4/10/2015Copyright Clayton M. Christensen1 Creating new growth and Managing it more effectively...

04/18/23 Copyright Clayton M. Christensen 1

Creating new growthand

Managing it more effectively

Clayton ChristensenHarvard Business School

[email protected]

– Focus investments where returns are most attractive

– Understanding the customer is the key to successful innovation

– Big markets generate bigger businesses than small markets

– Outsource low value-adding activities that aren’t your core competence

– Ignore sunk and fixed costs; make decisions based upon marginal costs and marginal revenues

Principles we teach that aren’t always true:


Decentralization is disruptive, and is hard to catch

Per

form

ance

Time

40% 20% on $2,000

Disruptive

Innovations

Time

Sustaining innovations

Incumbents dominate sustaining battles

Entrants typically win at disruption

Ability to use

improvements

Pace of performance

improvement

45% on$250,000

60% on$500,000DEC

Data GeneralPrimeWang

NixdorfHewlett Packard

Honeywell


7%

4%

Quality of m

inimill-produced steel

12%

8%

18% 22%

% of tons

Ste

el

Qu

alit

y

19801975 1985 1990

Rebar

Angle iron; bars & rods

Structural Steel

Sheet steel

25–30%55%

Little boys beat giants by disruption

Quality of in

tegrated mills

’ steel


Quality of m


Ste

el

Qu

ali

ty

19801975 1985 1990

Rebar


Structural Steel

Sheet steel

Disruption generates repeated upside surprise

Index of 30 successful (Ex Post ) disruptors: 46% per

year for 10 years post-IPO

Performance of Disruptive Innovation Fund (ex ante) 2002-2010: 29% per year

$1

$1

$2

$4

$8

$16

1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Nucor Closing Stock Price Adjusted for Stock SplitsNucor share price (adjusted for splits)

$1

$2

$4

$8

$16

$32

27% CAGR


Non-c

onsu

mer

s

or N

on-

cons

umin

g

occa

sions

Diff

ere

nt

measu

reO

f Perf

orm

ance

Time

Per

form

ance

Time

Pocket radios

Portable TVs

Hearing Aids

Tabletop Radios, Floor-standing TVs

Path taken byvacuum tube manufacturers

Expensive failure almost always results when disruption is crammed into direct competition with established technology

Path being taken by:•Electric vehicles•Solar electricity•Wind power•Biofuels

PROCESSES:

Ways of working together to address recurrent tasks in a

consistent way: training, development, manufacturing,

budgeting, planning, etc.


What is a business model, and how is it built?

PROFIT FORMULA:

Assets & fixed cost structure, and the margins & velocity

required to cover them

THE VALUE PROPOSITION:

A product that helps customers do more effectively, conveniently & affordably a job they’ve been trying to do

RESOURCES:

People, technology, products, facilities, equipment, brands, and cash that are required to deliver this value proposition

to the targeted customers

© 2007 Innosight LLC 8

7%

4%

Quality of m


12%

8%

18% 22%

% of tons

Ste

el Q

ualit

y

19801975 1985 1990

Rebar


Structural Steel

Sheet steel

25–30%55%

Evaluating investments on marginal rather than full costs biases incumbent leaders to leverage what they have, instead of building what they need

Quality of in

tegrated mills

’ steel

$350285

65

Minimill$350

15335

Marginal$350340

10

ExistingPriceCostNet

Outsourcing often sets in motion disruptive business model liquidation

Mother boards

Computer assembly

Supply chain& logistics

Product design

Brand

Dell AsusTek

Simple circuit boards

Mother boards

Computer assembly

Supply chain& logistics

Product design

Brand

Wall Street Analysts

Pharmaceutical Cos.

Petroleum Majors

Auto companies

IT departments

Customer Supplier

Bloomberg

CROs.

Halliburton,Schlumberger

Tier One Suppliers

TCS, Infosys, Wipro

Outsourcing often sets in motion disruptive business model liquidation


The right product architecture

depends upon the basis of competition

Compete by improvingspeed, responsiveness and customization

Per

form

ance

Time

Compete by improvingfunctionality &

reliability

IBM Mainframes, Microsoft Windows

Proprietary, in

terdependent archite

ctures

Dell PCs, LinuxModular o

pen architectures

Changes in product architecture have profoundly changed the architecture of the computer industry

Equipment

Materials

Components

Product design & assembly

Operating system & applications software

Sales & distribution

Field service

Intel, Komag, etc.

Compaq, Dell, Gateway

Best Buy

Geek Squad

Microsoft

1960 - 1980 1980 - 1990 1990 - Present

IBM

Con

trol

Dat

a

Dig

ital E

quip

men

t

Monsanto, Sumitomo Metals, Shipley, etc.

Teradyne, Nikon, Canon, Applied Materials, Millipore, etc.

App

le C

ompu

ter


Modular Architectures

Per

form

ance

Time

Interdependent Architectures

Integrated companies with proprietary products typically commoditize their suppliers

CommoditizerIBM

CommoditizeeApplied Magnetics

General Motors Dana Corp.

P&G Dow Corning


Copy features

Add features

The law of conservation of attractive profits

Commoditization thru modularity, over-shooting

De-Commoditization: services & productsthat make use of the product more effective

De-Commoditization: sub-systems that drivethe performance of the modular product


So what should theHarvard Business School Do?

Market Understanding that Mirrors how Customers Experience Life

“The customer rarely buys what the company thinks it is selling him” - Peter Drucker

Three levels in the architecture of a job


What’s the job-to-be-done – the basic problem the customer is facing, and the result that she needs?

(Each job has functional, emotional & social dimensions)

What are the experiences in purchasing, using and living with the product that we need to

provide in order to get the job done perfectly?

What and how must we integrate in order to provide these experiences?

Targeting the job enables precision in product development


Product category

Too many features; wrong

features

Customer category

One-size-fits-none product

Job to be doneProper

integration of all needed experiences

– The market is much larger

– Their share is smaller

– Their real competitors aren’t in their product category

– Growth potential is greater, because non-consumption is usually a major competitor

– They can integrate properly

– Building a valuable brand is straightforward

Companies that segment markets by job find:

Integrating correctly to provide the experiences that get the job done is the

essence of defensible differentiation

• Ikea vs. Levitz

• SAS vs. (_____)

• Zara vs. H&M

• Federal Express vs. Emery Air Freight, UPS

• Disney vs. Six Flags

• OnStar vs. Toyota, Volvo

• Hilti power tools04/18/23 Copyright Clayton M. Christensen 20

– Focus investments where returns are most attractive

– Understanding the customer is the key to successful innovation

– Big markets generate bigger businesses than small markets

– Outsource low value-adding activities that aren’t your core competence

– Ignore sunk and fixed costs; make decisions based upon marginal costs and marginal revenues

Principles we teach that aren’t always true:

4/10/2015Copyright Clayton M. Christensen1 Creating new growth and Managing it more effectively...

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