Clayton Christensen: “Where does Growth come from?” | Talks at Google

Clayton Christensen: “Where does Growth come from?” | Talks at Google


MATT: Professor
Christensen is one of the most thoughtful
and interesting and engaged people that
I’ve had a chance to work with in my time at Google. And I’m really, really
excited to allow all of us to share a little
bit of that today. So without further ado,
Professor Clayton Christensen. [APPLAUSE] CLAYTON CHRISTENSEN:
You’re very kind, Matt. And I’m just delighted
that you guys would be it worth your while to come
here and talk about some of the things that
I want to propose. There are three main
objectives in my talk. The first one is, my gosh,
Google is in a wonderful spot. And almost never in
the history of mankind has anybody seen to be
so successful in much that you’re trying to do. And the reason why
I worry about that is that success is
very hard to sustain. And if you look across the sweep
of business history, almost every company which
at one point were widely regarded as
unassailably successful, 10 or 20 years later, you find
them in the middle of the pack or the bottom of the heap. And I’ll get into a little
bit about that later. But the scary
thing about this is that it’s actually
good management that causes successful
companies to stumble. And so, the solutions
that you might think about are not solutions at all. So anyway, that’s
one reason why I came is to just share
the despair that comes with success. [LAUGHTER] And then, the second one
is that growth is actually a huge issue everywhere. Not just American companies, but
Japanese and European companies are even more
desperate for growth. In China, which
has been on a roll for over the last 10 years,
find themselves not able to grow there. And politicians are
worried that we can’t grow. And they have no
idea where growth comes from at the level
of national economies. And if our nations
are not prosperous, then companies find it
hard to be prosperous. So that’s what I want to talk
about if that’s all right. And what I’d like to
offer to you, which is my third objective
today, is that I want to talk to you about
theories about management. And the word “theories” gets
a bum wrap with managers, because the word
“theory” is associated with the word “theoretical,”
which connotes impractical. But a theory is a
statement of causality. It’s a statement of what
causes what and why. And when you think
about it in those terms, you as technologists or
managers are voracious consumers of theory. Because every time
you take an action, it’s predicated upon a
belief that, if you do this, you’ll get the
result that you want. And every time you
put a plan into place, it’s predicated upon a set
of theories, which tells you, if you do these things,
you’ll be successful. But most of the people aren’t
even aware of the theories that they use. And many times, the
theories that you use are destructive rather
than productive. So this is why I have spent
much of my academic life trying to understand theories
about management. So there’s not one grand
theory of management that solves all
problems of managers. But there really are theories
about different dimensions of a manager’s job,
which are quite helpful. And you’ll see some of those,
as I’ll present them today. And it is as if, if
you came to my office, there would be a shelf there. And on the shelf will be a set
of theories about management. And some of them have
emerged from my own research. And next to them are
theories about management that other members of
our faculty have offered. And there are a few
slots on the shelf that aren’t filled, because
there are really important theories about
management for which nobody has provided a theory yet. So for example, metrics
and how you measure things is a huge deal. And yet, there isn’t a
theory about metrics. But with these as a
set of building blocks, if somebody can then come
to us with a problem, rather than giving them
my opinion about how to solve the problem, instead
what we’re able to do is say, well if that’s the
problem, you know, then we have a theory
on the shelf called the theory of disruption. And I bet you that
if we put that theory on like a set of lenses
and examine this problem, we might be able to
understand what’s going on. And so that’s what I want
to do is explain to you a set of problems for which
good theories might help you. And I picked these ones
because I think you probably are facing similar problems. So if you think about
our economy much, you’d realize that occasionally
we have a recession. And when our economy
goes into recession, we’ll hit bottom at some point. And then, it takes some
time before companies have to start hiring people again. Because the people
who are on board can satisfy the demand
of getting more orders for a while. And we have had nine
recessions since World War II. And in the first six of
those nine recessions, on average, it took
our economy six months from the point when they hit
bottom to get to the point where they needed to
hire more workers. But we had a recession
in 1991, ’92, where it took our economy 15
months to get to the point where they needed to
hire people again. Then, we had a
recession in 2001, ’02. So it took us 15 months in that
