Below are some of my key takeaways from reading the book, “The Innovator’s Solution” by Clayton Christensen and Michael Raynor. If you are interested in more detailed notes from this book, they are available here.
Synopsis:
A brief synopsis of the book is reprinted below from Amazon.
“In The Innovator’s Solution, Clayton Christensen and Michael Raynor expand on the idea of disruption, explaining how companies can and should become disruptors themselves. This classic work shows just how timely and relevant these ideas continue to be in today’s hyper-accelerated business environment.
Christensen and Raynor give advice on the business decisions crucial to achieving truly disruptive growth and propose guidelines for developing your own disruptive growth engine. The authors identify the forces that cause managers to make bad decisions as they package and shape new ideas—and offer new frameworks to help create the right conditions, at the right time, for a disruption to succeed. This is a must-read for all senior managers and business leaders responsible for innovation and growth, as well as members of their teams.”
Insights:
Asymmetries of Motivation
Predictable forces guide the manager’s decision-making process. Industry leaders are motivated to go upmarket and don’t defend the low-market creating the “Innovator’s Dilemma”. Company’s values change as they get bigger and they require ever-increasing gross margins and markets before approving a new growth idea. As companies become large, they literally lose the capability to enter small emerging markets.
Attributes vs Circumstances
The authors discuss the process of creating and iterating on a theory. At first, theories are based on attributes of the process being studied and conclusions are limited to identifying correlations, not causation. It’s not helpful to try and copy the attributes of successful companies, you need to understand the circumstances that led to the success to identify the causal mechanism behind the success.
“Theories built on categories of circumstances become easy for companies to employ, because managers live and work in circumstances, not attributes”
“We can trust a theory only when its statement of what actions will lead to success describe how this will vary as a company’s circumstances change.”
Later, the authors apply this concept to product discovery as well as theory development.
“Only if managers define market segments that correspond to the circumstances in which customers find themselves when making purchasing decisions can they accurately theorize which products will connect with their customers”
Sustaining vs Disruptive Innovation
Sustaining innovation targets demanding, high-end customers with better performance. Incumbents are much better at this since their resource allocation process is optimized for this type of innovation.
Disruptive innovation targets lower performance but at a price point that is appealing to the low end of the market. Alternatively, disruptive companies can compete against nonconsumption where a solution hasn’t been available. Disruptive innovation favors new entrants since they have a business model that is effective at the low-end of the market. The low-cost business model then moves upmarket as performance increases, towards higher margin markets, competing more directly with the incumbents.
Never say yes to a strategy that targets customers and markets that look attractive to an established competitor. If you create asymmetries of motivation, your competitors will help you win
Interdependent vs Modular Architecture
When performance and reliability are key differentiators, an interdependent and proprietary product is more appropriate. Eventually, the market can’t absorb additional performance and reliability (overshooting) so the basis of competition shifts to a modular architecture. Modular architectures optimize flexibility at the cost of performance.
This leads to commoditization at that level in the value chain since the modular nature of the product means competitors have access to the same components. This makes it hard to differentiate. This results in a demand for increased performance from these once commoditized subsystems, decommoditizing the industry at the subsystem level.
Resources vs Process vs Values
In the startup stages of a business, much of what gets done is attributed to its resources, particularly its people. Over time, however, the organization’s capabilities shift toward its processes and values. As people work together successfully to address recurrent tasks, processes become defined. And as the business model takes shape and it becomes clear which types of business need to be accorded highest priority, values coalesce. Culture enables employees to act autonomously and causes them to act consistently
Discovery Driven Planning
The resource allocation process is the filter through which all strategic actions must flow in order to affect the company’s course.
The authors describe the “discovery driven planning” process for strategy development. The focus is on identifying key assumptions and creating a plan to test those assumptions as quickly as possible. This is similar in concept to the modern “Lean Startup” and “Agile” software development processes that emphasize building the smallest deliverable possible to maximize learning and the speed of learning
Companies should be patient for growth and impatient for profit with new business ventures. When new ventures are expected to generate profit relatively quickly, management is forced to test as quickly as possible the assumption that customers will be happy to pay a profitable price for the product. Overfunding a project defines the sorts of customers and market segments that will and will not provide adequate revenues to cover these costs. This flags a plan to cram a disruptive technology into a sustaining role in an established market