03 Dec A Better Way to Innovate

After the Steelers vs. Browns football game ended with a head crushing blow, the pundits analyzed what went wrong. The NFL is losing fans who are increasingly aware of the long-term head injuries. New penalties and stronger helmets are designed to discourage head butting. But if coaches still encourage athletes to beat an opponent, instead win, the injuries will continue.

In 1997, Clayton Christensen published the iconic Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail. The purpose of the book was to answer the question – why do good managers fail?

Most of the book was dedicated to analyzing why managers who play to win fail. As taught in business school, they target large mainstream markets and deliver what the customer wants at high quality and margins. But this isn’t a good defense to smaller, agile competitors delivering a good enough solution at low cost and margins to niche emerging markets. He prescribes several alternative approaches and processes for established company managers to innovate to win, without risking destroying their core business.

In a later book the Innovator’s Solution: Creating and Sustaining Successful Growth, he introduces another reason that good managers fail. And it’s not competition. In the first chapter, “The Growth Imperative,” he lays out the reality of managing to deliver shareholder value growth. Since share price is driven up by earnings growth forecasts, a manager is caught in a game of managing expectations. To keep the stock price growing, the manager must forecast growth, but not so much growth that that goal can’t be reached or exceeded so the stock will continue to rise. Based on his research, one missed forecast is rarely overcome before the manager is fired. He goes on to prescribe how managers may more predictably grow their businesses through innovation.

Both books are written for managers of established businesses to create long-term, sustainable growth. But he is better remembered for coining the phrase “Disruptive Innovation”

“Disruptive” is the most overused term in pitch decks to convince investors that an innovation will grow quickly by competing with an incumbent company. Today, pundits are analyzing the unintended consequences of disruptive innovators like Zuckerburg, Kalanick, and Neumann, who failed to anticipate the long-term impact of their decisions.

Christiansen’s less remembered advice resonates with my experience. Here are principles for how to manage a team to compete to win, not to destroy.

  1. Disruptive innovations create new markets from emerging niche markets.
  2. Emerging niche markets are new applications/customer experiences made possible by attributes of technologies.
  3. New markets are necessarily “unknowable in advance.”
  4. To mitigate risk, start small, and establish learning milestones.
  5. Stakeholders, investors, customers, employee expectations should be set “to get excited by small gains.”
  6. To transform from a niche emerging market to a new market, the innovator will need to collaborate with a value network of stakeholders who all benefit from the company’s success.

Like the football coach who competes to win, not to beat the opponent, a business leader/entrepreneur who sets out to discover emerging niche markets will be a better innovator and investment.