recession to get to the point where they had to hire people. Then, we had a recession in ’01,
’02 where it took our economy 39 months, in aggregate,
to get to the point where they’re hiring more people. Then the most recent
recession it took us our economy nearly six
years to get to the point where we needed to
hire more people. And what seems to be
happening increasingly is these rebounds appear
to be financial, not real in character. So the people who have money
get a lot of money a lot faster. But the rest of
us, there are not jobs into which we can
be slotted in anymore. And something fundamentally has
gone wrong with our economy. And what we see
in the economy is a summary of what’s going on
in most companies as well. So I want to propose
that there are four different types of innovations. And the reason why I’d
like to focus on innovation is because, whenever a
company makes an investment, they invest in an innovation
of one sort or another. And so, what I want to
do is describe these four types of innovations and
then teach a little bit more about whether and why and
where they will create growth. There are potential
products, meaning nobody’s figured out what these are yet. Then the second one are
sustaining innovations that make those products better. The third are disruptive
products that grow markets. And then, the fourth are
efficiency innovations in which they sell them off in
order to get their money back. So let me start with
potential innovations. Almost any study
about innovation will say that, of all of
the products whose product development are initiated in a
company, only about 15% to 25% of them will become
financially successful. And it’s broadly viewed that
innovation is a crapshoot. The more projects you launch,
the more success you’ll be. But in its end,
it’s a crapshoot. And what we’ve concluded
is that it’s not true. The reason why it appears that
we can’t predict in advance whether a customer will buy the
products that we’re developing is that people at business
schools like Harvard teach marketing
in a perverse way. And in particular, we’ve decided
that understanding the customer is the wrong unit of analysis. So to illustrate that, just
look at me for a second if you wouldn’t mind. My name is Clayton Christensen. I am 64-years old unfortunately. I used to be 6 feet 8
inches, unfortunately. And I now am 6 feet 6
inches, unfortunately. And I married a wonderful
wife, fortunately. We have five kids. The third of them,
Michael, unfortunately came here to Stanford. [LAUGHTER] And I have all kinds of other
characteristics and attributes, as you can see. But none of my
characteristics or attributes have not yet caused me to buy
the “New York Times” today. There might be a correlation
between the propensity that I will buy the
“New York Times.” But my characteristics
don’t cause me to buy it. Nor do our characteristics
and attributes cause us to buy any
product or service. And yet, almost all
of the work that we do in assessing
market potential, we look at the
characteristics or attributes of the potential customers. And a better way to
think of it, we decided, is that, darn it, every
day stuff happens to us. Jobs arise in our life. And when we these
jobs arise, we need to find some way to
get the jobs done. And some of the jobs are
simple incremental things that happen regularly. Others are dramatic and
important breakthrough problems. But whenever we
have a job to do, we have to find something
and pull it into our lives in order to get the job done. And what we decided is
understanding the job is the critical key
to develop products that we can predictably make
and find the customers to buy. So to illustrate this
point, a number of years ago, as this idea of
the job to be done was emerging from our
research, McDonald’s was trying to decide how
they could improve the sales of their milkshakes. And as some of you might
know, McDonald’s is a very sophisticated
marketing company. And they have data out the
gazoo about every dimension of what they’re doing. And so, when you
go in, on the menu, behind that there is a profile
of the demographic profile of the quintessential
customer that likes to buy that
product when they come. And so, what
they’ve done is they have these cohorts
of people who are the quintessential milkshake
customers, for example. And it turns out that I
fit that profile perfectly. So they would take people
like me into conference rooms and ask, can you
just help us how we could improve the milkshake
so you’d buy more of them? The customers would
provide very clear guidance about how to improve it. They would then improve the
product on those dimensions. And it had no impact or sales
whatsoever on the product. So what we decided is that
that’s not the right way to frame it. But rather, there’s
got to be a job out there somewhere that
people find themselves needing to get done for which they go to
McDonald’s to hire a milkshake. And we need to understand
what the job is. So one of our colleagues
stood in a restaurant one day for 18 hours and just
took very careful notes on, what time did they
buy these milkshakes? What was he wearing? Was he alone or
with other people? Did he buy anything else
