The Innovators Solution

Clayton Christensen and Michael Raynor (Cambridge, MA: Harvard Business School Press, 2003)

Reviewed by Kenneth D, Mitchell

 

The Innovators Solution is the answer to the innovators dilemma. The dilemma presents the problem of what a company should do when a competitor (either a start-up or mainline) initiates a new product that directly challenges the market dominance of a well-positioned company. If the company stalls in responding to the dilemma, the delay can throw it into disarray— starting first by affecting the bottom line, then cutting into market share, and ultimately derailing the company. This phenomenon, called disruption, is traced with data and examples throughout the business history of the previous century. The dilemma is something many companies have faced, and most of the well-known companies of today at some point have been disrupters. The authors start with the premise that most mar-ket and product strategies have lim-ited utility and will eventually be challenged by the disruption phenom-enon. Hence, they build a case for a new approach to strategic thinking.

 

In the Solution , the theory evolves to show that disruption comes in several types. Innovators challenge by creating products positioned to compete at the lower end of the mar-ket through launching a variation of a product in use, but one that is less expensive. By providing a less expensive product, but one with good enough functions and features to do the job required, the disrupter attempts to lure customers not willing to pay for the higher end product to adopt a good enough product. This is called the “low-end disruption,” because it strikes at the lower end of the price range of a market. However, the innovative challenger must establish a business model that varies in operation or sets a new combination between revenue and profits to offset the discounted price from the market dominator. Hence, companies like JetBlue offer a calculus of low frills and point-to-point service (no hub stops) that force established airlines into the dilemma. One only needs to look at the bankruptcies of United and US Airways to see the impact.

 

Or the innovator creates a product that becomes a “new market disruption.” Through creating a new product with lower performance in traditional attributes, but with improved performance in new attributes (typically simplicity and convenience), coupled with a business model requiring a lower price per unit sold—including the acceptance of small profit margins—the prospective challenger plots the course of the death march for the market dominator. Wireless telephone manufacturers set their sites on disrupting the traditional phone companies some 25 ago with “cell phones.”

 

Christensen and Raynor present a packaged program for corporate strategists, guided by the means of theoretic propositions developed and explained throughout the book. They prescribe steps and methods for executives to work through for spotting, thwarting, and mitigating a company’s vulnerability to disruption. They start with a series on how to determine if the company’s latest innovation is a disrupter candidate. Next, they provide a series that guides marketers on how to determine just what a customer will buy and what kind of jobs might cause them to seek a product to do the job and simplify work. They also instruct executives how to structure the organization to institute capabilities and capacity to be a disruptor.

 

The reality of successful strategy making is complicated as we learn. For example, Southwest Airlines actually postulated its initial business model on competing against buses and trains, while at the same time scooping up routes with limited business in the traditional airline market. In effect they succeeded with a hybrid disruptor model. So it was for WalMart as well. The strategy succeeded because WalMart positioned itself in small towns that only could support one large discount store.

 

Another important feature presented is the particular trend of the market cast as interdependence versus modularity. The ideal set of circumstances is to have a product that is fully proprietary—one where the company controls the development and sales of all the system’s components. With the right mixture, the company stands to maximize profits, a major goal of strategy. Microsoft is a good example here. One may remember too, back in the old days, within the federal government— before the concepts of “open systems” and “plug and play”—that the military agencies had platform environments for information technology and communication systems.

What one learns about strategy from the book is how market competition is shaping up for the future. Innovation becomes a strategic process according to the authors, which requires a constant research effort on customer knowledge, market analysis, pricing, the competition, and much more. The authors, too, reveal their assumptions of how strategy is developed in the organization. That is, they argue that strategy is emergent. They persuade us that there is a synthesis between the vision prescribed by the corporation’s executives and those actions, investment decisions, and prioritizations that bubble up from the bottom of the organization from among middle managers, engineers, the sales force, and financial staff.

The Solution has been heralded by the business writers at the Financial Times as solid academic scholarship, yet written in language comprehensible and usable for practitioners. Christensen is credited with ability to present abstract concepts into digestible and readily useable form for today’s timepressed executives— presumably unlike most academics that write management books. The telltale signs about this are noteworthy. First, top executives pay little attention to most of what is written by management professors. Corporate executives make the Academy of Management Conferences every August, but almost never stay for presentations beyond their own. Christensen is one of the exceptions to whom they listen. The sales volume for his books is high outside the college campus. In addition, he receives many mentions from top executives publicly and is a frequent visitor inside corporation boardrooms.

 

It is difficult to know, though, if the authors’ methods and views of strategy are viable. In their final chapter they emphasize the key to success with the innovators dilemma and strategy development is full alignment of the conditions they prescribe. At this point, I am reminded about the story of Nicolo Machiavelli. His contemporaries questioned him shortly after The Prince (presumably a good set of postulates on political strategy and human behavior) was published. Critiques argued that when his methods were applied, the outcomes did not always derive the intended ends. Machiavelli was quoted as responding that one must always be aware of fortuna (the factor of chance) when expecting predicted outcomes.

 

Kenneth D. Mitchell is the former director of organizational development for the Analysis Corporation and has now relocated to Florida. He is a frequent contributor to The Public Manager.