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Innovator’s Solution by Clayton Christensen and Micheal E. Raynor

Posted on: April 19, 2014


The Innovator's Solution: Creating and Sustaining Successful GrowthThe Innovator’s Solution: Creating and Sustaining Successful Growth by Clayton M. Christensen
My rating: 4 of 5 stars

A wonderful follow up book to Innovator’s Dilemma from Mr. Christensen. In this book Mr. Christensen gives the entrepreneurs different aspects to be considered when coming up with an innovative solution. He points out how traditional way of working may not be the most suitable and in fact in many situations harmful for developments of innovative disruptive solutions.

The key take away from the books is
1. Start innovating early. Do not wait for the company to reach a stage where it becomes imperative to innovate to grow. In this case the pressure will be too much and the expectations gargantuan to be able to succeed. The funding will become bad money. The authors highlight that public companies have to satisfy their shareholders who expect an year on year growth year after year. A company that 10 million may be able to grow at 20% by increasing their sales by another 2 million, but a 1 billion company will find it difficult to get 200 million to grow by 20% and a 10 billion company will find the climb even steeper. Since the focus of the management will be immediate boost to revenues, projects that have a potential in a long run will tend to be put off, or at best ignored.
2. Start innovating in an early which is obvious, but will be ignored by the well established players as they will find it unfruitful to be in that area. This is a corollary to the earlier statement. If one starts addressing a low end market it would not interest a well entrenched company in the same field that would be catering to premium customers. Slowly as the innovation becomes better chances are that the innovative company will overcome the incumbent. The authors give the example of how mini steel companies addressed a market which did not seem lucrative for the big steel companies and how over a period of time it has reached a stage where the mini steel mills today serve 50% of the industry needs.
3. It is stressed that the traditional way of slicing and dicing the customers by gender, age group, income group, geography may not succeed all the time. They stress that it is important to understand the work that the customer is trying to address. The authors give the example of how a fast food joint employed traditional means of gathering information about their customers and sliced and diced them according to gender etc and found no improvement in the sales based on actions that they arrived at based on this survey. The later carried out another survey based around the purpose of the customers. They found that the same customer needed thicker milk shakes in the morning as it lasted them till they reached their office and also satisfied their hunger till lunch time. The customers of same nature (classified by traditional slicing and dicing mechanism) needed something more thinner during lunchtime when they were in a hurry to get back to work. And the same customers in the evening needed these to be much thinner so that their children could finish them off soon. When the milkshakes were now prepared as per this survey the joint saw a surge in sales.
4. The distribution channel also needs to adjust to the innovation. The authors give the example of how a venture by Intel and SAP to address the needs of small and medium businesses failed to take off as they used the same marketing and sales channel as they used to sell the regular SAP software to sell this watered down version of SAP. The sales people had no incentive to sell this as the revenues and profits were smaller and it did not help them meet their targets. The stress is that it is important to have the right marketing and sales channel.
5. The authors state that there are two types of customers addressing whom will help the innovation kick off. The over-served and the non-users. The over served are easier targets as they are already users of the product and are looking for something with lesser features and that costs lesser. It is more difficult to address the non-users as they have to be lured into using the product. This can be achieved only by making the product so good and easy to use that they are attracted to using it.
6. The other aspect that needs to be kept in mind is that most products become modularized and commoditized over a period of time and the profits from it become unattractive. To avoid this it is important to know which are the key areas over which the company must keep hold on so as to keep it a lucrative business and which parts/modules can be outsourced. The decision should not be based on what is the “core competency” of the organization, but rather based on what should be the “core competency” of the organization. The example of IBM in PCs is quoted. IBM approached PC manufacturing the same way as they did for their mainframes. The parts, operating system and microprocessors, required for the PC was outsourced to Microsoft and Intel respectively. They only put their brand name behind the PCs. The history shows that they were wrong. Today IBM is non-entity in the PC business whereas Microsoft and Intel are biggies. Intel which was primarily a DRAM manufacturer shifted to microprocessor manufacturing due to market pressures and it has become a big player today.
7. It is not possible to avoid modularization or commoditization, what can be done is as one thing becomes modular the company should have another proprietary product or a key part of the product to sustain its business and growth.
8. The Resources – Processes – Values of a company are key determinants to the success or failure of the organization in disruptive growth. In most incumbent organizations the Processes are fixed and inflexible. The Resources are used to the Processes and have little incentive to think beyond these. Over a period of time the Values too freeze and it is difficult to dislodge these. These are circumstances which do not encourage growth of disruptive innovation. Given this perspective, it is important that the organizations that wish to encourage disruptive growth hive off smaller organizations and set them off on an innovative track without being encumbered by the Resources, Process and Values of the larger organization. Without this split it becomes very difficult to achieve disruptive innovation.
9. it is also important that once the disruptive innovation has picked up traction that the Processes that benefited the parent organization be looked into and be introduced as and when required into the these smaller organizations to make them more efficient and process driven.
10. The authors differentiate between bad money and good money for driving innovation. An investor who is in a hurry for profits and is OK to wait for growth is a good investor and brings in good money. On the other hand an investor who is patient for profit but is impatient for growth is a bad investor and brings in bad money. Organizations need to be vary of the intentions of the investor before accepting funding from them.
11. The senior executives have to play an important role in letting disruptive innovations grow in their organization. They need to ensure to create an atmosphere where such innovations are nurtured and not snipped off in the bud.

All in all an exceptional book, to be read by the leaders in all organizations and by those who wish to become leaders of Organizations.

For a detailed review view this post.

View all my reviews

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