Thursday, July 7, 2011

The Innovator's Dilemma - one of the best 6 business books of all time

This week, The Economist launched a quarterly review of business books.

For their inaugural review, they chose the best six business books of all time.  They included The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail, by Clayton Christensen.  I fervently agree with this choice, as this book was the seminal work that sparked my deep interest in innovation, and Christensen's ideas form the nucleus of my MBA courses on innovation.  My opportunities to work with Clay have been among my most stimulating intellectual experiences; amazingly he's a really nice guy besides.

There are several reasons The Innovator's Dilemma is worthy of this honour.  The first is that it presented a sound theoretical basis for the concept of disruptive innovation and why successful companies can go into a sudden tailspin when their industry is disrupted.  Many business books present anecdotal evidence of how a particular company (or a selection of companies) achieve success; then they extrapolate that behaviour as if it's a general formula for success applicable to all companies.  In contrast, Christensen identifies the industry dynamics that call for different behaviours at different times.  The Innovator's Dilemma sheds light on how a company can be disrupted; The Innovator's Solution and later works provide guidance on how to defend against disruption, or go on the offensive to disrupt an industry yourself.

The second reason the book earned a place on this very short list is because of the impact it's had on the business world.  Christensen coined the term disruption to describe a particular kind of innovation that 'disrupts' a whole industry.  Such innovations are not the ones with the most bells and whistles or the most sophisticated technology.  Rather counter-intuitively, they are just good enough on traditional attributes, but deliver a new kind of value with a revolutionary business model.  

This idea links to one of the other books on this list The Fortune at the Bottom of the Pyramid: Eradicating Poverty through Profits by C. K. Pahalad. The people at the bottom of the pyramid have been considered unattractive because of their limited disposable income; but when you add up billions of these individuals, the market suddenly becomes interesting.   This market needs products that are good enough for their needs, not necessarily to the standard of the top of the pyramid - good enough is almost always better than nothing.  Yet these products that start at the bottom of the pyramid are relentlessly improved over time, and we're starting to see some very interesting products appearing in the developed world that were originally designed for those bottom-of-the-pyramid markets.  GE's portable ultrasound device is a typical example of this.  Developed in India, it will make ultrasound more convenient and cheaper for the whole world.  This is true disruption.

Christensen regrets attributing disruption to technology in his original book; he came to realize that it's the business model that does the disruption.  In fact, in his modest way, he credits Andy Groves, legendary CEO of Intel, with this insight.  In the paperback release of The Innovator's Dilemma, the new subtitle The Revolutionary Book That Will Change The Way You Do Business eliminates the word technology.

Because of The Innovator's Dilemma, the business community has an understanding of the fundamental cause of cycles in the life and death of companies, and how to deal with those cycles.  The powerhouse incumbents in an industry will no longer be taken completely by surprise by such disruptive innovations, the way Kodak was devastated by digital photography, or Western Union by the telephone, or newspapers by Internet content and advertising.

Just today, Jackie Hutter posted on Blogging Innovation how to choose a partner for a company with a radically different battery technology.  Discouraged with their first foray with a big company that didn't seem to get the potential of disruptive innovation, she hypothesized that understanding Christensen could be a filter for choosing partners.  "At a minimum, if the person on the other side of the phone has not read any of Christensen's books, we probably don't want to have a second call".

Christensen has written other books, exploring disruption in specific industries, and what DNA it takes to be a good innovator.

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