INNOVATION SPECIAL....DISRUPTIVE INNOVATION...INTERVIEW

The Discipline of Managing Disruption
 

To Harvard professor Clayton Christensen, coauthor of How Will You Measure Your Life?, a primary task of leadership is asking questions that anticipate great challenges.

This is the second interview we’ve published with Harvard Business School professor and author Clayton Christensen. The first appeared back in 2001. Four years before, Christensen had published The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail (Harvard Business School Press, 1997). When his keenly original theory of disruption first appeared, it seemed like an audacious and counterintuitive view of organizational change. But it soon evolved into conventional business wisdom. And now he is applying it to a deeper question: What is life for?

In The Innovator’s Dilemma, Christensen argued that as companies focus their attention on their best and most reliable customers, they can all too easily overlook the threat of disruption from young upstart competitors. Those competitors, exercising their creativity, develop innovative capabilities and reach customers that the incumbents ignore. Sooner or later, the upstarts steal the market with their better, less-expensive new ways of solving customers’ problems.

Christensen has always had an entrepreneurial bent, and this clearly colors his approach. Before arriving at Harvard Business School, he founded the CPS Technologies Corporation, a manufacturer of thermal management materials (originally called the Ceramics Process Systems Corporation), and he is a cofounder of a small Boston-based consulting firm called Innosight. His ideas are particularly valuable for established industries that seek to respond effectively to the disruption coming seemingly out of nowhere. In recent years, he has applied this approach to healthcare (The Innovator’s Prescription: A Disruptive Solution for Health Care, with Jerome H. Grossman and Jason Hwang, McGraw-Hill, 2008), education (Disrupting Class: How Disruptive Innovation Will Change the Way the World Learns, with Michael Horn and Curtis W. Johnson, McGraw-Hill, 2008), and, most recently, the personal side of leadership.

Written as a reflection on the fulfillment of life’s purpose after a series of severe medical problems (including cancer and a stroke), Christensen’s most recent book, How Will You Measure Your Life? (coauthored with James Allworth and Karen Dillon, HarperBusiness, 2012), has struck a chord with many business leaders. It links the discipline of managing disruption to the kind of long-term thinking that is necessary if one is to step past today’s pressures and build a strong personal and professional legacy. In late 2012, Christensen spoke with strategy+business by phone from his home outside Boston.

S+B: How did you develop the concept of measuring your life?
CHRISTENSEN: I had always aspired as a researcher to develop models that were robust enough to relate to any level in a hierarchy, from a national economy to an industry to a corporation to a business unit to a team. A good theory is really a fundamental statement of causality, and it ought to be as applicable to a business unit as it is to a nation, or vice versa.

In all my work, I’ve looked for universal principles—starting with my doctoral thesis in the early 1990s, which was the original study of disruption in the disk drive industry [which I wrote about in The Innovator’s Dilemma]. I was trying to explain why it was so hard for successful disk drive companies to sustain their success, generation after generation. I’d concluded that the success of their past practices made it difficult to react effectively to new disruptive competitors.

At first, when I finished, I thought I had a model that applied only to the disk drive industry. Then I remembered that during the Cuban missile crisis, which had happened when I was a boy in 1962, my neighbors hired a steam shovel to dig a bomb shelter in their basement. The steam shovel was manufactured by Northwest Engineering, a company that died in the early 1980s because its products were made obsolete by hydraulic excavators. So, later, when I knew someone who worked for an excavating company, I went over to see him one night and described what I’d found in the disk drive industry, and he said the same thing had happened with big digging machines. “There must be something to this,” I thought, “if it explains hydraulic excavators and disk drives.”

In the last few years, my students have put me further to the test. If a theory applies to nations, companies, and business units, they said, it should apply in their own lives as well. The way some of them framed that issue changed the way I saw it. “If I keep doing what I’m doing right now as an individual,” they said, “what will happen to me in 20 years? Will I become the kind of person that I want to become?” Or they would talk about wanting to become a particular type of leader in 20 years, and they’d say, “If I’m not doing what I need to do to get there, what do I need to change?”

This type of question was very useful for me. After these class sessions, I saw so much more in the research that I really hadn’t thought about before.

S+B: How prevalent is this interest in applying business theories more universally?
CHRISTENSEN: I actually think it’s not common in business research. In academia, many times, after someone gets a journal article published, they move on to something else and never think about whether they have a generalizable idea. I think that’s one reason business academia is in such trouble today.

