Fast Company

The Industrialized Revolution

Clay Christensen's idea of "disruptive innovation" made him the unintended mascot of the dotcom boom. So what's he thinking now?

A Motel 6 on a nondescript stretch of First Street near the San Jose airport holds a special place in the history of management thinking. It was there, nearly 13 years ago, in the no-frills accommodations he could afford on a doctoral student's stipend, that 39-year-old Clayton Christensen hatched his powerfully unsettling idea.

A onetime White House Fellow, a former assistant to two U.S. secretaries of transportation and Rhodes Scholar, Christensen had just bailed out of the high-tech-materials manufacturing company he cofounded. A question had taken hold in his mind, and he couldn't help but follow its trail. As the chairman and president of a company that served the then-booming minicomputer industry clustered around Boston's Route 128, Christensen had watched a familiar pattern play out. The novel solutions, rapid growth, and marketplace wins of these companies were invariably credited to the management team's extraordinary vision, capabilities, and tactics. And when those same companies inevitably foundered, those once-celebrated executives were blasted for ineptitude.

"It was as if everybody clapped their hands and suddenly the managers who had been so revered were vilified," recalls Christensen, with a sad shake of his head. "The dumb-manager theory of business problems just didn't hold water for me. There had to be a deeper reason why smart people would make decisions that lead to failure. I wanted to know why. Why is it so hard to sustain success? Why do good companies fail?"

Those questions led Christensen to the petri dish of San Jose's disk-drive industry and to a Harvard Business School doctorate. The answer was something Christensen called "disruptive innovation." Successful companies, he found, tend to swim upstream, pursuing higher-end, higher-margin customers with better technology and better products. These are examples of what Christensen dubs "sustaining innovations." They boost profitability and shareholder returns. They reflect good management. But they can also open a vacuum that disruptive upstarts may rush into with completely different offerings: worse, but cheaper and more convenient products. Dominant companies often ignore these disruptive innovations because they don't interest their mainstream customers. But in so doing, they miss the next great wave of industry growth.

And that, Christensen found, explains why leaders become losers. The good news is, companies don't fail because of bad management. The bad news is, they fail because of good management. "By doing what they must do to keep their margins strong and their stock price healthy, every company paves the way for its own disruption," Christensen says. It was a simple, elegant, and terrifying conclusion: The drive to success becomes a death march.

Christensen immortalized this paradox in a landmark book, The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail (Harvard Business School Press, 1997). The book and the concept of disruption helped fuel both the euphoria and the paranoia of the Internet boom. The fatalism of Christensen's message fed the creeping fear among big-company executives everywhere that they were toast. And it turned Christensen into an unintentional mascot for the startup revolution. For legions of entrepreneurs frothing for their piece of the action, disruption itself became the raison d'etre. Aspiring disruptors excerpted passages of the book verbatim in their business plans. Bill Gates complained publicly that every new-product proposal that came across his desk claimed "disruptive" status. Never mind that Christensen barely mentioned the word in his book--or that, as he puts it, "The most widespread and dangerous misunderstanding of the model is the equation of 'new' or 'breakthrough' with disruption."

Christensen is mildly contrite about his role in the boom and bust. But he's not really interested in looking back. Having, in his view, cracked the nut of failure, he's currently preoccupied with another puzzle--the question of lasting success. For all the fatalism The Innovator's Dilemma churned up, Christensen remains remarkably upbeat about that challenge. "Behind every one of the corporate murders in The Innovator's Dilemma was a great growth opportunity on the other side," he says.

As surely as every dilemma has a solution, every blockbuster business book spawns a sequel. Christensen's is called, not surprisingly, The Innovator's Solution: Creating and Sustaining Successful Growth. Written with Deloitte research director Michael Raynor and published in October by Harvard Business School Press, the book picks up where The Innovator's Dilemma left off. It addresses the disturbing message of that first book: If good management is the root cause of failure, then good management can't help companies escape the cycle of disruption and death. But if the agreed-upon principles of success can't resolve the dilemma, then what can? How do you build a company that can both endure and disrupt? Is it possible to be born to run and built to last at the same time?

Christensen seems an unlikely sort to be asking such uncomfortable questions. He's a devout Mormon and a highly credentialed Harvard Business School professor with the warm, helpful demeanor of a grade school teacher. He's toweringly tall (6 feet, 8 inches) but unimposing. He's so soft-spoken you have to lean forward to hear him in his immaculate office decorated with a collection of disk drives and framed posters marking his son's tenure on Duke's legendary basketball team. He's a Boy Scout, literally. He has led Boy Scout and Cub Scout troops since the mid-1970s.

But his question is a tough one. Why is it that only one in 10 companies can sustain the kind of growth that translates into above-average increases in shareholder returns for more than a few years? We know it's not bad management, unless you believe the management talent pool is "like some perverse Lake Wobegon where 90% of managers are below average." No, the odds of lasting success are "frighteningly low," says Christensen, because of bad theory.