or just the milkshake? Did they eat it in the
restaurant or get in the car and go off with it? And it turned out that
about 50% of the customers bought the milkshake
before 8:30 in the morning. It was the only
thing they bought. They were always alone. And they always got in the
car and drove off with it. So we decided we need to
understand, what was this job? So we came back the next day
and we positioned ourselves outside the
restaurant so that we could confront these
people as they were emerging with their milkshake. [LAUGHTER] And in language that they could
understand, we asked them, I got a problem with
your behavior here. What job were you trying to do
that caused you to come here to hire this milkshake? And as they would
struggle to answer, we’d try to help them by
asking, well, look, think about the last time you
were in the same situation, needing to get
the same job done, but you didn’t come here
to hire a milkshake. What did you hire to do the job? And it turned out that they
all had the same job to do. And that is they had a long
and boring drive to work. And gosh, one hand had
to be on the wheel. But somebody gave
me another hand. And there isn’t anything
in it to drive with. And I just need to do
something while I’m driving. And I’m not hungry yet,
but I know that I’ll be hungry by 10 o’clock. So I also need something that
will just go thunk, and stay there till 10 o’clock. So when I have this problem
to do, what else do I hire? And one guy said, I never
thought of it in these terms. But last Friday, I hired
a banana to do the job. Take my word for it. Never hire bananas. They’re gone in
less than a minute. I’m hungry by 7:30. Another guy said, you promise
not to tell my wife please. But I hire donuts a lot
to get this job done. But they actually
don’t do the job well. I promised my wife that
I’m going to lose money. But I add it. And they crumble
all over my clothes. And my fingers get gooey. And I put that on the wheel. And another guy said, yeah,
I do bagels sometimes. But geez, the bagels are
so dry and tasteless. I have to steer the
car with my knees while I put the cream cheese on. And then, if the phone
rings, I got three problems and two hands. And one guy said, I hired a
Snickers bar to do the job. But I felt so guilty I’ve
never heard Snickers again. But let me tell you,
whenever I have this job and I come here to hire
McDonald’s milkshakes, it is so viscous, it
takes me 23 minutes to suck it up that
thin little straw. Who knows what the
ingredients are. I don’t care. All I know is it’s in
my stomach all morning. And it fits right
in my cup holder. And it turns out the milkshake
does the job better than any of the competitors. And the competitors are
not Burger King milkshakes. But it’s bananas and donuts
and bagels and Snickers bars and coffee and a
few other things. And then, it turned out
that in the afternoon, it was hired for a
very different job. And that is somebody
is a parent, just needs to have a
sweet uncluttered time to talk about whatever’s
on the mind of their child. And they hire the
milkshakes to do this job. And it does that job very well. But it’s a very different job
than what the morning job is. And it turns out that
this is not unusual that almost always,
Peter Drucker said, the customer rarely
buys what the company thinks it’s selling them. And that’s why I
said at the beginning that understanding the job is
what’s critical in developing successful products. The customer is the
wrong unit of analysis. Because the customer
finds herself needing to have
different jobs to be done over the course of a
day or a week or a month. So there’s a job out
there somewhere near here that needs to get done. And people find
themselves needing to get this job’s job done
in different frequencies. And that is, I need
to get this from here to there as fast as possible
with perfect certainty. How many of you
have found that you needed to get this job
done in the last year? Almost everybody. It turns out that Julius
Caesar had this job to do. But when he had
the job, he could hire a horseman and a
chariot to get the job done. Queen Victoria had the
very same job to do. But she could hire the
telegraph and the railroad to get the job done. And Winston Churchill could
hire a airplane to get it done. And now, our leaders
can hire DHL. But the job itself has been
fundamentally unchanged over these centuries. And that’s a
characteristic of most jobs that they are very
stable over time. But the technology that we
could hire to get the job done changes at a scaring
rate in some times. And so, if we think of the
business that we’re in as, I’m in the business of DHL
and I compete against FedEx, my life is very unpredictable. But if I think of the job to
be done as the core business, then life is very stable. And it makes it a lot easier
for us to predict what will be the next technology. Let me just
describe– I’m sorry. I need to tell you a
couple things about myself. I’m stumbling
around, because I’ve had a couple of rounds of
chemotherapy for cancers that I’ve had. And one of the side effects
is that I can’t feel my feet. So when I’m looking
at you, I don’t know if my feet are
over there or here. And then, I had a stroke. A clot came from somewhere
