discuss The Innovator’s Dilemma
By Abigail Mieko Vargus
March 11, 2003
Clayton Christensen, author of The Innovator’s Dilemma and professor at the Harvard Business School, and George Mueller, CEO and cofounder of Color Kinetics, spoke at a Proseminar for LFM and SDM students on March 11, 2003. Christensen treated students to a preview of his next book, and Mueller followed up with an inside look at his company, which has applied many of Christensen’s theories.
The Innovator’s Dilemma focused on what types of new technologies, which he has termed disruptive technologies, could hurt, or even destroy, a successful, well-run company. Christensen decided to turn the tables in his upcoming book and look at how to build a disruptive-growth business. He shared some of this with the students.
To build a disruptive growth business, Christensen listed ten must-answer questions:
1. How can we beat the competition?
2. What customers should I go after?
3. How do I know what product I should try to sell?
4. What should our company do inside versus outsource to partners and suppliers?
5. How should we distribute to and communicate with our customers?
6. Who should be on our management team?
7. What is the best organizational structure?
8. How can we know when to change course?
9. Whose investment capital will help, and whose might hurt?
10. What is the role of the CEO in sustaining growth of the business?
The problem with current management theory, Christensen continued, is that it only examines best practices—nothing like the scientific method. “It’s not until you understand the fundamental causal mechanism that you begin to make success possible, but you still don’t make it predictable because you haven’t examined what circumstances that different managers might find themselves in.” That’s what the ten questions are for. Christensen devoted his remaining time to explaining how to answer a few of them.
To answer how to beat the competition, Christensen examined the success of disruptive growth business in running the competition off. The goal? “Create a situation where they’re motivated to run away from you rather than to fight,” Christensen said. For example, steel mini-mills came into the competitive markets in the 1960s—with a 20 percent better profit margin than traditional integrated mills, but with the viable capability for rebar only. The integrated mills happily gave up rebar, the bottom of the steel food chain. Once the mini-mills drove off all integrated mills, however, they lost their high profit margin (now competing only against themselves) and had to push research to the next level of steel products. And the process repeats…all the way to the products at the top of the value chain.
So, like mini-mills, a disruptive growth business starts with the low-end technology. How can you find customers? Easy, Christensen claimed: compete by selling to people whom the competitors do not view as customers, that is people who are not currently consumers because they cannot afford the competitions products or for whom the current products are not otherwise appropriate.
His example in this case was Sony and the transistor. Vacuum tubes had a solid hold on the market, and transistors just weren’t up to that level. Sony, rather than trying to compete on the same level, marketed pocket radios, for which the quality was less important, to teenagers, who “were delighted to have a crummy product because it was so much better than nothing at all.” As the transistor market boomed, Sony blew the vacuum tube companies away. Start low, and you’ll find that “moving up-market is duck soup.”
You can only do this with the right product…and Christensen eschews attribute-based market segments. Instead, he looks at the circumstances in which the product is used and defines what “job” the product is hired to do. In other words, don’t try to meet all attributes of similar products. Find out when your product is being used and why—what does it do for your customers. That’s its job. Then find out how you can make it better.
To show the power of Christensen’s theories, George Mueller presented information about his company, Color Kinetics. As chairman and CEO, he’s led Color Kinetics to huge success—including a permanent exhibit at the Smithsonian Museum. Color Kinetics uses LED technology at a much higher efficiency rate than conventional filament lighting. Mueller feels they are “at the exact same point in time as the early computing industry… To me, looking at where we are, it’s like looking at Jobs or Gates.”
Color Kinetics is a quintessential disruptive-growth technology, taking on “three behemoths”: GE, Phillips, and Osram-Sylvania. Rather than attack head-on, however, Color Kinetics competed against non-consumption (the segment that behemoths were happy to ignore): colored lighting. As the technology improves, they’ll move into white lighting. Next, they looked at what job their lighting products do. Mueller explained, “I can’t tell you how many times I hear people say ‘I just want this light’ What do you really want? You want the effect that that light causes. What Clay would say is you want the job that the light causes.”
Mueller closed with a Mark Twain quote: ”The best swordsman in the world does not need to fear the second best swordsman, but the man ignorant of swords but knowledgeable of gun powder.” Meaning: With Christensen’s theories and the right technology, you have ammunition to take over the world…or at least a significant market segment.