The Innovator’s Solution

Clayton Christensen
Michael Raynor

1) How can we beat our most powerful competitors?

Sustaining innovations compete by focusing on their most demanding, high-end
customers and investing where profits are most attractive – typically for more complex
and expensive products that go beyond the range of performance that customers can
utilize or absorb. These are incremental improvements.

Disruptive innovations introduce products that are not as good as currently available
products but offer other benefits – simplicity, convenience, and less expensive to appeal
to new or less demanding customers.

There are two types of disruption:

- New market disruption competes with “non-consumption” to enable a new
population of people to begin owning and using the product.
- Low end disruption competes at the low end of the original value network.

Litmus test for disruption:

- Is there a population of people who historically have not had the money,
equipment or skill to do this themselves and as a result have gone without it
altogether?
- To use it, do customers need to go to an inconvenient, centralized location?
- Are there customers at the low end who would be happy to purchase a product
with less but good enough performance at a lower price?
- Can we create a business model that enables us to earn attractive profits at the
discount prices?
- Is the innovation disruptive to all of the significant incumbents in the industry?

2) What products will customers want to buy?

Market segmentation is artificial. Maybe done because the way the channel is setup or
how marketing is targeted.

Instead connect with specific jobs that people are trying to get done in their lives. For
example, Blackberry’s job is to help people be more productive in small snippets of time.
Typical segmentation will view it as a tool for the traveling salesperson. This results in a
completely different set of features.

3) Who are the best customers for our product?

- Long waited for our product but not able to get it until you arrived on the scene
- Easily delight these customers
- Have all to yourself protected from the advances of the competition
- Attractive to those you work in your value network

To get resources, frame the disruption as a threat.

4) Getting the Scope of the Business Right
When functionality and reliability are not good enough to meet customer’s needs,
companies that have advantage are those with proprietary interdependent architectures,
integrated companies. This makes sense in a not-good-enough world.

When functionality and reliability become more than adequate, companies with modular
architecture, non-integrated companies have advantage and beat competitors with speed,
responsiveness and convenience

Strategies:
- Launch business by providing one piece of a modular product’s value
Wayne Gretzky – skate to where the money will be made in the future

5) How to Avoid Commoditization?

The power to capture attractive profits will shift to those activities in the value chain
where the immediate customer is not yet satisfied with performance. (think of contract
manufacturers)

Commoditization:
- As a new market develops, company has proprietary product that, while not good
enough, comes closer to satisfying customer needs.
- Company strives to keep ahead of the competitors and eventually overshoots what
customers can utilize
- Basis of competition changes to convenience and speed.
- Companies evolve architecture to be modular to compete at better margins.
- Modularity enables dis-integration of the industry. A population of non-integrated
firms can now out-compete the integrated firms.
- Makes it difficult to differentiate cost or performance since industry has access to
the same components and processes

De-commoditization:
- Low cost strategy of modular product assemblers is only viable if they are
competing against higher-cost components. As soon as higher-tier suppliers out
of market, they must move up-market in order to continue to earn attractive
profits.
- Moving up-market is constrained by performance-defining subsystems, these
elements become not good enough.
- Competition among subsystem suppliers causes engineers to design proprietary
interdependent architectures. This results in differentiation with attractive
profitability.

6) Is your organization capable of disruptive growth?

Resources – the people with the right stuff are the wrong people. Not based on past
experience successes, but rather are they willing and able to learn from failure, etc.
Processes – typical processes don’t work that work for mainstream business. Pull people
out of their functional organizations and place them in a heavyweight co-located team.

Values – how people prioritize opportunities. How big a business has to be in order to be
interesting. Make them autonomous. An organization cannot disrupt itself.

7) Managing the strategy development process

Two processes of strategy formulation:
- Deliberate strategy based on rigorous analysis of data. Works well in sustaining
innovations where the competitive landscape is clear.
- Emergent strategy bubbles up from within the organization and is the cumulative
effect of day-to-day prioritization made by the masses. Impossible to get the
details right
o Make the targeted financial projections
o What assumptions must prove true in order for these projections to
materialize?
o Test whether the critical assumptions are reasonable

Resource allocation is based on values that guide prioritization decision.

8) Good Money and Bad Money

Cycle:
- Companies succeeds and faces a growth gap
- Becomes impatient for growth so invest in big expense initiatives with high
promise
- Executives temporarily tolerate losses. But mounting losses precipitate.

Strategy:
- Launch new growth businesses regularly while the core is still healthy
- Start small. Divide business units to maintain patience for growth.
- Demand early success. Impatience for profit.

9) Summary Advice:
- Never say yes to a strategy that targets customers and markets that look attractive to an
established competitor. Find a foothold in a product your competitors will be happy to
ignore or relieved to walk away from.
- Find a way to compete against nonconsumption instead of targeting customers who
already are using pretty good products.
- If there are no non-consumers available, find a low-end disruption. Devise a business
model to make attractive profits at discount prices.
- Do not segment along known dimensions. Find a way to mirror the jobs that customers
are trying to get done.
- In the beginning years, development team remains convinced that they aren’t sure what
the best strategy is.