, cancer and a stroke. As a result of the stroke, which he suffered in 2010, he temporarily lost his speech; he had to go through speech therapy and re-learn his vocabulary.

Dr Christensen was in Singapore in September to deliver the Singapore Institute of Management's Annual Management Lecture on the occasion of its 50th anniversary. A towering figure - he is 194 cm tall - his movements are deliberate and his speech is measured but lucid. He has the teacher's gift for simplifying complex concepts and making them vivid.

He explains: "Disruptive innovation is an innovation that can transform a complicated and expensive product into something that is cheaper and more accessible" - such as free e-mail which disrupted postal services, cellphones which disrupted land-line telephony, and phone cameras which disrupted low-end digital cameras, which in their time had disrupted film cameras.

While incumbents dominate battles within existing industries, new entrants typically win at disruption. Typically, these newcomers enter at the bottom of the market and then work their way up. Example: the personal computer which disrupted the minicomputer, which had earlier displaced the mainframe computer. The PCs of the early 1980s were weak on computing power and convenience and were not seen as a threat to the minicomputer makers such as Wang Laboratories and Digital Equipment Corporation. But the PCs kept improving, both in hardware and software and their prices kept dropping. By the 1990s, Digital and Wang, which sold their products for as much as US$500,000, were in deep trouble.

Another example: in the 1990s, Lucent and Nortel were giants in the telecom industry. They made circuit switching technology which established connections between callers. Then came a small company called Cisco, which made routers, using a different technology called packet-switching to establish communication links. Initially, these were not good enough for voice communication, so they were used only for data. But over time, the routers improved and became more powerful. Meanwhile, Lucent and Nortel kept doing what they knew best - making circuit switches, bigger and better. But the routers eventually took over even voice communication, at a fraction of the cost. Within a decade, Lucent and Nortel had disappeared.

"Non-consumers"

One of the key insights of Dr Christensen's thesis is that as new entrants come into an industry, they attract new consumers, who had never bought the old, "high-end" products. Households, for example, never bought minicomputers and millions of first-time buyers of mobile phones never had landlines. Thus, the companies that are disrupted find themselves competing for "non-consumers".

As the disruptors improve their quality - as happened with both PCs and cellphones - they win over even more consumers, including those who previously consumed the "high-end" products; eventually, even companies started buying PCs and people with landlines switched to cellphones.

Dr Christensen calls such innovations "market-creating innovations". They are different from "efficiency innovations" which enable companies to do more with less. Efficiency innovations free up cash flow but they don't create jobs or growth. But market-creating innovations do, because they expand the market by converting non-consumers into consumers. "Think of where you can find 'non-consumers'," says Dr Christensen. "It's easy to see consumption. Seeing non-consumption is harder. But actually, we're surrounded by non-consumption. If you can see the world through a non-consumption lens, you'll find opportunities."

Singapore might have missed some, he suggests, citing the example of the disk-drive industry, which he has studied in depth. In the 1980s, this industry was one of the engines of Singapore's growth and in its time, the disk drive was a "market creating" innovation. But then as technology evolved, disk-drive makers in Singapore had two choices. One was to move upmarket by creating even higher capacity disk drives, the other was to make other products or services that do the same job as disk drives - that is provide storage solutions, such as flash memory and cloud computing. But the companies chose to go upmarket. "It's not clear that this has been an engine of growth,'' says Dr Christensen.

There are other opportunities that Singapore could yet tap - for example in the CT-scanner industry. He explains: "Companies like Siemens, Philips and GE make CT scanners very well, which cost US$250,000 or more. But around you there are non-consumers of CT scanners, for example in Indonesia and the Philippines. The technology exists to make simple CT scanners that cost US$25,000 instead of US$250,000. That could have growth potential."

Dr Christensen's theory has had its critics. Writing in The New Yorker magazine in June 2014, for example, the historian Jill Lepore suggested that much of it is based on hand-picked case studies and circular arguments. "If an established company doesn't disrupt, it will fail, and if it fails, it must be because it didn't disrupt," she pointed out. She also noted that disruption can reliably be seen only after the fact.

But Dr Chistensen has convincingly defended himself and claims the predictions have, by and large been accurate. He talks about his book Seeing What's Next, which he co-authored with Scott D Anthony and Erik A Roth in 2002. "We took a look at the future of eight different industries. We really nailed it in higher education, in healthcare, telecommunications, semiconductors and the development of emerging nations. We were very bad in airlines, but getting it wrong also gave us new insights." His theory is still evolving; "it is not an event, it is a process".

He also missed the "disruptions" caused by the iPhone. When Apple launched its first iPhone in 2007, he suggested it would not threaten incumbent leaders such as Nokia. He admits his mistake. "What I missed," he said in a later interview with Bloomberg Businessweek, "is that the smartphone was competing against the laptop disruptively. I framed it not as Apple disrupting the laptop, but as a sustaining innovation against Nokia."

But again, he learnt something from his error, which enabled him to refine his theory.

What job do you want done?

The big insight that he gained was that simply "understanding the customer" is not enough. "What you need to understand is the job the customer wants done," he says. For example, the iPhone did some of what laptops used to do; it was more than just a phone. Customers don't always buy what a company thinks it's selling; they buy things to "get a certain job done". The jobs to be done tend to be very stable - people want to achieve certain goals with the things they buy, but the means of doing those jobs, of achieving those goals, can change dramatically. For example, the consumer wants to read a book - that is the "job to be done". But the means of delivering books has changed from physical books to e-books. Companies should look carefully at "jobs customers want to get done", says Dr Christensen, rather than simply delivering the products and services that they have historically delivered or are good at delivering.

