Christensen on Data

Rotman's Martin Prosperity Institute's hosted a conference today on Knowledge Infrastructure. The conference featured many great speakers, including Clayton Christensen.

Christensen's big message was that we have to be careful about depending too much on data, particularly data collected by other people. Data does not represent a universal truth: somebody decides what data to collect and what not to collect. That choice in and of itself can influence or even obscure truth.

He strongly advised people go 'dumpster diving' for their own data, so that they choose the pertinent data that exactly pertains to the question they're trying to answer. "Using somebody else's data won't lead to the truth". He argued that everyone who does important things creates their own data.

Direct data is similar to direct observation.  In my experience, observations have the greatest power when you observe them first hand. Just as physics tells us that electrical signals and waves attenuate over distance, so the power of observations attenuate for each step away from the original observer. Christensen was arguing that this applies also to data; it loses its power for explanation unless it's a dataset you create yourself to answer the specific question you have in mind.

Christensen also described the stages involved in creating good theory as a summary of some things he was currently thinking about. Clearly not an off-the-shelf presentation, Christensen said it was the first time for this presentation and that his presentations were crummy the first four times! Not crummy, for sure, but lacking the luminous clarity and inevitability of logical flow of the previous presentations I've seen.

I was saddened to hear that Clay is currently undergoing chemotherapy. He's suffered so many medical issues - heart attack, cancer, stroke, diabetes - but his cancer had been in remission.

Christensen Wins - Again!

Clayton Christensen has topped the list of best Business Thinkers, for the second time in a row.  His seminal book, The Innovator's Dilemma was published in 1997, but by 2001, he was only ranked 39th on the list.

Why did it take so long for him to be recognized? The Innovator's Dilemma proposes a number of counter-intuitive explanations of why 'great companies fail'. When I first met Clay in 1997 and heard these ideas, they hit me like an bolt of lightning "Ah that explains so much!" But I had had a somewhat unorthodox business background by then, and I was totally unschooled in and untainted by traditional business and MBA thinking. For most people it took years for these powerful ideas to percolate.

Today, Christensen's thinking has profoundly influenced management thinking, although the words 'disruptive innovation' are applied to just about any new idea or product, even when they are not in the least disruptive. In any case, it's great to see my hero recognized and I'm betting this honour will stimulate even more people to read his important books.

Note that Kim and Mauborgne, authors of Blue Ocean Strategy sit at #2. Blue Ocean Strategy is an elaboration of the theory of disruption, with the addition of a great visualization approach that enhances explainability of disruptive innovation.  Canada can be really proud to see Roger Martin and Don Tapscott in third and fourth spot.  Women hold 4 of the top 10 spots on the list, representing a significant breakthrough, and Chinese squeeze into 31st and 50th positions for the first appearance of Chinese thinkers on the list.

MOOCs - A Coming Onslaught

I've been writing about, talking about, thinking about and taking MOOCs (Massive Open Online Courses) for quite a while now.   I've just read Thomas Friedman's recent New York Times article about MOOCs.  He and I are pretty much on the same page - although a lot more people read his page than mine!  Of course, Clayton Christensen has been talking about education being ripe for disruptive innovation for years and published Disrupting Class five years ago.

Friedman points to the emergence of Professor as Rock Star.  I've long made the point that, with the globalization of education, the few will rise to the top and drive out mediocrity. Friedman describes how  Harvard Humanities professor Michael Sandel, has become a rock star in Korea and China.  I first heard Sandel speak at the TED conference in 2010 and I've just signed up for his upcoming Justice course on edX, the joint MOOC platform of Harvard and MIT.  Regular readers of this blog may soon read more about that course.

Who wants to learn high school math from a crappy, or even mediocre, high school math teacher when you can learn from the incredibly popular and engaging Salman Khan at Khan Academy?  Who wants to learn history from a schmuck at a third-tier university when you can learn at the feet of Jeremy Adelman of Princeton?  (see my rave review of his Coursera course here.)

I've mused about this rock star phenomenon with my students in the Managing Innovation course I've been teaching in two different MBA programs since retirement from full time employment.  I consider myself a 'pretty good' teacher, regularly earning Teaching Excellence awards at University of Toronto's Rotman School of Management and complimentary comments from students.   But world class?  I think not.  Clayton Christensen is not teaching online yet, but if someone were to be given the chance to learn from this rock star, the pre-eminent world expert on innovation, or from Lib Gibson, they'd be crazy to choose me.