S+B: You’ve said that metrics like the internal rate of return (IRR) and return on net assets (RONA) lead to shortsighted decisions. What would be better measures?
CHRISTENSEN: The answer probably depends on where you are in the cycle of a business. What you measure has a huge impact on what people prioritize—in fact, whatever you measure will put into place a way for people to game the system. Therefore, you’d better pick a measurement that causes people to do good things when they try to game the system.

For instance, integrated steel companies used net profit per ton to measure their performance in the 1980s. This led them to want to get out of the low, commodity-based end of steel production, because volume at the low end makes it harder to get dollars per ton up. That decision made them vulnerable to the mini-mills. It turns out that most managers don’t even think about where their measurements come from. You can ask executives, “Who decided to measure net profit per ton?” They’ll scratch their heads and say they don’t know. It’s as if somehow the measure came from the sky. And it causes them to do crazy things.

S+B: In the way they think about success, are senior executives and leaders of companies different from other people?
CHRISTENSEN: Yes. I’ve met two types of leaders. The first is like Tom West, the leader of the computer-building team at Data General in The Soul of a New Machine [by Tracy Kidder, Little, Brown, 1981]. West says in the book that success is like pinball. If you win with one project, you get to play again. I think a lot of senior executives are just that kind of person: They like to play. They don’t care that much about where they end up in a hierarchy. The second group is made up of people who have a need to be in charge and who care a lot about their hierarchical position.

If I were recruiting a leader, I’d look for people in the first group—people who like to play.

S+B: In How Will You Measure Your Life?, you talk about personal measures of long-term success—for example, making life decisions based on full value rather than marginal value. What do you mean?
CHRISTENSEN: When you make a decision based on expediency—because you think you can get away with paying only a smaller, marginal cost—you always pay the full cost in the end. This goes on in your personal life just as much as it does when you invest in setting up a sales force. One example I give in the book is parents who do their kids’ homework for them. They are helping their kids get ahead in the short run, which is expedient. But one of the most important roles of a parent is to create small challenges, to really take a hand in their children’s development and set them up for bigger challenges. Doing their homework for them undermines that and leads to greater costs in the long run.

S+B: That’s fairly fundamental advice: Stay with the highest source of value and resist expediency. Philosophers have been saying this for millennia. But it seems so difficult to put into practice.
CHRISTENSEN: People wrestle with it all the time. The reason has to do with fundamental forces in our brains and bodies, and in our teams. For example, most of us have a high need for achievement. At the level of a corporation, we measure this as profit; at the level of a family, it’s more personal. But we all tend to do whatever activity brings us the most immediate and tangible evidence of achievement. That makes it difficult to avoid marginally driven actions.

I would frame the basic problem this way: How can you make sense of the future when you only have data about the past? That’s the role of theory, to look into the future. You have to have a viable perspective about why things might turn out differently than they did last time. For those who don’t think that way, when the data tells them that things are going wrong, the game is over.

One reason it’s so hard for senior executives to think this way is that they don’t have the right kind of data. Data is heavy. It wants to go down, not up, in an organization. In other words, most employees, just by the nature of their responsibilities, don’t want to provide data to their bosses. When there’s a problem, they want to solve it and tell the people above them that they solved it. Information about problems thus sinks to the bottom, out of the eyesight and earshot of the senior managers. The higher you go up the hierarchy, the less information is available to make decisions with.

S+B: How does a senior executive know which theories of the future are worthy of attention?
CHRISTENSEN: If they’re good theories, you ought to be able to articulate the circumstances under which they would and would not be salient. Then you would act accordingly—by treating them not as answers, but as opportunities to ask good questions. For instance, if you’re concerned about disruption, you would ask about your current circumstances: “Which competitors are threatening me and which am I more likely to threaten?” Disruption is a question about who’s going to kill whom.

You might also ask, “What is the job to be done?” Every company needs a robust theory of the job that it’s facing. At the fundamental level, most jobs don’t change very much, even though the technology does. When he was the emperor of Rome, Julius Caesar had to exchange messages rapidly with his far-flung governors. He used horsemen with chariots. Today, we have FedEx, but the job hasn’t changed. If you’re focused on the job that has to be done, you’ll be more likely to catch the next technology that does it better. If you frame your business by product or technology, you won’t see the next disruptor when it comes along.

At FedEx, if they’re focusing on the job to be done, then they’ve already been looking for years at the question, “How much of our volume will be displaced by electronic transmission?” Fortunately for them, it hasn’t happened yet, because the Internet forced another disruption instead; it allowed the movement of packages to displace retail stores. But the question remains persistent.

