Disruptive Innovation Explained

hello I'm desde love welcome to the idea my guest today is Professor Clayton Christensen play welcome are faced is what exactly is disruptive innovation explain it a 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 more so much more affordable and accessible than a much larger population

have access to it so give us an example of this mean that 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 the first manifestation of digital technology was a mainframe computer 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 can have one you know and so we had to take our problem to the center where the expert 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 is democratized technology to the point that everybody has access to it around the world and 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 ties to love in 1997 but that's

right and but how 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 a disruptive innovation generally has to cause you to go after new markets people who aren't your customers and 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 you know 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 big bigger people and now Toyota has the same problem as Korea the Koreans for 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 subcompact when they have the privilege of competing against Mercedes you know and and then cherry is coming from China doing the same thing to the Koreans so one of

the things I really like about your new ideas that they really do have had an impact out there I mean some of this thinking has without question influenced a whole generation of managers including people like Steve Jobs you're referenced in the biography that he that he read the book and was very influenced by the book and possibly Apple 1 and Apple 2 are you know him resolving the innovators dilemma but also Andy Grove at Intel you had a you had a contact with him yeah yeah it's a I never imagined that I could ever meet

these people you know let alone be just as having helped but I thought I'd learned a lot from Andy Grove so what happened was I was just at HBS minding my own business and in Dale cup there 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 it applies to

Intel and for me it was a chance of a lifetime so I flew out there and turned out and II was he's quite a gruff man and he said you know stuffs happened to us we only have 10 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 in patiently and 10 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 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 so 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 Grove said oh I get it so what you're telling me it

means for Intel is and he described health they had two companies coming at him from below and Intel needs to go down and and not let them go up against us it was very successful as I was the set of them yes 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 micro processors than I ever would know but 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 changed the way I talk and the set 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 on 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 predicates predicated upon a theory and so by teaching managers to look through the lens of the theory into the future you can actually see the future very clearly I think that's what I think that's what the the theory of disruption is done hi Kristin thank you very much for talking to us oh thanks for taking the time to ask such great questions