So what are the prospects for a good-but-not-world-class professor?  As lectures become available online, institutions are experimenting with flipping the classroom model: watch the lectures online in your own time at your own pace  and do homework or discussions during class.  San Jose State is flipping that classroom with MIT's introductory Circuits and Electronics course and College Preparatory School in East Palo Alto is doing the same with Salman Khan's math videos.   Perhaps there'd be scope for people like me running those discussions.  But this prospect would be rather gloomy if teaching was my chosen career.  Such outsourcing would definitely diminish my value.

Another of Friedman's points is about the coming shift from the Time Served model of education to the Stuff Learned model.  Sitting through high school, and getting a graduation certificate (of uncertain pedigree since different high schools have such different standards), will no longer be the benchmark.  Rather, your actual competence in a subject will be measured.

A good example of this is my own abortive registration for Calculus: Single Variable by Professor Ghrist of University of Pennsylvania.  I had two motives.  One was a crazy desire to refresh my memory about calculus and one was to see Professor Ghrist's teaching methodology, which looked downright exciting.  I was advised to take a self-administered test before starting the course to ensure I had the right background: if I scored less than 80%, think twice about registering.  So, I have a Masters in Math, and I've even taught first year calculus - a mere 43 years ago - although I've never used a stitch of what I learned.  The Axiomatic Foundations of Algebraic Topology (my thesis topic) doesn't exactly come up in everyday conversations.  Well, I was even rustier than expected and I didn't come near scoring 80%.  So I self-selected out of the course.  (Maybe I'll go to Khan Academy and brush up on some of that prerequisite stuff).

So how does this differ from what happens now?  I'm sure that with a credential like a Masters in Math, I'd have been accepted into that course.  In the bricks-and-mortars world, my bum in that seat would have denied a chance for another more worthy student.  In the world of 'infinite' capacity, I can decide whether to take the course or not, without impacting access for anybody else.  And there was a great online tool to help inform my decision.

Clayton Christensen on the early days of Disruption Theory

There's a short video of Clayton Christensen on the HBR Blog Network.  In his quiet way, he  describes the wide applicability of his theory of disruptive innovation, in spheres as diverse as chip manufacture and the military.  Well worth a few minutes of your time to hear about the early days of the idea of disruption exploding in the marketplace of ideas.  Click here.

Innovation and Getting Out of Recession

Clayton Christensen has revolutionized our understanding of innovation - and in fact business - by providing a theoretical framework around sustaining and disruptive innovation[1].

A couple of days Christensen published an article in the New York Times, showing how different types of innovation either created, destroyed or just maintained jobs in the overall economy.  And without new jobs, the US will not emerge from recession.

Empowering Innovation (what he has called new market disruptive innovation in the past) creates jobs, whereas efficiency innovation (what he has called low-cost disruptive innovation) destroys jobs.  Sustaining innovation doesn't create jobs, but does manage to preserve reduced job numbers in an industry that might otherwise fade away.  Very interesting analysis.  It takes his thinking about innovation at the level of an individual company to a thoughtful analysis of how innovation affects a whole nation.

He goes on to discuss the perniciousness of some of our financial metrics for measuring company success.  Let me take one he mentions, RONA, or return on net assets.  You can improve this ratio, like any other ratio, by increasing the numerator (return or profitability) or reducing the denominator (net assets).  Too many companies have focused on the denominator, clearing net assets off their balance sheets.  Outsourcing manufacturing activities to another party gets those big expensive factories (assets) off your balance sheet, improving RONA but outsourcing jobs and reducing your own control of your destiny in business.  And it certainly doesn't grow jobs in your own country.

I highly recommend reading this article.  It'll get you thinking.

[1] Disruptive innovation is a term of art coined by Christensen.  It's means something quite different from what you'd read in a dictionary by looking up disruption.  Read The Innovator's Dilemma to get the whole picture, or my post here to get a quick summary.

Revolution in Education

Adelman and the ivied walls of Princeton

When my daughter attended Princeton, I was filled with immense pride and a dollop of envy.  The pedagogical experience was awesome - the small classes and individual attention from world class faculty showed the wisdom of her decision to eschew Harvard in favour of Princeton.  