and lodged itself right there in my brain. And it formulated the portion
of my speech where we formulate. It killed the
portion of my brain where you formulate speech. This happened about
four years ago. And just like that, I
lost my ability to speak. And I’ve been trying to
learn how to speak again. And there’s a program called
Rosetta Stone for English. Turns out, it is very good. But you see in my
language, sometimes, I’m struggling to come
up with the word. And that’s because I lost it. And I’m learning how to
speak from the other side of my brain. And I noticed that
I notice that I’m speaking to the floor a lot. And the reason why is,
if I look at the floor, I can focus on what the
next sentence has to be. And if I look at
you, you distract me. So it’s not that I have
become shy all of a sudden. So I apologize for that. Anyway, there is an architecture
to every job to be done. So the fundamental
foundation is there is a job that I
need to know, given the situation that I’m in. And that’s an important reason
why understanding the customer is the wrong unit of analysis. Because the
situation that I’m in has a huge impact on
the nature of the job. And every job has a
functional and emotional and a social
dimension to the job. And the mix of those three
depends upon the application of the situation they’re in. If we understand
what the job is, then we can ask
the next question. So what are the experiences
in purchase and use that we need to provide in
order to do the job perfectly? And if we understand what
those experiences are, then we know what to integrate
and how to integrate it so that we can provide
the experiences needed to get the job done. And if we understand that, then
it tells us what kind of brand we need to apply
to that product. So that when they
find themselves needing to get the
job done, that brand pops into their head. So to summarize why it’s
important– the reason why we need to understand the
opportunity in terms of the job rather than the customer. We need to understand what the
job the customer needs to do. We need to understand how
customers will choose us. And we also need to
then be able to say what we can do that
other people can’t, which is how we integrate. And finally, how
will everyone know what product does the job best. There’s a job that
arises in people’s lives that happened to our son
Mike when he came out here to start at Stanford. And after a couple
days out here, he called Christine and me back. And he said, Mom and Dad,
I found our apartment. And I need to furnish
my apartment tomorrow. And so there’s a job that
Mike needed to be done. That is, I need to furnish
my apartment tomorrow. When you find that you
have that job to be done, is there a brand that
pops into your mind that says, this is what I can do to
get this job done perfectly? AUDIENCE: Ikea. CLAYTON CHRISTENSEN: Ikea. How many of you said the
word Ikea in your mind when I told you
what the job was? Look around. Isn’t that interesting? And that’s what we mean
by a purpose brand. We need to organize our product
around a job that does it so perfectly that anybody
around the world who find themselves needing
to get that job done, they think of Ikea. And Ikea has no competitors. There are other retailers
that sell furniture. But there is nobody in the
world that is organized around that job to be done. As a result, they are
wildly profitable. And you think about
this for a minute. Their owner is the third
richest guy in the world. The quality of the furniture
that they buy is marginal. And they sell it to the low end
of humanity, college graduates. [LAUGHTER] And clearly, they are
able to get a premium. Their customers are
delighted to pay a premium price for their products. And the reason why
that is is that, if you hire a product to get
the job done and it doesn’t do the job well, then
you have to take it back or throw it away or give it or
repair it and go out and find something that will
do the job done well. And if that doesn’t
do well, then you have to test it and
talk to your friends. And when you find
yourselves buying a product and you find that it
doesn’t do the job well, it is very costly to find
something that does it well. And that’s the
reason why it can be so profitable if you organize
around a job to be done. Because the customers will
be delighted to pay a premium price for your product, because
the alternative of something that doesn’t do the job
well is very costly. So that’s the first
type of innovation. And we call them
potential products, because we don’t know their
potential unless we understand the job to be done. The second type of
innovation we call sustaining products that
make good products better. And so, the day after we
launch into a new product where you figured
out there’s a job to be done– we have a
product to do the job well– immediately, we start
improving those products. And we call those products
sustaining innovations. And they’re important. When we look around the world
as we walk around, almost all of the innovations that we
see are sustaining products. They help companies keep
their margins healthy. They are the mechanism
for gaining market share. And those of you who
are working on AdWords and other of your
