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.

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.