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Seeing What’s Next by Clayton Christensen

Posted on: December 8, 2014

Seeing What's Next: Using the Theories of Innovation to Predict Industry ChangeSeeing What’s Next: Using the Theories of Innovation to Predict Industry Change by Clayton M. Christensen
My rating: 3 of 5 stars

Seeing What’s Next by Clayton Christensen, Scott D. Anthony, Erik A. Roth
After having covered the Dilemma of the Innovators and having provided solution to the Innovators, in this book Clayton Christensen provides answers to the external world on how they should assess the company’s ability and capability to disrupt. As the title indicates it helps an outsider See What’s Next.
The book takes the Telecom Industry as the pivot and analyses how the different players have succeeded or failed in a market that has seen various innovations over the last century and half.

In the first chapter the authors discuss how Western Union lost out by ignoring the voice communication. Western Union was a long distance telegraph company which provided the means to transfer information over long distances. The users of these services were predominantly the industry which needed to get a variety of information regarding prices, availability as quickly as possible. Using the telegraphy services of Western Union was the only means of getting this information quickly.
When voice communication started, it did not have the range to operate over long distances. It was mainly used for local communication. Instead of cycling over to get an information people used this to talk and get the information. Ironically it was even used to call the telegraph office to figure out if the services would be available if the customer came down at a said hour.
Western Union neglected to branch out into Telephony as they felt it was too low end and could never replace the telegraph services. They were proved wrong. They failed to anticipate the improvements in voice telephony which would make it feasible and viable to talk long distances. When this came Western Union was caught napping.
The authors compare this to the wireless technology where the incumbents coped up with the threat from the disruptors. The authors attribute this to the following four factors:
1. Government granted licenses to the incumbents to operate wireless. This motivated them to look at it as an option.
2. The Wireless business tried addressing their very high end customers, instead of trying to address a low end market which would have been ignored by the incumbents. Some of the examples of disruptive wireless innovation could have been creation of network which could be used by parents to keep in touch with their teenage children. This market would not have appealed to the incumbents. But the wireless company addressed the needs of the corporate magnates and this competed directly with the wired network services of the incumbents.
3. The wireless operators used the wired networks of the wired service provider incumbents to reach the wired network from the wireless network instead of limiting their operations to wireless only services. This meant that the incumbent were partially in charge of the wireless network. This gave them a control over the wireless growth and also allowed them insight into the wireless services.
4. The government forced the incumbents to setup separate subsidiaries to address the wireless market. This meant that the incumbent had to treat these two as separate businesses and each could grow separately without interference from each other at the same time having cooperation whenever and wherever required.
One of the key conclusions that the authors make is the external factors like government regulations can help the incumbents overcome disruptive innovations.

The Signals of Change
In this chapter the authors illustrate how watching out for overserved customers, undershot customers and nonconsumers in the market will allow one to see whats coming next.

Competitive Battles
Here the authors state that the history of the company can provide details of it will respond to a disruptive situation in the market. The study of history coupled with an understanding of the Resources, Processes and Values of the organization will give one an understanding of how the organization will fare when faced with disruptive innovation. The authors talk about how asymmetry exists when companies do what other companies do not wish to do and when companies have ability to do something that others do not have the ability to do. These asymmetries are very good indicators of who will win the battle in the competition between two organizations.

Strategic Choices
When market is in situation for a disruptive innovation, the reaction of the organizations will give indication of how it will fare with respect to tackling this challenge.
Entrants can go wrong by making wrong hiring decisions. An entrant picking the top of the management from an incumbent could be a recipe for disaster as the values that these personnel bring in may not be suitable for an entrant.
Similarly an entrant trying to leverage the overlapping network of an incumbent (as seen in the wireless trying to leverage the wired networks of the incumbents) can lead to failure due the ability of the incumbent to use co-option to overcome the challenge of the entrant
Incumbents taking on the challenge the right way instead of taking flight can indicate that the incumbent will succeed and not the entrant.

How Nonmarket Factors Affect Innovation
In this chapter the authors give details of how external factors like Government regulation in the right direction can bring innovation to the fore. These regulations will also determine if it will be the incumbents or entrants that will succeed.
The authors introduce the Motivation/Ability Framework which should be the guiding principle for the government when they are coming up with regulations to revive a stagnant market. The authors argue that two factor “Motivation” of the company to innovate and “Ability” of the company to innovate will determine the eventual success or failure of the regulations. If these two are not kept in perspective then it is likely that the regulation will not yield the desired results.

Disruptive Diplomas
In this chapter the authors illustrate how usage of internet in the education department adopted by different universities has either succeeded or failed based on the strategy adopted by the institution. The institutions that have tried to convert their regular courses to an internet based course and have charged the same amount and have expected the students to spend the same amount of time and effort in completing have failed to get anything out of their effort. Whereas institutions that have tried to address the market that requires quick refresher courses even as the students continue with their normal jobs have succeeded. This is because the later address the actual needs of their customer. They provide a non-comprehensive course, but this is sufficient for somebody who is looking to learn the basics so that they can perform their job better.
The authors conclude that educational institutes can disrupt by catering to the nonconsumers. These are ones who find it attend full time courses or find it difficult to complete the entire gamut of things covered in these full time courses.