products are engaged in sustaining innovations. They’re critical. But because they replace
older products with new ones, they don’t create growth. So imagine that I’m
working for Toyota. And I convince you to buy
the Prius, the hybrid car. Then, you won’t
be buying a Camry. If I sell you this
year’s best product, you won’t buy last
year’s best product. And so, by their very nature,
sustaining innovations, although they are important,
are replicative in character. And most of what we think about
as innovation are of this sort. So that’s the second
type of innovations. The third type of innovation
we call disruption. And they create growth. So let me describe– this
is going to be a complicated slide before we’re done. So I apologize in advance. But you’ll see these
three concentric circles. And what they’re
made to represent is that, actually,
you can describe the history of any company in
terms of these three circles. The innermost circle
represents the customers who have the most money
and the best access to a product or service. And then, as you go
to the larger circles, they represent
larger populations of people who have
progressively less money. Almost always, industries
begin in the center, because the first
products and services are so costly and complicated
that only people who have a lot of that are
able to buy it and use it. So given that, I want to then
describe what disruption is and why it creates growth. So I’ll put on the vertical
axis the performance of product or services over time. In every market there
are two trajectories. The first one is,
in every market there is a trajectory
of improvement that customers are able
to utilize in their lives. And we don’t think
about this very much, but our lives
don’t change a lot. And that’s why this is so flat. Then, in every market,
there’s a different trajectory of improvement that
innovating companies provide as they keep introducing
better and better products. And the most important
finding about this is this trajectory of
technological progress almost always outstrips
the ability of customers to use the product. And what it means is
that a technology, at the beginning that
isn’t very good actually is prone to overshoot what
those same customers are able to utilize at a
later point in time. And there’s not much
gray hair in the room. But if you talk to somebody
who was in their teens or 20s in the 1980s,
we were, at that time, trying to figure out
how to use, learning how to type on those early
personal computers. About every 30 seconds, you had
to stop and let the Intel 286 chip catch up to you. Because the world’s fastest
microprocessor could not even keep pace with our fingers
on the left-hand side. But if you take your
computer apart now and just look at the
microprocessor there, we utilize only about 15% of the
capability of that processor. Intel has just way overshot what
most customers in mainstream applications are able to use. Now, some of the innovations
that help good products better are incremental innovations. Others are dramatic
breakthrough innovations. But we use a word
for them that we call sustaining innovations,
which was on the last slide, because they’re
really important. Almost always,
incumbent companies who are the leaders on the
left-hand side of the diagram find themselves still
on top of the industry when these battles of
sustaining innovation are over. And if you want to
start a new business and you want it to
be successful and you think you can beat the
incumbents by making better products that you could
sell for better profits to the customers
best competitors, they will kill you. And the evidence is
really very strong. It doesn’t matter how
big or powerful you are. If you think that you can beat
the incumbents in their market, they will kill you. And we could spend a
lot of time on that. But there’s another
type of innovation that we call
disruptive innovations. And disruptive
innovations transform products which, in
the middle, were too complicated and expensive. Now, disruption makes it so much
more affordable and accessible that many more people are
able to use those products or services. And almost always, entering
companies typically win at disruption. And that’s exactly
what Google did, right? Because advertisement and
finding customers and making things known– you had
to have a lot of money to play in that game. And then, your
technologies and services made it so that
anybody could find what they needed, whether
you’re a buyer or a seller. And you changed
the world by making it affordable and accessible. And none of the incumbents
who you guys beat are around today, because
entrants typically win. And let me describe why. So living in Boston as we have
for the last three decades, there was, in the 1970s and
’80s a company there called Digital Equipment Corporation. And at that time, Digital was
widely viewed as Google is now. It was the most widely admired
company in all the world. And when you read
explanations about why they were so successful,
always success was attributed to the brilliance
of their management team. Then, about 1988,
Digital Equipment just fell off the cliff and
began to unravel very quickly. When you then read
explanations about why they had stumbled