Businesspeople, says Christensen, are victims of a kind of "academic malpractice" perpetrated by the interlocking worlds of management training and education. Though careful not to name names, he says "the whole arena of building management knowledge and understanding is fundamentally flawed." Take business school. "Eighty percent of the cases used in the typical MBA program are about successful companies," says Christensen. "Students graduate with this notion that 'If I do everything that the people in those cases did, then my organization will grow and be successful, too.' But in many ways, the causality goes the other direction. If you're successful and growing, you can manage any way you want to. Growth makes so many dimensions of management easier. It's when growth stops that things get tough."

Success, he argues, is the worst teacher of success. Yet ever since Tom Peters and Robert Waterman ushered in the era of pop management wisdom with their original business blockbuster, In Search of Excellence (Harper & Row, 1982), the advice industry has been engaged in a game of best-practices bingo. It's not that "lessons from the best," "success secrets," and "habits of greatness" are wrong. It's that they're right only some of the time. Consider the history of man's efforts to fly, Christensen urges. Humans observed the most successful fliers and tried to emulate them by strapping feathered wings on their arms and jumping from cliffs.

So much for best practices. It turns out that "many of the widely accepted principles of good management are only situationally appropriate," says Christensen. And the best way to know whether and when to trust the advice promulgated in the principles is . . . good theory. "Managers are already voracious consumers of theory," he argues. "Every time they make a decision or take action, it's based on some theory that leads them to believe that action will lead to the right result. The problem is, most managers aren't aware of the theories they're using, and they often use the wrong theories for the situation." In the lessons-of-success school of management thinking, theory usually consists of observing a few successful companies and then writing a book introducing a set of rules ("big companies are slow to innovate") and advocating a collection of practices ("promote top leaders from within").

Good theory isn't about copying attributes, says Christensen. That's just strapping on feathers and hoping they'll make you fly. It's about discovering the "underlying causal mechanism behind the success" and identifying the circumstances in which a solution works and those in which it doesn't. Our would-be flier, for example, must understand the mechanism by which airfoils create lift and determine things like the speed and weight that result in successful flight.

It's not lost on Christensen that using theory to make crucial decisions is an unnatural act for most leaders. "The whole enterprise of teaching managers is steeped in the ethic of data-driven analytical support," he says. "The problem is, the data is only available about the past. So the way we've taught managers to make decisions and consultants to analyze problems condemns them to taking action when it's too late. The only way you can look into the future is with theory. And that's a big leap for managers to take."

The key to good theory is good categorization--understanding the circumstances you're in, and the circumstances you're not in. For example, Christensen says, there are two key approaches companies use to formulate strategy: deliberate planning and an emergent or discovery-driven process. The deliberate approach doesn't make much sense in circumstances in which the future is hard to read. A case in point: Prodigy, the online pioneer, assumed that customers would use its service mostly to collect information and shop, and built its infrastructure accordingly. When users instead went online to send email, Prodigy's managers were confounded and began charging extra. Email was an emergent strategy signal they missed because it contradicted the company's original, deliberate process.

The reward of thinking according to circumstances, Christensen says, is that "things get predictable." And predictability is essential. After bad management, unpredictability is the most universal explanation for failing to create new growth. Even the best managers and most sophisticated thinkers start with the assumption that innovation is a mysterious black box. Strategies from "fail faster to succeed sooner" to "let 1,000 flowers bloom" to sweeping exhortations to challenge orthodoxy generally aim to improve the odds a bit in what's seen as a crapshoot.

Unlike the fire-breathing, fist-pounding champions of innovation who swelled the ranks of management thinkers in the 1990s, Christensen is less of an advocate of innovation than a dispassionate student of it. His first observation is that innovation management today is where quality management was 20 years ago, when he worked in manufacturing. Quality was managed in track-and-tweak mode. Engineers used statistical-process-control charts to measure deviations from the norm and inspected machines that veered beyond the set tolerances. "The assumption was that there was just randomness in manufacturing and the solutions were about dealing with the alleged randomness in as efficient a way as possible," he says. Then the Japanese quality vanguard stepped in to ask, Doesn't every deviation have to have a cause? It just looks random because we don't know the cause. It was a straight line from that question to Six Sigma quality.

Most of today's strategies for managing innovation are similarly structured to cope with randomness and unpredictability. That was fine until Christensen came along with his question, Doesn't every failure have a cause? In his model, individuals may appear unpredictable, but the forces that act on them as they shape an idea into a new growth business are not. Those forces include "predictable growth pathologies," or the tendency of established companies to cram potentially disruptive innovations into an existing business model (for example, the major carmakers' attempts to build electric vehicles good enough to compete with gasoline vehicles in established markets instead of building simpler, cheaper cars for, say, urban drivers who need them for shorter trips). Once you know what those pathologies are, "the process of creating successful innovations itself is not inherently as out of control or unpredictable as it's seemed," says Christensen.

