Bradford Wieners profiles Harvard Business School professor and business theorist, Clay Christensen:
At the turn of the century, The Innovator’s Dilemma became a surprise best-seller and a holy book for entrepreneurs in Silicon Valley, where Christensen’s theory arrived ready-made to explain what Internet companies were going to do to established businesses. Andy Grove swore by it. Steve Jobs admired it, although Jobs’s biographer, Walter Isaacson, points out that Christensen predicted that if Apple kept on using only its own software, the iPod would likely remain a “niche product.”
Pointedly, Christensen demonstrated that it wasn’t because of obsolescence or ineptitude that top companies falter, the way General Motors did after Toyota Motor rose up (and the way Toyota is now, under pressure from Hyundai Motor and Kia Motors). Rather, what caused executives and companies to fail was doing everything right. They listened to their customers, constantly improved their products and services, and maximized profits. Their undoing came from failing to do something counterintuitive: pursuing new opportunities at the low end of their markets. Hence, the dilemma of Dilemma: When do you cannibalize your own business in order to save it?
I don’t doubt this was a radical concept when it was first introduced, although I think there is some dissonance between a theory — Christensen’s or any other — about why companies fail, and the hardcore reality of the innovation-profit life cycle at most companies. Apple and Facebook, for instance, rose to great heights by being the boldest innovators in their respective fields, but they have both since slid into business models that involve a slower pace of innovation and continuously higher profit targets. This has something to do with the market’s demands upon a public company, to be sure, but it also has something to do with the fact that business ideas are necessarily finite things. Facebook is now flirting with the idea of becoming a glorified advertising company in order to boost revenue, but no one sees it entering a lot of disparate markets or cannibalizing its social networking operation in order to hew to Christensen’s theory of continuous, reckless innovation. The main goal for Facebook now is to make more money each quarter to keep its investors happy. Mark Zuckerberg, for all I know, may go on to start up a bunch more innovative, successful companies after he leaves Facebook, but there isn’t much room to radically change Facebook’s core offering without turning it into an entirely different venture. Yet, as the CEO of a newly public company, Zuckerberg still has to figure out a way for the company to maintain profitability, which is a kind of innovation in itself.
That idea — that the market incentivizes certain types of innovation and not others — is one that I think is grossly underestimated by private sector true believers. Innovation is quite a broad concept, and if it gets conflated with financial success, it can be altogether misleading. There is innovation in the sense of Mark Zuckerberg and Steve Jobs developing new products that revolutionize the consumer experience. But there is also innovation in the sense of GE sidestepping taxes and environmental regulations, financial firms establishing lucrative rent-seeking arrangements with the government, mature tech companies cutting costs by engaging in massive outsourcing efforts, and so on. None of that delivers any real benefit to consumers or society at large, but who’s to say that doesn’t count as innovation? I don’t think anyone would suggest that GE or Goldman Sachs or IBM needs to self-cannibalize, yet all of them are doing quite well financially.
Wieners emphasizes Christensen’s rigorous focus on causation rather than correlation throughout the article. That’s an interesting point about Christensen’s intellectual habits, but also somewhat curious given that “disruptive innovation” fails to be prescriptive in a lot of instances. GM and Toyota might have declined because of a failure to disruptively innovate, but many other companies have gone into decline for entirely different reasons. By the same token, Apple and Facebook might have beaten out their competitors by being better and bolder innovators, but there are other companies that have achieved success by sticking to a safer growth model. Christensen might want to say something like, “disruptive innovation causes success,” but I don’t see that the evidence supports that strong a conclusion. A causal theory, in the strict sense, has to be prescriptive, and I think it’s telling that this is precisely the area in Christensen’s work that his critics have singled out as problematic.
Mack Lannahan 