Now I've just registered to take A History of the World Since 1300 from Princeton professor Jeremy Adelman, starting this September.  How, you might ask, is this woman in Toronto taking a course at Princeton?  Coursera is the answer.  Coursera offers online courses from 17 of the world's top universities, free. I certainly won't get the individualized learning experience of an undergrad at Princeton, but I will learn from one of their top faculty.


And that's not all:  I also registered for Healthcare Innovation and Entrepreneurship taught by Bob Barnes and Marilyn Lombardi of Duke, and Critical Thinking in Global Challenges by Celine Caquineau and Mayank Dutia of University of Edinburgh.  The breadth of choice, even at this early stage, is amazing.  To peruse the courses on offer at Coursera is to be a kid in a candy store.

There is one downside - in Adelman's email to me confirming registration, he already handed out pre-reading.  

Thank you for your interest in global history.  This is a course I have taught for many years, and I never cease to find it a source of excitement.  We will be in touch with more details when the class starts.  But in the meantime, you should feel free to start reading the recommended textbook, Worlds Together, World Apart (3rd edition), Volume 2.

Hmm, some things are the same about online education.

This course will run for 24 lectures of 50 minutes each, with regular assignments of map tests and short essays.  The lectures are expected to take two hours, including the embedded assignments, plus two hours for writing and three hours for reading each week.  

In 1997, Clayton Christensen introduced the concept of disruptive innovation in his book The Innovator's Dilemma (named one of the six best business books of all time by The Economist) and Coursera is disruptive innovation at its finest - a product that is "not as good as" that offered at traditional institutions.  At least not by traditional standards.  You can forget the ivy-clad walls, the chance to talk to the prof in person after class, parties, football games, and most importantly, that certificate on the wall saying you're a Princeton grad.  However, it's vastly more convenient and accessible for people who would not otherwise be able to attend university, let alone storied Princeton.  Many advocates argue that, for many topics, online learning is actually better, because of the frequent progress testing, and the ability to proceed at an individualized pace.   And did I mention it's free?  That's what disruptive innovation is all about, less good on traditional attributes, but 'disrupting' an industry through the introduction of some new attribute that overturns our whole view of the industry, in this case the opportunity to take a Princeton course while staying at home in Toronto, doing it on my own time, and doing it for free. 


A typical reaction of people vested in an industry threatened by disruption is to treat the disruptor with disdain.   It's no different in education.   I've met people who sneer at a degree from University of Phoenix, a pioneer in online education and the largest university in the US, and liken it to a mail-order degree.  And an MBA from Athabaska?  Pshaw.  It doesn't hold a candle to an MBA from one of Canada's prestigious programs.  


However, disruptive innovations undergo continuous improvement over time, and ultimately challenge the leading incumbents.  Just look at the universities involved in Coursera, and it's hard to justify disdain: University of California (Berkley and San Francisco), California Institute of Technology, Duke, Ecole Polytechnique National de Lausanne, University of Edinburgh, Georgia Institute of Technology, University of Illinois, John Hopkins, University of Pennsylvania, Princeton, Rice, Stanford, University of Michigan, University of Toronto, University of Michigan, University of Washington.  Then, there's edX, started by Harvard and MIT and recently joined by University of California at Berkeley, offering mostly courses in Computer Science.  Clearly, the big names are jockeying for position in this new arena.  

The limitations of online education are sure to be diminished over time.  New generations find online social media as satisfying as real-life interactions and they may not miss university social life quite as much as the older generation expects them to.  For this history course, Princeton is not offering an official credit, but will provide, with my approval, data documenting my progress and performance.  This is definitely inferior to a course credit or degree from Princeton, for students or potential employers. 


However, it doesn't take much imagination to envision testing centres, similar to those for SAT tests, to enable those taking courses online to get official credits for the courses they take.  How will an employer respond to an applicant who has a full load of course credits, spread over 8 world-class universities, but no degree from a single one of them?  It unbundles the idea of a 'degree' as we've known it.   


Will students get very picky about where they take course and from whom?  Think of a student given the choice between taking a course from a local university, potentially from an unseasoned or just plain weak professor, or taking the same material from a renowned professor who's earned a global reputation for this course?  As a adjunct professor in a couple of MBA programs myself, I can certainly understand the threat of this competitive breeze down my neck.  Teaching faculty could be disrupted as much as the institutions themselves. 