Just ask Andy Grove. The Intel chairman beat Christensen to market with his paranoia principle in 1996, but his company was primed for disruption when Christensen came calling the next year. During a series of seminars with nearly 2,000 senior managers, Grove pounced on Christensen's slide that illustrated how steel mini mills, starting with a toehold in the low-end reinforcing-bar ("rebar") market, rapidly stole 40% of the business from the industry leaders--a classic disruptive innovation. Rebar quickly became code inside Intel for attacking the long-ignored, low-cost personal computing market. The result: The hugely successful lower-performance Celeron chip. Even more important, says Grove, was the mind shift in the organization. "The effect of the model isn't that it gave us any answers," he told Christensen," but it gave us a common language and a common way to frame the problem so that we could reach consensus around a counterintuitive course of action."

That endorsement fortified Christensen's resolve to change the world with better thinking. "I thought if you brought good theory to smart people, then they aren't condemned to repeating the mistakes of the past," he says.

Christensen's ultimate mission is to empower a legion of leaders not just to shepherd a single disruptive innovation but to become serial disruptors. He admits it has never been done before. "Many successful companies have disrupted once. A few, including IBM, Intel, Microsoft, Kodak, and Intuit have disrupted several times. But as far as I know, no company has been able to build an engine of disruptive growth and keep it running and running." That's a different and more daunting task than the average success manual prescribes. "It's actually a fun thought," says Christensen, "that an average person like me or you can go in and be a really successful innovator."

The first Joe Innovator to take the plunge is Christensen himself. The project: Disrupt the McKinseys of the world. Along with some former Harvard Business School students, Christensen has founded an upstart consulting firm called Innosight. With McKinsey, Boston Consulting Group, Bain, and Monitor crowded together in the stratosphere of multi-million-dollar projects for global 1,000 corporations, Christensen sees "a vacuum in strategy in the low land." He and his colleagues have created a relatively cheap ($150,000 to $350,000), significantly faster, "good enough" process for developing a growth business--an idea "that is very disruptive to the big consulting firms." His theory predicts it will work. McKinsey may have other ideas.

But Christensen's real disruptive impact, and true calling, is to teach. When it comes to improving the quality of the management mind, his humility is matched only by his ambition. "There just isn't anything more invigorating than to read an article or hear about an entrepreneur using the term 'disruptive technology' that makes no reference to me as the source," he says. "When it's clear they really got the idea and they use it as if it were in everyday parlance, that's the ultimate triumph. When everybody can do this, I can retire. Because I don't have any ambitions other than to change the way people think."

Sidebar: History of Disruption

The Evolution of a Powerful Idea

Disruption had a uniquely late 1990s appeal. It fed the innovation fetish, revolutionary zeal, and general paranoia of the moment. But the term and the ideas behind it stretch back to 17th-century French political philosophy, or to 20th-century economics, depending on whom you ask. Here's our highly subjective and selective plotting of the original idea's rise and fall.

1942

Austrian economist Joseph A. Schumpeter publishes Capitalism, Socialism and Democracy, and describes "a process of industrial mutation . . . that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one." He calls it "creative destruction"--the mother of all disruption.

1986

McKinsey & Co. partner Richard Foster invokes Schumpeter in Innovation: The Attacker's Advantage, and elaborates on the concept of tech- nology S-curves and the "discontinuities" that turn the cash cows of leading companies into dead meat.

1990

The distinction between sustaining and disruptive innovation is born--in a San Jose motel room, where Clay Christensen begins puzzling over the question of failure. (Motel 6 still holds a special place in his heart.)

1991

Geoffrey Moore puts some marketing spin on the challenges of high-tech disruptive upstarts in `1, which explores the pitfalls of migrating from enthusiastic early adopters to the indifferent mainstream.

1996

In Disruption, a book aimed at marketers, ad exec Jean-Marie Dru dumbs down disruption to "rule- breaking," citing Apple's "Think Different" campaign as the prime exhibit. "Disruption" (pronounced with a French accent) becomes his agency's registered trademark.

1996

Paranoia: It's a good thing! Andy Grove describes "strategic inflection points" as the signals of coming disruption, and in Only the Paranoid Survive: How to Exploit the Crisis Points That Challenge Every Company says defensive neurosis is a crucial management strategy. In other words: Stop for lunch and you are lunch.

1997

Christensen puts managers everywhere in a real bind with his innovator's dilemma: "The logical, competent decisions of management that are critical to the success of their companies are also the reasons why they lose their positions of leadership." The Innovator's Dilemma terrifies executives and inspires legions of would-be IPO millionaires.

1999-2000

Starbucks baristas overheard discussing the Kozmo.com "digital disruption." The idea has officially peaked.

2001

Richard Foster is back with Creative Destruction: Why Companies That Are Built to Last Underperform the Market. This painstakingly researched ode to Schumpeter prescribes corporate self-destruction and renewal--with rather unfortunate timing.

July 2003

Execution: The Art of Getting Things Done passes the 600,000 copy mark (disruption is officially passé).

October 2003

The Innovator's Solution is published. "Successful growth" is the new disruption.

Polly LaBarre (plabarre@fastcompany.com) is a Fast Company contributing writer based in New York City.

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