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4/10/2015Copyright Clayton M. Christensen1 Creating new growth and Managing it more effectively Clayton Christensen Harvard Business School

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Presentation on theme: "4/10/2015Copyright Clayton M. Christensen1 Creating new growth and Managing it more effectively Clayton Christensen Harvard Business School"— Presentation transcript:

1 4/10/2015Copyright Clayton M. Christensen1 Creating new growth and Managing it more effectively Clayton Christensen Harvard Business School

2 –Focus investments where returns are most attractive –Understanding the customer is the key to successful innovation –Big markets generate bigger businesses than small markets –Outsource low value-adding activities that aren’t your core competence –Ignore sunk and fixed costs; make decisions based upon marginal costs and marginal revenues Principles we teach that aren’t always true:

3 4/10/2015Copyright Clayton M. Christensen3 Decentralization is disruptive, and is hard to catch Performance Time 40% 20% on $2,000 Disruptive Innovations Time Sustaining innovations Incumbents dominate sustaining battles Entrants typically win at disruption Ability to use improvements Pace of performance improvement 45% on $250,000 60% on $500,000 DEC Data General Prime Wang Nixdorf Hewlett Packard Honeywell

4 2015/4/10Copyright Clayton M. Christensen4 7% 4% Quality of minimill-produced steel 12% 8% 18% 22% % of tons Steel Quality Rebar Angle iron; bars & rods Structural Steel Sheet steel 25–30% 55% Little boys beat giants by disruption Quality of integrated mills’ steel

5 2015/4/10Copyright Clayton M. Christensen5 Quality of minimill-produced steel Steel Quality Rebar Angle iron; bars & rods Structural Steel Sheet steel Disruption generates repeated upside surprise Index of 30 successful (Ex Post ) disruptors: 46% per year for 10 years post-IPO Performance of Disruptive Innovation Fund (ex ante) : 29% per year Nucor share price (adjusted for splits) $1 $2 $4 $8 $16 $32 27% CAGR

6 4/10/2015Copyright Clayton M. Christensen6 Non-consumers or Non-consuming occasions Different measure Of Performance Time Performance Time Pocket radios Portable TVs Hearing Aids Tabletop Radios, Floor-standing TVs Path taken by vacuum tube manufacturers Expensive failure almost always results when disruption is crammed into direct competition with established technology Path being taken by: Electric vehicles Solar electricity Wind power Biofuels

7 PROCESSES: Ways of working together to address recurrent tasks in a consistent way: training, development, manufacturing, budgeting, planning, etc. 4/10/2015Copyright Clayton M. Christensen7 What is a business model, and how is it built? PROFIT FORMULA: Assets & fixed cost structure, and the margins & velocity required to cover them THE VALUE PROPOSITION: A product that helps customers do more effectively, conveniently & affordably a job they’ve been trying to do RESOURCES: People, technology, products, facilities, equipment, brands, and cash that are required to deliver this value proposition to the targeted customers

8 © 2007 Innosight LLC 8 7% 4% Quality of minimill-produced steel 12% 8% 18% 22% % of tons Steel Quality Rebar Angle iron; bars & rods Structural Steel Sheet steel 25–30% 55% Evaluating investments on marginal rather than full costs biases incumbent leaders to leverage what they have, instead of building what they need Quality of integrated mills’ steel $ Minimill $ Marginal $ Existing Price Cost Net

9 Outsourcing often sets in motion disruptive business model liquidation Mother boards Computer assembly Supply chain & logistics Product design Brand Dell AsusTek Simple circuit boards Mother boardsComputer assembly Supply chain & logistics Product designBrand

10 Wall Street Analysts Pharmaceutical Cos. Petroleum Majors Auto companies IT departments Customer Supplier BloombergCROs. Halliburton, Schlumberger Tier One SuppliersTCS, Infosys, Wipro Outsourcing often sets in motion disruptive business model liquidation

11 2015/4/10Copyright Clayton M. Christensen11 The right product architecture depends upon the basis of competition Compete by improving speed, responsiveness and customization Performance Time Compete by improving functionality & reliability IBM Mainframes, Microsoft Windows Proprietary, interdependent architectures Dell PCs, Linux Modular open architectures

12 Changes in product architecture have profoundly changed the architecture of the computer industry Equipment Materials Components Product design & assembly Operating system & applications software Sales & distribution Field service Intel, Komag, etc. Compaq, Dell, Gateway Best Buy Geek Squad Microsoft Present IBMControl DataDigital Equipment Monsanto, Sumitomo Metals, Shipley, etc. Teradyne, Nikon, Canon, Applied Materials, Millipore, etc. Apple Computer

13 © 2007 Innosight LLC 13 Modular Architectures Performance Time Interdependent Architectures Integrated companies with proprietary products typically commoditize their suppliers Commoditizer IBM Commoditizee Applied Magnetics General Motors Dana Corp. P&G Dow Corning

14 © 2007 Innosight LLC 14 Copy features Add features The law of conservation of attractive profits Commoditization thru modularity, over-shooting De-Commoditization: services & products that make use of the product more effective De-Commoditization: sub-systems that drive the performance of the modular product

15 2015/4/10Copyright Clayton M. Christensen15 So what should the Harvard Business School Do?

16 Market Understanding that Mirrors how Customers Experience Life “The customer rarely buys what the company thinks it is selling him” - Peter Drucker

17 Three levels in the architecture of a job 4/10/2015Copyright Clayton M. Christensen17 What’s the job-to-be-done – the basic problem the customer is facing, and the result that she needs? (Each job has functional, emotional & social dimensions) What are the experiences in purchasing, using and living with the product that we need to provide in order to get the job done perfectly? What and how must we integrate in order to provide these experiences?

18 Targeting the job enables precision in product development 4/10/2015Copyright Clayton M. Christensen18 Product category Too many features; wrong features Customer category One-size- fits-none product Job to be done Proper integration of all needed experiences

19 –The market is much larger –Their share is smaller –Their real competitors aren’t in their product category –Growth potential is greater, because non- consumption is usually a major competitor –They can integrate properly – Building a valuable brand is straightforward Companies that segment markets by job find:

20 Integrating correctly to provide the experiences that get the job done is the essence of defensible differentiation Ikea vs. Levitz SAS vs. (_____) Zara vs. H&M Federal Express vs. Emery Air Freight, UPS Disney vs. Six Flags OnStar vs. Toyota, Volvo Hilti power tools 4/10/2015Copyright Clayton M. Christensen20

21 –Focus investments where returns are most attractive –Understanding the customer is the key to successful innovation –Big markets generate bigger businesses than small markets –Outsource low value-adding activities that aren’t your core competence –Ignore sunk and fixed costs; make decisions based upon marginal costs and marginal revenues Principles we teach that aren’t always true:


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