Coursera's founders are from Stanford and they are funded by two Silicon Valley venture capitalists.  It's not been stated what the eventual business model will be - is the initial free offering to be superseded by fee-based courses once the concept is established?  Stanford Department of Engineering was a pioneer in online courses online: a graduate course in Artificial Intelligence last year attracted a remarkable 160,000 students from 190 countries.  


Of course, it's not an either/or decision.  Online courses are already popular with 'regular' college students.   As reported in the Sloan Consortium 2011 report, almost one third of students at college in the US are taking an online course.  Online education can also be a supplement to traditional education.  Perhaps the greatest success story of online education is the Kahn Academy.  Started 'accidentally' by Salman Kahn who was tutoring some cousins at a distance through online lectures - no fancy technology, just a YouTube video of Kahn with his engaging manner and the equivalent of a black board for notes.  Those first efforts have led to a site with over 3,000 videos and millions of views (see Kahn's TED talk for more information about some of the revolutionary techniques being used in K-12 curricula).  


As education costs continue to spiral upward, the cost effectiveness of online education will become even more important - consider that one Stanford prof teaching 160,000 students!  It could also lead to the unbundling of university degrees, the enhancement of the brands and success of the top universities and the erosion of second-rate institutions, the need for much fewer teaching faculty - in short a revolution in education.  It's happened in many other industries.  There's no reason education would be exempt.


Education is in for a revolution.  I'm excited to be a small part of this revolution as a student of my first online course.

Jobs and Jobs

In Steve Jobs, author Walter Isaacson mentions how deeply Jobs was influenced by Christensen's book The Innovator's Dilemma.  But there's another point of intersection between Jobs and Christensen. 

Clayton Christensen has popularized the notion of organizing yourself by considering Jobs to be Done.  Think of customers as people who hire your product to get a job done.  No one wants a 3/4" drill; they want a 3/4" hole.  Christensen advocates organizing your market research around understanding what jobs people need to get done, and to designing your products around getting those jobs done.

The Apple stores were designed around Christensen's idea of Jobs to be Done (although that connection is not explicitly mentioned by Isaacson).

Here's how it happened.  Jobs had decided that in order to control the entire customer experience, Apple had to have retail stores.  The board thought he was crazy.  Jobs knew the way to convince them was to build a prototype store for them to see.

He recruited Ron Johnson, who had been VP for merchandising at Target, to design the stores.  By October 2000, the prototype was just about ready to unveil: a stark minimalist style, designed with Apple flair, and organized around Apple products.  But then Johnson had an epiphany and realized the store needed to organized around the jobs that people want to do, like listening to music, or managing photos.

Apple store - Tyson's Corners

 There was an explosion as Jobs recoiled from the prospect of such a major redesign.  However, after sleeping on it, Jobs knew Johnson was right, and the launch was deferred for a few months in order to get it right. 

A new prototype was built, the board was convinced, and the first Apple store opened in May 2001 in Tyson's Corners, Virginia.

TED Book Club Selection - November 2011

 Today, the lastest TED Book Club Selection arrived, Walter Isaacson's biography Steve Jobs.  What an appropriate choice!  Both TED and Jobs stand for Technology, Entertainment and Design. I've received many comments on my posts about TED book selections, showing that many people enjoy hearing what the folks at TED have chosen.  So I decided to post this, even though I've barely begun the book.
 

Jobs life is linked to three inspirations in my own life: Clayton Christensen, TED and Ian Sharp. 

 

It's said that Jobs was inspired by Clayton Christensen's book The Innovator's Dilemma, and that it was pivotal in molding his views about innovation.  I've talked about Christensen's ideas in previous posts (such as this one).  I celebrated the fact that The Innovator's Dilemma was chosen as one of the six best business books of all time(click here), and that Christensen was named the top Business Thinker (click here).  These posts explain why I think Christensen's ideas are so important, and if you examine the trajectory of Jobs' career, you can see his products as an illustration of Christensen's theories.  Consultants from Innosight (the firm founded by Clayton Christensen) had a great article about the innovation lessons learned from Steve Jobs.  I've seen lots written about Jobs recently, but that assessment is my favourite.

Jobs' life is an illustration of the very essence of the TED conference.  So many conferences bring together people with shared interests in a particular field.  They are very focused, and can often provide deep information, but seldom any true inspiration because they simply reinforce an industry's entrenched way of thinking.  TED is different - it brings together people from a wide variety of disciplines and the sparks of creative and innovative thinking fly.  Jobs similarly capitalized on the breadth and depth of his interest in technology, entertainment and design in the breathtaking innovation in his products.  In just the first few chapters, there have been appearances by people I've met at TED like Larry Brilliant and Stewart Brand, and the index reveals more to come.