so badly, always it was attributed to the ineptitude
of the management team. And the very same people
were running the company. And for a while, I framed
the problem as, gosh, I wonder how smart people
could get so stupid so fast? And that’s really
the explanation that most people churn up
when a company stumbles. That somehow, a company that
the management team that had its act together at one
point were out of their league at another time. But the real reason why the
stupid manager hypothesis just didn’t feel right is
that every company that made the same class
of computers– we called them mini-computers. They were about the
size of this pulpit. Every company that made
that were killed in unison. It wasn’t just
Digital Equipment. But it was Data General,
Prime, Wang, Nixdorf, Hewlett Packard, Honeywell. And you’d expect these
people to collude on pricing occasionally. But to collude to
collapse was a stretch. [LAUGHTER] And trying to understand
why they’d do that was the puzzle that we had. So as we understood it
a little bit better, we realized that
this minicomputer was quite a complicated
product that had to be sold direct
to the customer. And the selling process involved
a lot of training and support and service and software. And you had to have a cost
like that in the business to play in the game. And that meant that
Digital Equipment had to generate
gross margins of 45% on computers that
sold for $250,000. And that’s how they
made their money. Now, in their company,
as in every company, there were people coming
in through the 1980s all the time with
ideas for new products that they could develop. Some of these entailed making
better products than they had ever made before. In fact, these mini-computers
would be so good that they could reach up
into the tiers of the market where people historically had
to buy mainframe computers. You looked at those
business models. They could generate
gross margins of 60%. And you could sell the products
for twice as much money. So while the
management was trying to decide if that’s
what they should do, there were other people
coming in saying, ladies and gentlemen, you don’t get it. Just look out the window. Everybody is buying
personal computers, which was the case in
the 1970s and ’80s. But when management
would look out, in fact, they could see that everybody
was making personal computers. But there were a
couple of other things that bothered them a lot. The first one– do
you remember how crummy those early
personal computers were? Apple sold the Apple II
as a toy to children. Not a single one of
Digital’s customers could even use a personal
computer for the first 10 years that they were in
the management. And then, they got no
signal from their customers that the personal
computer mattered. Because in fact,
it didn’t to them. And then, when you looked
at the business details, it looked a lot worse. Because these small
computers only generated gross margins of 40%. And they were headed
to 20% quickly. And you could only earn
those paltry percentages on computers that
sold for $2,000 bucks. And so, the question that
the management had to address was, gosh, guys,
let’s sit down here. I wonder if we should
make better products that we could sell for better
profits to our best customers? Alternatively, maybe we
should make worse products that none of our
customers would buy that would ruin our margins. What should we do? [LAUGHTER] And it is a very,
very hard problem. And we call it the
innovator’s dilemma. Because doing the right
thing is the wrong thing. And doing the wrong
thing is the right thing. Can you think about where
else you’ve seen this happen? Where somebody comes in
with a simple product going after customers who historically
couldn’t have access to it and then it just grew up
and killed the leaders? AUDIENCE: Blackberry. CLAYTON CHRISTENSEN: BlackBerry. Yeah, they just knocked off
sitting down with a laptop. And then, Apple
disrupted BlackBerry. And now, Samsung and
Huawei are in the process of disrupting Apple. It’s a good one. Where else have you seen it? AUDIENCE: Disc drives. CLAYTON CHRISTENSEN:
Disc drives. The big ones disrupted
by the little ones. And then, the flash
disrupted disc drives. And almost all of them
are out of business now. That’s a good example. You guys look like you
make a lot of money. [LAUGHTER] And I saw Lexus outside left
and right in the parking lot. But that’s not how Toyota
entered America, with Lexuses. Toyota came in with a
rusty little sub-compact in the 1960s called the Corona. And it was so much more
affordable and accessible that the rebar of humanity,
people we call college students, could own a car. And so, they came out here
by making it affordable. And in the backplane,
General Motors and Ford were making big
cars for big people. And people would see
Toyota coming in. And Toyota went from a Corona
to a Tercel, Corolla, Camry, Avalon, 4-Runner, Sequoia,
and then the Lexus. And as Toyota were
coming up there going after new
customers, they’d say, we ought to go
get those buggers. And so, they’d design
a Pinto or a Chevette and try to sell subcompacts
into the marketplace. But then, their finance
people would look at the money that they could
make in subcompacts with the profitability
