The Innovator's Solution

Clayton M. Christensen, a professor at Harvard Business School, and Michael E. Raynor, a director at Deloitte Research, build on Christensen's earlier work, The Innovator's Dilemma, to offer a prescriptive guide for managers seeking to create and sustain profitable growth. Where the earlier book explained why well-run companies fail when confronted with disruptive innovation, this sequel asks how companies can become the disruptors rather than the disrupted.

The authors begin with the growth imperative. Financial markets demand relentless growth, yet studies show that roughly one company in ten sustains growth that translates into above-average shareholder returns. AT&T's post-1984 history serves as a cautionary case: Over a decade of acquisitions and divestitures in computers, wireless, and broadband cable, the company wasted approximately $50 billion in shareholder value. A study titled Stall Points found that of 172 companies on the Fortune 50 list between 1955 and 1995, 95 percent saw their growth stall, and only 4 percent ever reignited it. The authors reject three common explanations: incompetent managers, risk aversion, and inherent randomness. Instead, they argue that innovation can be made predictable through circumstance-based theory, which specifies how the same causal mechanism produces different outcomes in different situations.

The book's central framework is the disruptive innovation model. Christensen and Raynor define two categories. Sustaining innovations target demanding, high-end customers with better performance; established competitors almost always win these battles. Disruptive innovations introduce simpler, cheaper products that appeal to new or less-demanding customers, and entrants often prevail. The core mechanism is that technological improvement outstrips customers' ability to use it: Companies that serve mainstream needs today will overshoot those needs tomorrow, creating what the authors call asymmetric motivation, the tendency of incumbents to flee up-market rather than defend low-margin business. Steel minimills illustrate the pattern. These small-scale steelmakers, which recycle scrap metal, first entered the low-quality rebar market, then moved up through structural beams and sheet steel, while traditional integrated steel companies retreated because defending their least profitable tiers was unattractive.

The authors distinguish two types of disruption. New-market disruptions compete against "nonconsumption" by enabling people who previously lacked the money or skill to begin using a product. Sony's pocket transistor radio targeted teenagers who could not afford tabletop models; their alternative was nothing at all, so they gladly accepted lower fidelity. Low-end disruptions attack the bottom of existing markets with lower-cost business models. Many disruptions combine both approaches: Southwest Airlines initially targeted people who otherwise would have driven or taken buses but also pulled price-sensitive customers from major airlines. Three litmus tests assess disruptive potential, the most critical being that an innovation must be disruptive to all significant incumbents; if it is sustaining to even one, that firm's advantages will likely prevail.

A central contribution is the jobs-to-be-done framework. Christensen and Raynor argue that conventional market segmentation by product type, price point, or demographics leads companies to aim at "phantom targets." Instead, customers "hire" products to do specific "jobs." A milkshake case study illustrates the point: Researchers found that nearly half of milkshakes at a quick-service chain were bought by early-morning commuters who hired the milkshake to enliven a boring drive and stave off hunger, competing not against other chains' milkshakes but against bagels, bananas, and boredom. The same customer might hire a milkshake for a different job in the evening, such as placating a child. The authors recommend purpose brands, names tied to a corporate brand that signal the specific job a product is hired to do, as Marriott did with Courtyard, Fairfield Inn, and Residence Inn.

The book argues that nonconsumers, people unable to get a job done because available products are too expensive or complicated, are the ideal initial customers for disruptive growth businesses. The authors identify a four-part pattern: target customers compare the disruptive product to having nothing at all, so the performance hurdle is modest; the technology makes use simple and foolproof; and the disruption creates a whole new value network, meaning new channels, partners, and profit models through which the business reaches customers.

Turning to scope and commoditization, the authors argue that when a product's functionality is not yet good enough, companies benefit from integrated, proprietary architectures, systems whose components must be designed together to optimize performance. When functionality overshoots customer needs, modular architectures, systems with standardized interfaces allowing components to be mixed and matched, gain the upper hand as speed and customization become the basis of competition. The personal computer (PC) industry traced this arc: Apple's integrated architecture dominated early, but IBM's modular open standard prevailed once PCs became good enough. This leads to what the authors call the law of conservation of attractive profits: When commoditization destroys profits at one stage of the value chain, a reciprocal de-commoditization process creates profitable, proprietary products at an adjacent stage. In the 1990s PC industry, thin-margin modular assemblers passed revenue through to Microsoft, Intel, and Applied Materials, where products were not yet good enough. The authors warn of a return-on-assets-maximizing death spiral in which assemblers, under investor pressure, outsource fabrication, assembly, and design to suppliers who integrate forward and capture the profit.

The authors introduce the Resources, Processes, and Values (RPV) framework to assess organizational capability. Resources include people, technology, and cash. Processes are the patterns of interaction, coordination, and decision making that enable recurrent tasks; a process that defines a capability for one task simultaneously defines a disability for a different one. Values are the criteria by which employees prioritize opportunities, shaped by cost structure and the minimum size of investments the company considers worthwhile. Managers should be selected based on the problems they have previously wrestled with rather than on generic leadership attributes, as Professor Morgan McCall's schools-of-experience theory proposes. Disruptive innovations require autonomous units with distinct cost structures, the authors conclude, because the mainstream organization's processes and values will otherwise reshape disruptive ideas into sustaining ones.

The authors address strategy by distinguishing deliberate strategy, which is conscious and top-down, from emergent strategy, which bubbles up from day-to-day decisions. In over 90 percent of successful new businesses, they note, the founders' original strategy was not the one that ultimately succeeded. Intel's shift from dynamic random-access memory (DRAM) chips to microprocessors happened through emergent allocation rather than explicit management decision, as scheduling meetings systematically diverted capacity toward higher-margin products. For disruptive ventures, the authors recommend discovery-driven planning: State the required financial projections, list the assumptions that must hold, then test them before committing major resources. Equally critical is the type of capital. The best money is patient for growth but impatient for profit, forcing teams to verify quickly that real customers will pay profitable prices. Honda's U.S. motorcycle entry illustrates this: With limited capital and its larger bikes failing, Honda pivoted to selling its 50cc Super Cub through sporting goods retailers, discovering a new market for off-road recreational riding.

Finally, the authors define three roles for senior executives: standing astride the interface between sustaining and disruptive businesses, shepherding a repeatable disruptive growth engine, and sensing when circumstances change. They propose a four-component engine that operates by policy and rhythm rather than in reaction to financial signals. No company has yet built a perpetual growth engine, the authors acknowledge, but the integrated body of theory they present, drawn from hundreds of companies' experiences, makes predictable, repeatable disruption possible for the first time.