The description of those early days in Silicon Valley brings back memories of my early days in  timesharing (now called cloud computing) in the early 70s in Canada.  I worked for I.P. Sharp Associates, a pioneering software and network communications company, led by the brilliant and unassuming Ian Sharp (shown at left).  Ian's penchant for hiring bright people resulted in a company full of them.    Like Jobs, many 'Sharpees' had dropped out of university  (often leaving the US motivated by the Vietnam draft).  Like Jobs, some of them had nevertheless earned a BA (brilliant & abrasive) or a BE (brilliant & eccentric).  Ian exhibited huge tolerance of eccentric behaviour as long as people were contributing and were respectful of their colleagues and focussed on solving customer problems.   Jobs' success arose, at least in part, from the diversity of his interests and his appetite for ingesting ideas from many fields. Ian's disregard for people's area of specialization meant that I.P. Sharp was seething with people from diverse backgrounds - computer science as well  as education, mathematics, biology, music and many fields.  (It was also full of 'minorities', because Ian seemed blind to nationality, religion, skin colour, or sexual orientation).

Authorized biographies often present a somewhat varnished version of events.  What has surprised me so far about this book is that it shines a glaring light on both Jobs' brilliance and his less desirable traits.  Jobs and Wozniak have just founded Apple, and Jobs' trademark chutzpah, passion and single-minded drive are already evident.  The reality distortion field has made its appearance.  So has Jobs' arrogance, although that aspect of his personality remains to be polished and honed.  His penchant for abuse and his 'anti-loyalty' is disturbing to read about.   Perhaps it's a final comment on Jobs' unfailingly high  self-esteem that he was willing to support a book that could present him in such an unforgiving light.

 

Best 50 Business Thinkers

Clayton Christensen has been ranked #1 in the Thinkers50 assessment of the best business thinkers of our day.  The Thinkers50 uses ten criteria to evaluate thinkers: originality of ideas; practicality of ideas; presentation style; written communication; loyalty of followers; business sense; international outlook; rigor of research; impact of ideas and the elusive guru factor.  The thinkers are judged by a panel of advisors and includes votes from people who have answered the question "Who is the most important living management thinker?"  

Christensen's work is covered in several books, but his most influential contribution comes from the formulation of disruptive innovation theory first proposed in The Innovator's Dilemma, recently named one of the best six business books of all time by The Economist.  (see my post on this topic here).

Christensen's acceptance speech is a departure from straight business talk.  He waxes philosophic about the parallels between business theory and its application to personal life.  He refers to Mintzberg's work on the difference between deliberate and emergent strategy - the deliberate  being a unwavering pursuit of a specific intention with a fixed strategy, the emergent being a process where a series of actions in response to external situations or realities develop into a strategy.  Clay uses this framework to conclude that he doesn't want to leave it to chance what kind of person he wants to be (deliberate strategy), but that he entrusts how he gets there to emergent strategy that adapts to unknown threats and opportunities.  He is integrating this kind of thinking and discussion into his teaching at the Harvard Business School.

   

 I was proud to see several Canadians featured on the list.  

Roger Martin, Dean of the Rotman School of Management (and my boss, since I teach there as an Adjunct Professor), vaulted to sixth place.  Martin is best known for the concept of integrative thinking as a way of solving business problems, and design thinking as a path to success in business. 

At the ninth rank is another Canadian (who also happens to teach at Rotman), Don Tapscott,  who writes on impact of technology on society, including such books as Growing Up Digital and Wikinomics.

Can we count Malcolm Gladwell as Canadian?  He was born in England and now lives in the US, but he grew up in Canada.  So let's count him as Canadian.  Gladwell is one of those journalists who investigates patterns and presents new possibilities in clear and understandable language.  Books such as The Tipping Point, Blink, and Outliers have engaged the public in presenting new ways of thinking of things.  Gladwell made it as #10.

Coming in 30th position was Henry Mintzberg of McGill University, recognized for his work on organizational theory and emergent strategy (as described above).

 I heard recently that publishers estimate that only 30% of the business books people buy are actually read.  This kind of honour helps filter the books that I really should be out reading.

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.