that they could making bigger SUVs and
bigger pickup trucks to even bigger people. It absolutely made
no sense to defend the low end of the business,
when they had the opportunity to make good products better. Who’s killing Toyota? They don’t feel like they’re
getting killed, incidentally. AUDIENCE: It’s
probably [INAUDIBLE]. CLAYTON CHRISTENSEN:
Yeah, the Koreans are just killing them at the low end. And Toyota is doing
the right thing. Because why would they
ever try to defend the low end of
their business when they have the privilege of
competing against Mercedes at the high end? And then, the Chinese
manufacturers are coming next. And we seriously don’t
need to worry about them. [LAUGHTER] And one of the reasons
why this is so hard is that what is coming
out in this dimension, in the third dimension,
is that it competes against non-consumption. Because the products are so
costly and expensive that behind them there
are no customers. They are potential
customers, but if you make it affordable and accessible. And so, looking
at their world, it looks as if they’re
doing just fine. And it’s why, almost
always, you have to have a new company
with new people who are looking in
the other direction. Because you’re competing against
non-consumption by making it affordable and accessible. And that’s why growth
comes in this dimension. And almost always we find– AUDIENCE: Huh. So I guess, do you have
examples of companies that have successfully
taken advantage of this notion of disruption
where they themselves [INAUDIBLE], within their
own company, that disruption to take place? CLAYTON CHRISTENSEN: Yeah,
it’s a great question. It turns out that
there really are a few who have done that,
where they were the leaders and, then, they became
the leader in the new wave without getting
killed in the old one. But only a few. And in every case,
they succeeded by setting up a completely
independent business unit and gave it able to create
a different profit formula and develop different processes. So as a good example, IBM
just dominated the mainframe business. But there were eight companies
that made mainframe computers. The other seven all got
killed when the mini-computer came in underneath. But IBM succeeded
by setting up– they made their mainframes in
Poughkeepsie, New York. And they made their
mini-computers in Rochester, Minnesota. And there were nine companies
that made mini-computers. Only one of them,
IBM, succeeded. And they did it by setting
up a different business unit in Florida and
made them figure out how to make products at
25% gross margins, instead of 40% or 60%. Hewlett-Packard did it once
when the laser printer got disrupted by inkjet printer. And they set up the ink
jet separately in Vancouver and had their own sales force. And they did very well. But both of those companies
are in deep trouble now. Because they haven’t
continued to follow that of launching disruptive
innovations and keeping it separate. So we’ve had three
types of innovations, potential innovations, which
we understand by understanding the job to be done; sustaining
innovations make good products better; efficiency innovations
helps us to do more with less. The role that they
have in growth is that they keep
us competitive, but they reduce jobs. But they do create
free cash flow. And so Wal-Mart is an
efficiency innovation. The Toyota production system
is an efficiency innovation. And again, they’re important. Because if we’re not
getting more efficient, otherwise we’d get killed
sooner rather than later. So this is a view of
where growth comes from. So the first step is we’ve
got to understand the job and develop a product
that does the job well. And essentially, what
that does is it puts us in the center of the market. And then, disruptive
innovations make products better and accessible. So they create growth. Sustaining innovations
make good products better. And efficiency innovations
allow us to make more with less. And that’s a manager’s view
of where growth comes from. Now, why are we not
able to keep the growth? And I put the problem at
the feet of finance people who are taught finance
at places like Harvard. So there are two elements
that are quite important. One is a doctrine that they
teach in finance that we call abundance and scarcity. Now, what that means is, if
I’ve taken a order from you, in order to deliver what
I tell you I will offer, I have to array the
inputs required. And some of the inputs
will be costly and scarce, like platinum. And you’ve got to be
really careful about how you use platinum. And others are abundant
and cheap, like sand. And I can waste sand. So we have to take
care of what’s costly. And we can waste
what’s abundant. And you’ll see in
finance, historically, we needed to carefully
husband the use of capital, because capital was
costly and scarce. But now it’s abundant and cheap. And the world has
really changed on us. The second element that
finance brought to us is they decided that we should measure
our success using ratios rather than whole numbers. Now, when I studied
finance in the 1970s, we were taught finance
by whole numbers, like millions of
dollars or tons of cash. But starting in the mid
1980s, shortly after, Dan [? Dricklan ?]