The classic dilemma

The classic dilemma for companies in industries being disrupted is how to deal with the disruption without cannibalising themselves. For example, if a traditional publisher wants to get into the e-book business, how can it do so without killing its traditional publishing business?

"The way to do it is to set up completely different business units to go after the disruption because that is where the growth is going to come from," says Dr Christensen. "It's not a threat, it's growth. It has to be a completely different business unit to support the core business, organising it around the job to be done.

"They can report to the same CEO, but the important thing is that those responsible for the core business should not run the new business. If those in the core business have responsibility for it, they will force it to conform to the business model of the traditional business, which will kill it."

He explains that IBM survived the disruption of the mainframe computer by setting up a different business unit in Rochester. "Then their PC business - that too was a different unit, they did it in Florida." IBM has since exited the PC business and is moving deeper into software and services - yet another business unit.

"These business units did not evolve," he explains. "Just like in biological evolution: individual organisms don't evolve. They are born, they die." And it's the same with companies. "Business units were born to do one thing. A corporation can evolve by creating new business units and shutting down old ones." But there are very few successful cases.

Misleading data

One reason why managements have found it so difficult to deal with disruption is that they typically rely on data to make decisions. But when it comes to understanding disruption, data can be not only unhelpful, but even misleading, according to Dr Christensen. He points out that in the 1990s, the film and camera company Kodak was doing very well and enjoying high margins. All the way up to 2001, people kept buying film - that's what the data showed. But from then on, the disruption of Kodak proceeded at high speed and in 2012, it filed for bankruptcy. Mobile phone maker Nokia was another case in point. "In 2007, on the eve of its disruption by Apple's iPhone and Google's Android platform, Nokia's stock was soaring." There was no data on the disruption to come. Nokia's stock later collapsed and the company was bought by Microsoft in 2013. It is now a shadow of its former self.

Instead of relying on data, what managements need to do to is understand the theory, according to Dr Christensen. "You have to understand the process and how it works. It's like a disease. There are processes going inside of every industry that cause disruption. Early on, the symptoms don't manifest themselves. But later on, they do - when it's too late."

The theory "helps you to predict with a high degree of probability what the future is going to look like", he says. "But a lot of managers are too busy to read the theory."

Disruption by economies

Dr Christensen claims that his theory also helps explain disruptions caused by economies. He explains: "The nations that have become prosperous over the last 60 years were first, Germany and Japan. The engine of that was market-creating innovations, mainly in automobiles. In Japan, there was Toyota and Honda, and then Sony and Canon. For Germany, the Volkswagen Beetle did the same thing. The next wave were Korea, Taiwan, Singapore and Hong Kong. Each one tapped into a fundamental market-creating innovation - electronics. In Korea, Samsung was a big part of the story - it came in at the bottom of the market, and later, there was also Kia in cars.

"Most recently, China has been disrupting Korea, Taiwan, Singapore and Hong Kong. Of all the Latin American nations, the only one that has gone through the transition has been Chile. And their disruption has been by making fresh fruit available around the world to people who didn't have access to fresh fruit."

"How do you measure your life?"

Later in his life, after facing down a series of health challenges, Dr Christensen started to produce more philosophical work - most prominently in his 2012 book How will you measure your life?. He extended his theory of disruption to how we live our lives - and what we can do to improve them. It's essentially about the importance of making long-term investments in the quality of our lives and relationships - or face the possibility of having our lives disrupted.

"The basic observation is this," he explains. "People have a high need for achievement. When we have an extra minute of time or extra ounce of energy, we will invest our time and energy in activities that give us the most immediate and tangible evidence of achievement. Our careers provide immediate and tangible achievement: we finish an article, we ship a product, we make a presentation, we get paid, we get promoted.

"But our investments in raising good children - they don't pay off quickly. On a day to day basis, our children misbehave. And it's really not until 20 years later that we can put our hands on our hips and look at our son and say, 'what a great young man'. But on a day to day basis, being a parent doesn't provide any signals of achievement."

Marriage is another area where people suffer because they set the wrong priorities, he points out. Sometimes marriages collapse because the partners don't invest for the long term in their relationship; they're too busy pursuing immediate and tangible achievements. He explains: "When people get married, nobody plans to get divorced. But because of the strategy they implement, a lot of people end up getting divorced."

Companies get into trouble for basically the same reason. "They're run by people like you and me and they have the same problem: they have short-term horizons and need to invest in things that provide immediate and tangible evidence of achievement."

How then should people measure their lives? Dr Christensen summed it up in a TED talk he delivered in Boston in 2012. "It's actually really important that you succeed at what you're succeeding at, but that isn't going to be the measure of your life." He elaborated in his acceptance speech after receiving the Thinkers50 award the following year. "The happiness in our lives won't come from our achievements in the professions we have chosen," he said. "Our happiness will come from intimate and loving relationships with our families and our close friends. Put first things first, and you will be blessed, in every way."

Clayton M Christensen

Kim B Clark Professor of Business Administration, Harvard Business School

Born: April 6, 1952, Salt Lake City, Utah, United States

Married to Christine Christensen, five children

Education: B.A. Brigham Young University; MBA and DBA, Harvard Business School; MPhil, University of Oxford

1979-84: Consultant and Project leader, Boston Consulting Group

1982-83: White House Fellow and assistant to US Transportation Secretaries Drew Lewis and Elizabeth Dole

1984: Founded CPS Corporation (advanced materials company)

2000: Founded Innosight (innovation consulting firm)

2005: Launched Innosight Ventures (venture firm)

2007: Co-founded Rose Park Advisors (investment company)

2007: Founded Clayton Christensen Institute (non-profit think-tank dedicated to improving the world through disruptive innovation)

Author and co-author of nine books

Board Directorships: Tata Consultancy Services, Franklin Covey,and Vanu, Inc