Disruption Spread Its Winds
Airline industry has been dominated by Boeing and Airbus. The rest of the players in the industry has been either forced to shutdown or have been taken over by either of these two. But newer ones like Bombardier and Embraer have been coming to force. These have started off with small aircrafts to serve airlines like SouthWest which do not complete in the main markets served by the bigger airline companies. But these companies are constantly improving the quality and range of their aircrafts and they could soon be competing with Boeing and Airbus. Also the low end airlines like Southwest and others which have captured the market in the under served sectors are slowly encroaching in the main sectors as they have covered most of the under served sectors. This could mean more business for the upcoming airline companies.

Whither Moore’s Law
In this chapter the authors cover the semiconductor industry where Moore’s law ruled roost over the last few decades. The authors highlight how the industry incumbents have thrived, thanks, largely due to the Moore’s law holding good. This also led to the downfall of the earlier companies like RCA, General Radio which failed to see the power of semi-conductors and contiued to toe the line of vaccuum tubes. The authors feel that we are entering where the customers are being over-served by the increasing power of the semi-conductor devices and there is scope for disruptors to come up with relatively low end innovations which will satisfy consumers not expecting the power of the big semi-conductor players.

Healing the 800-Pound Gorilla
The healthcare industry is in focus in this chapter. The authors trace the history of how various ailments required the services of specialists in those areas and how today same service can be given by a non-specialist. The authors highlight heart surgery which initially required a doctor having specialized in heart surgery. With the advent of angio plasty the open heart surgery was only considered for situations which could just not be addressed by angio plasty. Advent of stents meant that heart surgeons were required only for very complicated cases. The skill level of the person who could cure one of heart problems and hence the cost and recovery period dropped over a period of time.
Managing diabetes was an art and needed close attention of diabetologists. Today even a person with non-medical background can manage a diabetes patient. Thanks to innovations in this field. Today with a small instrument and with just a pinprick one can determine the sugar levels and if required the person can also be injected with insulin in a very controlled fashion with the insulin pens that have come to the fore.
People now are looking for cost and convenience too. Getting an appointment with the doctor can be long drawn and tedious. Whereas getting a nurse to checkup on one is much easier as they are available in plenty. Many of the things like ant-tetanus for which one had to go to the doctor earlier can now be attended to by the nurses. One gets convenience and the cost is less too.
The authors conclude that it is a myth to assume that all patients will reject untested, relatively simple innovation because they are unwilling to take risk with their health. As the knowledge of the patients grow, thanks to the information available in the internet, and as innovations like the insulin pen, provide more convenience people will gravitate towards such disruptive innovations and embrace them wholeheartedly.
The authors argue that healtcare is primed for disruptive innovation.

Innovation Overseas
As the companies grow and fulfil the needs of the market in the home country they try to expand overseas. The authors cover how one should pick and choose the geography for growth and how an outsider should evaluate the prospects of an organization trying to grow overseas. Again the basic principles of overshot customers, under-served customers and non-consumers come to play. An organization trying to capture the cream of an underdeveloped country can only progress up to a point. The rest of the market of this country will remain unaddressed. The potential of growth of an organization taking such an approach in limited. Only an organization innovating to address the under-served or on the non-consumers in the other country has the capability of growing big. It is also important to keep the strategy of the country as a whole to understand the possibility of success and failure.

Breaking the Wire
This chapter goes back to the Telecommunication industry and tries to give an prediction on how technologies like Voice Over IP, Cable Telephony, Wireless Data and Developments like Instant Messaging can disrupt the market. They take the example of how DoCoMo succeeded in breaking into the teenage group with i-Mode and hot this helped the company grow big.
The authors conclude that a lot will also depend on how the government controls and regulations will drive the growth factor in this industry.

Summary and Conclusion
The authors summarize the book in the following sentences
1. Look for signals of change that point to changes to an industry’s context or companies using new ways to reach nonconsumers, undershot customers and overshot customers.
2. Evaluate competitive battles by comparing companies using the tale of the tape (historical data and information) and looking to see who has the sword and shield of asymmetries on their side.
3. Watch a firm’s important strategic choices that increase or decrease its chances of successfully managing the process of disruption.

The following concepts need to be used to evaluate the outcome of any disruptive innovation
1. Disruptive innovation theory which says that when a company tries to address overshot customers, or under-served customers or nonconsumers then it can lead to disruptive innovation.
2. Resources Processes Values theory which says that these three aspects of an organization needs to be understood to figure out if an organization will succeed in the attempt it is making.
3. Jobs-to-be-done theory states that any innovation which addresses the critical “Job to be Done” of the customer at a lower cost, in a more convenient way will be disruptive.
4. Value Chain Evolution theory states that initially the innovations will tend be tightly coupled and controlled by a single organization. But over a period of time as the industry evolves there will be a tendency to modularize the product or the service. The modules themselves will start off as tightly integrated, but will soon this will modularize too. It is important to understand this tight coupling and modularization process to predict the future of an organisation.
5. Schools of experience states that it is important for an organization trying to create a disruptive innovation to hire the right person. The person should have the right experience to motivate the team to be innovative. A person who has managed, very successfully, a large organization which is in a sustaining innovation mode will be a misfit for an organization which is disruptively innovative. Instead a person who has failed in an organization which was disruptively innovative would be a much better person to hire.
6. Emergent Strategy Theory with supporting discovery-driven planning tool. This theory states that in highly uncertain circumstances, companies need to develop ways to adapt to marketplace signals. Following a hard strategy or plan will be unsustainable. The organization needs to follow a strategy that allows it to keep flexing the strategy as the market keeps changing course.
7. Motivation Ability framework states that the success of an organization depends on the Motivation and Ability of the organization to innovate.

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