Driving Disruption in Healthcare

After a rather long hiatus (for a long variety of boring reasons), I'm going to try to catch up with quite a few new posts.

To be in an industry that is being disrupted can be anything from disquieting to distressing to downright terrifying.  Most people in such an industry will respond disruption with denial.  So how do you get them past denial?  Creep up on them with a story from a different industry, so they can understand the concepts and hope they recognize the application to their own industry. 

There’s a story Christensen tells of how this happened at Intel.  Christensen described how the conventional integrated steel industry was disrupted by mini-mills making inferior steel cheaply.  The mini-mills captured the rebar market, bits of steel which are embedded within concrete, a market that needed only low quality and exhibited great price sensitivity.  Since the integrated mills considered this the least interesting segment of the market –  `nuisance´ customers who were the smallest market segment with the lowest profit margin – big steel almost welcomed loss of their rebar customers to the new mini-mills.  Moreover, they disdained these new mini-mills who could only produce steel good enough for the lowly rebar market, and assumed they could never produce steel good enough for any part of the market except rebar. 

But the mini-mills moved quickly up the technological improvement curve and peeled off one segment after another of the steel market, each one bigger and with a better profit margin than the last.  Eventually, the conventional steel mills were left defending their best customers, the car makers.  The car market represented the biggest part of the market, and the most lucrative by far, with the best profit margins.  So conventional steel looked seemed to be doing very well, as their profit margins had steadily increased with the departure of the lower-margin customers.   Until, that is, the mini-mills figured out how to make automotive steel, and conventional steel was wiped out. 

The conventional steel companies had known about the mini-mills for years; they simply didn’t consider them a threat, because of their `crummy' products.  They were complicit in mini-mills taking over the steel market, because they were happy to yield small markets, with low margins and cranky customers in order to focus on bigger markets, with higher profit margins and customers who valued their quality. 

When he heard Christensen tell this story, Andy Groves, Intel’s brilliant CEO, exclaimed, “That’s what’s happening to Intel.  We’re losing the low end of the chip market, and we’ve been complacent about it because they’re the lowest margin segment of the market.  But those low-end chip makers will keep peeling off low-end segments of the market, until they attack our core business”.  Groves acted decisively and built a new low-end chip business for Intel.

And Christensen’s message to the OHA was that the hospital industry was about to be disrupted – in fact had to be disrupted if we are ever to get healthcare costs under control.   And one way they will be disrupted is by simpler hospitals, those without the incredible sophistication of high end acute-care teaching hospitals.

To bring home his point, Christensen describe a company that made axles.  Their oldest plant was about to be closed down because they had the highest per-unit cost, due to high overhead costs.  The manager sought Christensen’s analytical help.  As she and Christensen compared this plant to all the rest, they realized that this was the only plant that offered to build any sort of axle.  The plant layout looked like this:

 When orders came in, they followed different paths through the plant.  This put a high burden of overhead costs on the plant.  Other plants had essentially laid out the different departments in a straight line, and only accepted certain orders, that fit their pre-arranged pattern.  Christensen likened the axle factory to today’s general hospital, whose main costs are due to their very general nature; patients take totally individual paths through the hospital.

Christensen compared this to the Shouldice Hospital in Toronto, which has done the equivalent of those newer axle factories.  They deliver only one treatment, hernia repair, basically in an assembly line.  Thirty patients operated on daily, a full briefing for everybody the night before, walk away from the operating table after their local anaesthetic, and home after a good night's sleep.  When you compare the cost of hernia repair at Shouldice versus a typical acute-care teaching hospital, it's hugely cheaper at Shouldice.  The direct costs are slightly less, but the overhead costs are massively less.  This also follows the pattern of medical services drifting to the simplest - and cheapest - locale possible, as described in the previous post.  

Clayton Christensen

For many years I've admired the groundbreaking work of Clayton Christensen on innovation.  I first met Christensen back in 1998.  I was working at the Globe and Mail and Thomson Newspapers (the owner of the Globe at the time), invited me to an all-day session in Boston where Christensen was presenting his theory of disruptive innovation.  We were given a copy of The Innovator’s Dilemma (judged by The Economist as one of the six best business books of all time), and treated - and I do mean treated -  to Christensen’s eloquent explanations.   It was an epiphany.  So much of what I had observed in the world of business suddenly clicked into a framework.  And so much of what I’ve done with my professional life since then has hinged on that original exposure to his ideas. 

