Disruptive Innovation Clarified

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1:02Hello, I'm Des Deerlove. Welcome to The Idea. My guest today is Professor Clayton Christensen. Clay, welcome. Thanks, Des. What exactly is disruptive innovation? Explain it. Disruptive innovation is not a breakthrough innovation that makes good products a lot better. But it has a very specific definition, and that is it transforms a product that historically was so expensive and complicated that only a few people with a lot of money and a lot of skill had access to it. A disruptive innovation makes it so much more affordable and accessible that a much larger population have access to it. So give us an example of this.

1:51I mean, most people are familiar with the computer industry and how that's developed. Perhaps you can use that as an example. Yeah, so at the beginning, the first manifestation of digital technology was a mainframe computer. It cost several million dollars to buy, and it took years to be trained to operate these things. And so that meant that the largest corporations and the largest universities could have one. And so we had to take our problem to the center where the experts solved it for us. But then there's a sequence of innovations from the mainframe to a mini to a desktop to a laptop and now to a smartphone that has democratized technology to the point that everybody has access to it around the world.

2:36And we are much better off. It was very hard, though, for the pioneers of the industry to catch these new waves. Most of those were created and dominated by new companies. And then you're touching on that gives rise to, this process gives rise to the innovators' dilemma, which was the title of your 1997 book. Yeah, that's right. But how do people get around that? I mean, that dilemma, can you explain the dilemma itself to us? Yeah, so the dilemma is in every company, every day, every year, people are going into senior management, knocking on the door saying, I got a new product for us. And some of those entail making better products that you could sell for higher prices to your best customers.

3:22A disruptive innovation generally has to cause you to go after new markets, people who aren't your customers. And the product that you want to sell them is something that is just so much more affordable and simple that your current customers can't buy it. And so the choice that you have to make is, should we make better products that we could sell for better profits to our best customers? Or maybe we ought to make worse products that none of our customers would buy that would ruin our margins. What should we do? And that really is the dilemma. It was the dilemma that General Motors and Ford faced when they tried to decide, should we go down and compete against Toyota who came in at the bottom, or should we make even bigger SUVs for even bigger people?

4:15And now Toyota has the same problem. As the Koreans in Hyundai and Kia have really won the low end of the market from Toyota. And it's not because Toyota's asleep at the switch. But why would they ever invest to defend the lowest profit part of their market, which is the subcompacts, when they have the privilege of competing against Mercedes. And then Cheri is coming from China doing the same thing to the Koreans. So one of the things I really like about your idea is that they really do have had an impact out there. I mean, some of this thinking has, without question, influenced a whole generation.

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5:32It can help you with practically anything on the web, like restoring a vintage motorcycle from a 50-page restoration block or finally break down that long article you've had open for weeks. Gemini and Chrome is here for it. Ready to make anything online make sense? There's no place like Chrome. Check responses set up required. Compatibility and availability varies 18+. ...managers, including people like Steve Jobs, you're referenced in the biography that he read the book and was very influenced by the book, and possibly Apple I and Apple II are him resolving the innovator's dilemma. But also Andy Grove at Intel.

6:05You had a contact with him. Yeah. I never imagined that I could ever meet these people, let alone be judged as heaven and help them. But I learned a lot from Andy Grove. So what happened was I was just at HBS minding my own business, and Andy Grove called me just out of the blue and said, look I'm a busy man I don't have time to read drivel from academics you know but somebody told me you had this theory and I wondered if you could come out and present what you're learning to me and my staff and then tell us what how it applies to Intel and for me was a chance of a lifetime so I flew out there and turned out Andy was he's quite a gruff man and he said you know stuff's happened to us.

7:01We only have ten minutes for you, so just tell us what it means for Intel." And I said, Andy, I can't because I have no opinion about Intel, but the theory has an opinion, and so I have to describe the theory. So he sat back impatiently, and ten minutes into it he chucked me off and he said, Look, I got your stupid theory. Tell us what it means for Intel. And he got what he got, and he really did get it, you know. And I said, Andy, I need five more minutes because I got to describe how this process of disruption worked its way through a totally different industry. Just so you can visualize what can happen to Intel.

7:38So I described how the mini mills came in to the steel market at rebar and then went up market. When I was done with that, Groves said, oh, I get it. So what you're telling me it means for Intel is. And he described how they had two companies coming at him from below, and Intel needs to go down and not let them go up against us. It was very successful. And that was the cello-on processor. Yeah, that's right. And I've thought about this. If I'd have been suckered into telling Andy Grove what he should do, I'd have been killed, because he knew so much more about microprocessors than I ever would know.

8:18but rather than telling him what to think I taught him how to think and he could reach his own conclusions and that changed the way I teach it's changed the way I talk and the insight is that you know for whatever reason the way they designed the world data is only available about the past and when we teach people that they should be data driven and fact-based and analytical as they look into the future in many ways we condemn them to take action when the game is over the only way you can look into the future there's no data so you have to have a good theory and we don't think about it but every time we're taking an action, it's predicated upon a theory.

9:14And so by teaching managers to look through the lens of a theory into the future, you can actually see the future very clearly. And I think that's what the theory of disruption has done. Clay Christensen, thank you very much for talking to us. Oh, thanks for taking the time to ask such great questions.

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