Lessons from an innovator’s dilemma

I was fortunate to attend a highly insightful day with Professor Clayton Christensen, one of the world’s most influential business thinkers from Harvard Business School.

Professor Christensen, a thought leader on disruptive innovation, left me with some key insights. Given this post is on deadline the same day (Wednesday) as I have been with him, I wanted to share the insights and learnings I took fresh from my experience.

The day was introduced by Communications Minister Malcolm Turnbull and Westpac Group CIO Clive Whincup.

The Communications Minister had some commercially refreshing and engaging insights (setting aside any views on the NBN Co). Turnbull’s key points clearly came from his commercial background:

• The challenge of business is whether to cannibalise their existing business to catch the next new wave of business. The perception of what you think your business should be could be your biggest failure against your competitors cannibalising their business for the future.
• The more established and regulated a large business is, the more vulnerable it is to innovators. Regulation is proving a barrier to innovation.
• Technology “imagination” is the distinction between an IT department/CIO and what the role of the CEO should be today.

Turnbull’s metaphor was that of King Canute and Stephanie Gilmore. Canute wanted to test his power to hold back time. Stephanie Gilmore, as a surfing champion, embraces volatility, the nuances of the wave, bending to the sea in a flexible and dynamic way. The modern day organisation has to act more like Gilmore and less like Canute. “Never say we have always done it this way”, that is the “not invented here” syndrome, said Turnbull.

Clive Whincup shared Westpac’s approach to disruptive innovation. He said Westpac’s philosophy sees every connected customer as a disrupter and innovator and Westpac is embracing the disruption.

The critical mass of people behaving in a different way is a disruptive force that Westpac seeks to routinely implement into their financial services model. In the last two years alone, Westpac now has over two million active mobile customers.

Whincup said it is this type of critical mass of behavior change that creates a social journey, not a technology journey, that means it is the connected customer who is the innovator, not the technology platform.

He ended stating he felt Westpac’s job was to keep up and cater for its customers’ way of living, removing what they don’t want, simplifying what they do want and then getting out of the way. He said making it easier for customers enables technology to deepen relationships, not break relationships.

Enter Professor Clayton Christensen.

For a tall and hugely accomplished gentleman, the professor appears self-effacing, gentle and yet has a commanding presence. You immediately grasp his approach to innovation is based on theory not ideological dreams. This academic approach to the subject of “innovation” stands out against the mountain of content about “how to innovate”.

Early in the morning we were reminded of one of Professor Christensen’s quotes: “Companies fail because they do everything right.” With this in mind, he outlined his theory and arguments for innovation and transformation.

I certainly could not cover the highly valuable content we went through here in this mere blog post, but I can share some valuable insights I learnt today.

Disruptive innovation is not about the technology

Disruptive innovation is not about creating the best products and protecting profits; disruptive innovation comes at you.

Example: Consumer electronics companies in the 70s invested $3b (in today’s money) in improving vacuum tubes for the transistor radio, to make it the best transistor radio possible. Meanwhile, Sony went to market with an average product, the pocket radio, affordable, accessible to a new audience (teens who could now listen to music without their parents listening in). Sony sucked the consumers out of the mainstream of transistor radios and built customers, not the best technology. The technology was good enough for the customer; it didn’t have to be the best.

Customers in a disruptive innovation model are enticed into a new system, not vice versa.

Flee or fight profit response

Becoming efficient to retain more capital is just a recipe for survival.

Professor Christensen used a case study about steel mills, the smaller, nimbler mini mills vs “the mills”.

The giant mills chase profit all the way up the tail, chasing the largest margin and giving away the small margin products to the mini mills. All the way up the tail, until the mini mills are capable have the whole tail covered and the giant mills went broke.

A disruptive innovator takes small margins while creating new markets all the way up the tail, until the big guys drop off having been obsessed with protecting profit and margins, but not protecting markets.

This is a classic risk of the outsourcing model where Dell gave away so much of its operating model, to save profit to Asustek; in the end all that was left was its brand. By that time any brand could take advantage of the Asustek model.

The Church of Finance

Governed by rules of input and output ratios not measured on people performance, there are three types of innovation cycle:

Market creating innovations: Transforming expensive complex products into something less expensive and simple to reach the critical mass. This creates jobs and needs capital.

Sustaining innovations: Making a good product better. This has limited job creation and limited capital investment.

Efficiency innovation: Lower prices, fewer people involved. No jobs. Creates capital.

Professor Christensen explains the dilemma, a world awash with capital at a cost of zero delivers no innovation, but a hope the world will go back to the 1970s.

There is a requirement for a new game, an investment in people and gutsy innovation with a hope the Church of Finance will measure investment in people and old measurements will become defunct.

The marketer needs to understand the job the customer is trying to do

• What causes us to buy a product or service is what crops up or gets the job done during the day – The consumer mind-set
• Marketers should understand “the job” the consumer is trying to do, this is critical for success
• Getting the job done for the consumer is the marketer’s job
• Create a simple purchasing decision (no test drives, no research, no time), create a purpose brand
• IKEA is the best example of a purpose brand – it is a solution to get the job done
• Understanding the “job” is a mining process not an event, don’t flick over it
• Getting the job done is more stable in an unstable world

The above certainly doesn’t cover the case studies and in-depth analysis of theory presented, but it top-lines some key take outs about disruptive innovation and what it is.

It questions us to challenge ourselves, but perhaps importantly, a disruptive innovation is predictive because it is based on theory, so may not be as much of a challenge as you think.

Fi Bendall is the managing director of Bendalls Group, a team of highly trained digital specialists, i-media subject matter experts and developers.