S+B: Have you known executives who think this way?
CHRISTENSEN: It’s hard because almost all of them, probably including me, tend to stop asking good questions—or else their successors do. For example, at Intel, Andy Grove really got the concept of disruption. His famous phrase, “Only the paranoid survive,” was a statement about how to respond to disruption. In fact, you could argue that Joseph Schumpeter described what happens in business with his theory of creative destruction; I explained why it happens through disruption; and Grove showed how to manage it.

S+B: Was Schumpeter saying, in effect, that in any healthy capitalist society, many business leaders will be thinking like Andy Grove?
Christensen: That’s a good way to frame it. And Intel succeeded under Grove because he thought that way; for instance, he oversaw the introduction of modular innovations like the Celeron chip, designed for disruptive devices like the inexpensive laptops of the late 1990s. But subsequent executives at Intel didn’t ask the questions the same way. The company is in trouble now because its leaders focused on the robustness of their traditional chips in laptops and desktops and didn’t look down the market to see the tablets and smartphones coming up.

Of the managers I’ve known, I think Scott Cook, who is the founder of Intuit, is most prone to think this way. I also think of Steve Jobs and Jeff Bezos. Amazon has launched three really important disruptors: online retailing, the disruption of publishing, and the cloud services that give everyone access to sophisticated IT technology. But you have to hope that this approach is institutionalized at Amazon, and not dependent on the instincts of one person.

S+B: Can you get to that way of thinking through the way you measure things in your business?
CHRISTENSEN: Not in a programmatic way. Like the theory of jobs to be done, almost everybody needs a theory of the segments of their market. Businesspeople tend to define these segments by demographic or product characteristics. But they often have no idea where the definition comes from, even though it determines what products they make and who they see as their most important competitors. It turns out that they are often defining their market according to where they happen to have data available—for instance, they have data on customer ages and locations, so they define their market by demographic groups. Inadvertently, they’ve accepted a way of life in which some of the most important decisions are not being made consciously.

S+B: What do you say to people who are coming into senior management positions and facing the need to think more consciously?
CHRISTENSEN: The answer isn’t obvious. Let me start with an example that’s related to the theory of modularity in industry change. This theory says that during the early stages of an industry’s history, when products are not good enough to meet the needs of most customers, the best way to compete is by making great, reliable products. To compete that way, almost always, the architecture of the product has to be proprietary and independent of other companies. But later, when the industry matures and the general performance of products is more than good enough for what people need, then the best way to compete is through modularity. Innovators who are fast, flexible, and responsive can command premium pricing. The architecture of the product has to become open in its character.

A great example is going on right now in smartphones. In the early 2000s, Research in Motion dominated the industry with its very proprietary [BlackBerry] architecture. Then Apple came along with an architecture that was not quite as proprietary, and now [the field] is opening up with Google’s Android operating system. The theory says this will create significant trouble for Apple, just as Compaq and Dell, with their open architecture, created real trouble for Apple’s Macintosh. That’s the what.

Now suppose Apple’s leaders believe this theory and recognize the threat. How do they meet it? That’s the how. How do they keep the high end of their products proprietary, even as they open up the architecture toward modularity? They have to think about how to accomplish this at a very granular level. It’s the same question that an executive at Northwest Engineering might have asked about hydraulic excavators: How do we deal with this?

S+B: So the first step is learning to ask better questions.
CHRISTENSEN: Yes. I realized this back when I was an MBA student. I had an epiphany during a marketing course. We were studying a peanut butter company and I wrote down all the answers that the other students gave. Then I suddenly realized: Why was I writing all this down? I was never going to go work for a peanut butter company, and if I did, I wasn’t going to run into the problems that this management had faced 10 years before. But I paid all this tuition; I had to write something. So what notes would I take?

The next student to speak was a woman who made a brilliant comment. Instead of writing down what she said, I wrote down a question—the question I thought she had to have had in mind to think of this response. A bit later, a guy in the back row made a similarly insightful comment. I wrote down the question that he had clearly asked himself. The next morning, when I prepared a case for the day’s class, I put those two questions on the table next to me. I asked those questions of the case, and, holy cow, I saw things I would never have caught before. I came across as very smart that day.

Thereafter, I kept listening not to what smart people said as answers, but to the questions they were asking. Over time, I realized that although some questions seemed salient only once or twice, others were always important. That’s how I came up with the way I develop theories: Instead of looking at the data about today’s performance, I keep my attention on the questions I need to ask so I can catch the issues of the future.

Art Kleiner is editor-in-chief of strategy+business. Published: March 11, 2013 http://www.strategy-business.com/article/00170?pg=all

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