Great point about disruption coming from below. Peter Sims (in Little Bets) relates a conversation with Silicon Valley guru Ned Barnholt, formerly VP of HP, who was with Hewlett-Packard during its growth phase, when Bill and Dave were pioneering new markets.
The story of the HP-35 handheld calculator illustrates why big companies get left behind and crumble. HP commissioned the top-rank research institute SRI to do a marketing study of the HP-35, and the conclusion was "this thing can't sell." But Bill Hewlett had done some informal research of his own, talking to users who were enthusiastic, so HP took a little bet making 1000 of them. Within 5 months HP was selling 1000 calculators a day. Later, when HP had become a clumsy giant, with $30 billion in sales, slave-driver management expected the double-digit growth to continue, so the peons could only meet those targets by going after billion dollar markets. Just like the story of GM and Toyota, markets smaller than $1B were too small to worry about. All of HP's careful plans to enter and dominate billion dollar markets failed, because the billion dollar valuation was based on performance of players who were already there and had the patents. Armies plan to fight the last war, and giant corporations want to replicate rather than innovate.
But when big companies fail, like GM, look at the jobs that are lost, so that's why policy makers strongly discourage disruptive innovation. The giants of the old-growth forest, who are shading out startups, must be protected because they are too big to fail.
ORLANDO, Fla. — Clayton Christensen, author and Harvard Business School professor, is a big thinker when it comes to innovation.
On Wednesday, Christensen delivered a keynote here at the Gartner Symposium that left a lot to think about.
Here are five innovation takeaways worth pondering:
- Disruption comes from below. “If you’re worried about what may kill you, look down,” he said. For example, Toyota came into the U.S. auto market with cars that were low-end. GM and Ford answered with the Chevette and Pinto, but the low margin businesses weren’t really worth the effort to the incumbents. Over the years, Toyota became more popular than domestic automakers and simultaneously moved upmarket with its Lexus brand. Now Kia and Hyundai are moving up the auto food chain to take on Toyota.
- Universities are on the verge of being disrupted. Christensen said that colleges are being disrupted by online learning. “We [Harvard and other top universities] measure goodness by the research that the faculty do. The universities that have the most research published in best journals judged to be best schools,” he said. “Online learning institutions measure success by how good teachers they are. When you compare the quality of teaching at online schools vs. quality we have at Harvard, they are so much better than us even as we turn down our noses because they don’t do research.”
- Decentralization can reinvent health care. “Rather than expecting our hospitals to become cheap, we send people out to clinics,” he said. “We bring technology to doctor offices and then homes to begin doing the things you do in a clinic. Drive the technology to the practice, nurses and pharmacists. There are tremendous opportunities for IT in health care.”
- Pursuit of profit ratios distorts innovation. Companies are driven by profits and various margin ratios — leading to the phenomenon where companies outsource low-margin businesses and ultimately entire businesses until nothing is left. That focus on profit percentages — return on assets, for instance — means we manipulate ratios instead of investing in things that grow the economy.
- If you organize product strategy around a job, the business can be defended. “Products are easy to copy, but integration around a job creates defensible differentiation,” he said. One easy example: Ikea, a company built around “furnishing an apartment by tomorrow,” he said. “Everything about Ikea is about organization and making things easy and simple.” Christensen’s big worry: America has lost focus on doing truly disruptive innovations by making products that are simple and affordable.