Scott D. Anthony - The Innovators Guide to Growth: Putting Disruptive Innovation to Work

Copyright

Copyright 2008 Innosight LLC.

All rights reserved

No part of this publication may be reproduced, stored in or introduced into a retrieval system, or transmitted, in any form, or by any means (electronic, mechanical, photocopying, recording, or otherwise), without the prior permission of the publisher. Requests for permission should be directed to permissions@hbsp.harvard.edu, or mailed to Permissions, Harvard Business School Publishing, 60 Harvard Way, Boston, Massachusetts 02163.

First eBook Edition: July 2008

ISBN: 978-1-5913-9846-2

CONTENTS

Copyright

Foreword Reflections on Disruption

Acknowledgments

Introduction: Your Guide to Growth

1 Precursors to Innovation

PART ONE: Identify Opportunities

2 Identifying Nonconsumers

3 Identifying Overshot Customers

4 Identifying Jobs to Be Done

PART TWO: Formulate and Shape Ideas

5 Developing Disruptive Ideas

6 Assessing a Strategys Fit with a Pattern

PART THREE: Build the Business

7 Mastering Emergent Strategies

8 Assembling and Managing Project Teams

PART FOUR: Build Capabilities

9 Organizing to Innovate

10 Innovation Metrics

11 Conclusion

Appendix

Notes

About The Authors

Reflections on Disruption

By Clayton M. Christensen

It has been more than ten years since I first published the findings from my research indicating that the very principles of good management could inhibit companies seeking to master disruptive change successfully. In industry after industry, my research has shown that simple, convenient, affordable innovations can disrupt and overwhelm even seemingly unassailable market leaders.

Over the last decade, my academic research has been augmented with the field work of Innosight, a consulting and executive training company I cofounded in 2000. I and my colleagues at Innosight have worked to help dozens of innovative companies and creative entrepreneurs maximize their ability to create booming growth businesses. Additionally, we have engaged with like-minded academics and practitioners, such as Jeffrey Dyer of the Marriott School of Management at Brigham Young University; Vijay Govindarajan of the Amos Tuck School of Business; former Merck CEO Ray Gilmartin; Richard Foster, whose early work on innovation and seminal findings relating to S-curves and the competitive effects of technological discontinuities greatly influenced my own work; former Arrow Electronics CEO Steve Kaufman; Michael Mauboussin of Legg Mason Capital; and Willy Shih, who ran Eastman Kodaks digital operations for several years.

I have been grateful for all of Innosights work over the past several years. I formed Innosight because I recognized a limitation in my own brain. Because the patterns of disruptive innovation are so crystal clear to me, I can underestimate the very real difficulty of actually creating new growth businesses, especially in large corporations. Innosights ability to make the theories of disruption more tractable has been a great asset for the body of knowledge relating to disruptive innovation. This book, written by three of my colleagues at Innosight and a like-minded executive, aims to make the disruptive theories even more accessible to corporate managers and entrepreneurs.

Before turning the pen over to my colleagues, I wanted to summarize four key paradigms that inhibit the successful creation of new growth businesses and to describe my own thoughts about the key ingredients of transformation.

At the core of the research summarized in The Innovators Dilemma is the notion that companies intent on listening to their best customers frequently miss opportunities to create new growth businesses. There is tremendous value in listening to demanding customers. Feedback from demanding customers helps to map out a trajectory that allows companies to continue to charge premium prices, earn attractive margins, and beat market competitors. However, established firms proclivity for responding to the needs of their best customers makes it difficult to see the future impact of disruptions on their core businesses.

Companies that focus only on their best customers end up producing products and services that are too good for more mainstream customers. This overshooting creates opportunities for disruptors armed with simple, inexpensive business models. Responding to the disruptor in the lower tiers of the market never looks as attractive as serving higher-end customers, so profit-maximizing companies flee upmarket. In industry after industry, this pattern has resulted in market leaders eventually getting pinned to the high end of their industry and missing the growth created by disruption. Furthermore, a singular focus on demanding customers leads companies to miss growth opportunities that originate in the lower rungs of their market or in seemingly fringe markets of non-consumers.

Following this flawed paradigm has led to many classic cases of disruptive innovation, such as the disruption of integrated steel mills by steel minimills, the disruption of department store retailers by discount retailers, and the disruption of minicomputer manufacturers by personal computer manufacturers.

I have come to the conclusion that most companies segment markets the wrong way, making it hard for them to spot real opportunities for innovation. The concept of jobs to be done, which holds that customers dont buy products or services, but rather hire them to get jobs done in their lives, provides a superior alternative to traditional segmentation schemes.

Generally speaking, the way in which a company chooses to define market segments influences which products it develops, drives the features incorporated in those products, and shapes how the company takes them to market. Segmentation schemes define who is framed as a competitor and how large specific market opportunities are believed to be. Most companies segment along lines defined by the characteristics of their products (category or price) or customers (age, gender, marital status, geographical location, or income level). Some business-to-business companies slice their markets by industry; others do so by size of business. The problem with such segmentation schemes is that they are static. Customers buying behaviors change far more often than their demographics, psychographics, or attitudes do. The 1834 age demographic that is often used in consumer marketing, for example, lasts 17 years. Education level is generally fixed by age 30. An individuals income might vary more often, but it is generally stable for years. Demographic data cannot explain why a man takes a date to a movie on one night but orders in pizza to watch a DVD from Netflix the next.

Product and customer characteristics are poor indicators of customer behavior, because from the customers perspective that is not how markets are structured. Customers purchasing decisions do not necessarily conform to those of the average customer in their demographic; nor do they confine the search for solutions within a product category.

When customers find that they need to get a job done, they hire products or services to do it. Companies therefore need to understand the jobs that arise in customers lives for which their products might be hired. In other words, it is the job, not the customer or the product, that should be the fundamental unit of market segmentation and analysis.