In his Reinveinting IT talk at the Gartner Symposium ITxpo 2011 Clay Christiansen shared five models that improve the probability of successful innovation. Here are some of my notes from his talk:
- “Little boys beat giants by disruption.”
- Story of steel market: integrated mill vs mini-mills. How the mini-mills took the market starting from the bottom. Integrated mills started to get out of the segments of the market with lower profit margins leaving them to the mini-mills, and gradually the mini-mills started to take each one of those beating the integrated mills with a low cost strategy. Today 60% of the market share is owned by mini-mills and there is only one integrated mill left.
- “Low cost strategy only works when there is a higher cost competitor in your market.”
- To beat a giant pick a small part of the market that is not the core revenue maker for the giants, so the giants will not try to fight for it, they’d rather go to optimize for their profit so they will leave it. (A sort of paradox ~ everybody wins, the bigger makes more profit focusing on higher end products and the smallest increase also their profits because they take completely the smaller market). [Oracle and Toyota examples]
- “If you’re worried about what might kill: look down, not to the left or the right”
- “If you want to kill a giant think: “How can we make it more affordable and accessible so that you can come in in the least demanding tears of the market and then put them on the run, instead of engage with them”.
2) Compete against non-consumption
- Example: How the transistors killed the vacuum tubes? (RCA vs Sony)
- Started a new dimension, creating a new measure of performance to address a market of non-consumers or non-consuming occasions.
- The vacuum tube producers mistake: they assumed they have to keep selling to the same market, even if they invested in technology as much as their current disruptors. Instead, their disruptors created new products that could only be done with this new technology and addressed a new market, a non-consuming market. They competed against non-consumption.
- The size of the market cannot be measured by how many products are being sold, the real indicator should be how many customers can buy them.
- This is called the “new market disruption”: the metric of performance changes.
- “Is there somebody out there competing against non-consumption?”.
- The decentralization that follows centralization.
3) Supply chain distribution
- Talking about outsourcing as a way to get killed or to kill others.
- Example: Dell being driven out of the consumer segment of computing by AsusTek.
- The supplier moving up the value chain is driven by the pursuit of profit and the leading company prefers to move out and leave the lower margin levels of the stack to the supplier.
- Two metrics are usually used to measure profitability (because finance people have preached them):
- Internal Rate of Return (IRR) leads to short wins.
- Return on net assets (RONA) leads to reducing the assets.
4) Target the job, not the customer
- Milkshakes example. They studied the customers and asked them “what job are you hiring you the milkshake for?”.
- Focus on the jobs that your customer needs to get done, rather on trying to convince your customers that your solution is the right for them. This is very similar to the lean startup and customer development methodology.
- Example: a job is sending something from one place to another, it’s a jobs that has existed for centuries, however the way that we solve it now, FedEx, is very different from the way it was solve centuries ago, horse-couriers?.
- “The customer rarely buys what the company thinks its selling him” Peter Drucker.
- Three level in the architecture of a job:
- What’s the job to be done? (Functional, emotional and social dimensions)
- What experiences in purchase and use must we provide to do the job perfectly?.
- What and how to integrate?
- Integrating correctly to get the job done means:
- Jobs are stable over long periods; they’re not vulnerable to product lifecycles.
- Products are easy to copy but integration creates defensible differentiation.
- Customers are happy to pay a profitable price.
- “The job rarely changes, what changes is the way that we solve it”. This is related with the uber-required condition for entrepreneurs: “Be in love with the problem not with the/your solution”.
- Focusing on the job rather on the product will reduce the probability of having a “one-size fits none” product.
5) Catch the tide of decommoditization
He didn’t make it on time to talk about this one, I’ll try to look for it in his book “Innovators dilemma” another day.