The big ideas that I took away with me from that day, and subsequent exposures to his theories are:

• Technology improves faster than users’ ability to absorb, or willingness to pay, for those improvements
• Incumbent companies, seeking to maximize profits and margins and cater to their biggest and best customers, focus their attention on the possibilities at the top end of that technological curve, overshooting the majority of the market
• Disruptive innovations offer just good enough quality on traditional attributes, but provide exceptional cost effectiveness, convenience or accessibility that appeal to the least demanding consumers or non-consumers
• Technology improvements make these products good enough to take over the core markets of the incumbents (see first point above), while incumbents are loath to compete because to do so would attack their own business models

As this little summary suggests, it’s all about the business model and doing things in a radically different way – usually starting by offering less than what’s already there.

Give me 5 minutes and a cocktail napkin, and I will draw the above diagram to explain disruptive innovation to anyone who'd like to hear  - and many who would not!

Fast forward to my taking a job as Corporate Advisor to Michael Sabia, the CEO of BCE.  The  first thing I did was recommend that he should read The Innovator’s Solution, Christensen’s second book.  BCE, as Canada’s largest telephone company, was the prime victim in an industry which was being totally disrupted.  Could understanding the process of disruption help us on the path to seizing opportunities in this new world instead of being victimized?  I thought that getting the boss to read Christensen would be a good start.  I arranged a copy of the book for Michael.  He said he’d try to read it on the weekend.  On Monday, I eagerly called to see whether he'd found time in his frenetic schedule to read it.  “No”, he said.  There was a big pause while I swallowed my disappointment.  He went on to say, “I read it twice”.

And so began my fantastic journey in getting to know Christensen better and in working with him and learning from him.  We did several projects with him at BCE, involving him speaking to groups of executives, from which sprang various workshops to discuss specific implications of disruption theory for the communications business.  He would start such talks and workshops by expressing his honour to be there, learning from a great company.  (Over the years, I came to see this humility was not assumed but real).  He would then present his ideas with crystal clarity.  Questions were welcomed with remarks such as “You know, that’s a great question.  It really gets to the heart of the matter.  Thanks for asking”, after which he would deliver a succinct and lucid answer to the question.   He was always generous with praise for his students and  anyone who had contributed to his thinking.  When he invited my comments on his upcoming book, he took my modest input and criticisms seriously and, to my surprise and delight, I was mentioned in the acknowledgements.    You always walk away from a conversation with Clay impressed by his wide-ranging intellect (not to mention his 6'8" height!), but, remarkably, you also say to yourself “Gee, I never knew I was that smart”.  He just has that effect of making you feel good about yourself.

So, what prompted me to suddenly write this paean?  It was Clay’s recent address to the Ontario Hospital Association.    Clay was invited to speak because of his recent book The Innovator’s Prescription.  He’s been tussling with the ideas of disruption and how they apply to healthcare for several years now.  So he was a logical speaker for the OHA’s annual conference.   

However there was a little glitch in the plan.  After fighting off cancer last year, a heart attack before that, and diabetes since he was 30, he suffered a stroke in July which left him with expressive aphasia, the loss of the ability to produce language (spoken or written).   Wow, what a crime to have this happen to this most eloquent of men. 

As you might expect from what you’ve read so far, Christensen did not cancel the engagement, but pushed himself to deliver the talk.  He started by expressing his gratitude to the organizers for their patience with him.  Then he explained that for his whole life, he’d been learning words by writing them on little file cards and storing them away in a file cabinet in his brain.  They all had bar codes on them and a little gatekeeper in his head would pull out the words as he needed them.  However, since his stroke, the gatekeeper had been on holiday.  Would we the audience please excuse him if he sometimes used the wrong word, and shout it out if we could see him struggling to access a particular word without his gatekeeper helper.

Despite the caveats, Christensen delivered to the audience of 2,500 a clearly organized, highly relevant, spectacularly cogent and highly fluent account of disruptive innovation and what it could mean to healthcare.  Indeed, there were a handful of instances when he searched for a word.  You could almost sense the audience leaning forward to help him.  It was a masterful presentation – for someone who hadn’t had a stroke.  It was a stunning triumph for someone who had.  It met with a heartfelt standing ovation and thunderous applause that just didn’t stop.   How well deserved.

In a future post, I'll tell you what he actually said.