developed the spreadsheet, the analysts who grabbed
a hold of the spreadsheet started to be bothered
that, as analysts, they wanted to be able to compare
Cisco with Sun Microsystems. And they’re different companies. And so, if I compare
them with whole numbers, I couldn’t make much sense. But what they realized is
if they measured success by ratios, then you could
compare two companies that are not comparable. So if they want to
compare you with Microsoft in whole numbers,
it makes no sense. But in fractions, then it
commoditizes everything around the denominator. So fractions– I got back
to my fifth grade math. A ratio is a fraction. It has the numerator
and a denominator. And so, if I want to grow,
there are metrics that we used. And one is return on
net assets or RONA. And another one is internal
rate of return, IRR. And these are fractions. So if I’m the manager and
I want to get RONA up, sure, I could be more profitable
by being more innovative and put the profit on the
numerator of the ratio. But holy cow, if that’s hard,
the denominator is assets. And I just have to outsource
everything to get assets off of the denominator. But either way,
improving the numerator or decreasing the
denominator, RONA goes up. And it turns out
that it is easier to outsource than it
is to make more profit. And so, in the pursuit
of RONA, we just outsource more
and more and more. And then, internal rate
of return is a ratio. The numerator is profit. The denominator is, how
quickly do I get my money out after I put my money in? And either way, the
internal rate of return improves by doing the
numerator or the denominator. And because profit is harder
to achieve than to only invest in things that pay
off in the short-term, more and more companies
are investing only in short-term payoff
projects, because that’s the way they get IRR up. And so, what’s happening
to us as a nation– and I think you
guys temporarily are doing a good job– is we’re
losing our growth because of what finance taught us to do. So just imagine that I’m making
a really good job at efficiency innovations. And that creates free cash flow. And we have so much cash that we
have to ask analysts to tell us where we should put our money. So the analysts will look
at that disruptive history. And they say, we
ought to use our money to create disruptive companies. But the problem is, if we
invest in disruptive companies, they pay off in
five to 10 years. And so internal rate
of return will tank. And if we start to create
disruptive companies, we’ll have to put assets back
onto their balance sheet. On the other hand,
if we use our money to do another round of
efficiency innovations, they pay off in six
months to three years. There is no risk. The market is there. It creates free cash flow. So if you wouldn’t mind just
this once, what I’d like to do is use our money to do
another round of efficiency innovations. And I do that. And the problem is, we
have more free cash flow. And we’ve got to
figure out, what do we do with all of this stuff? So can we look at
the analyst, say, just take another deeper look
at disruptive innovations. And so, he does. And he said, the problems
are just the same. If we invest to create
disruptive products, they pay off in five to 10 years
and IRRs are going to go down. And RONA goes down,
because it needs assets. So if you wouldn’t
mind, I’d like to just use our money
just one more time to do another round of
efficiency innovations. And the problem is, it
creates more capital. What are we going to do
with all this capital? My gosh! And so, I just do it
again and again and again. And that’s what’s
happened in our economies in Japan and Europe and,
increasingly, in North America. Because we have chosen
to measure success with these ratios, our analysts
grab that free cash flow and use it to create
more free cash flow. And if you want to know what’s
going to happen to America, just look at Japan. Because in the ’60s, ’70s,
and most of the ’80s, Japan’s economy was growing
at unprecedented rates. And the reason why
they were growing was because they had
companies in that economy that kept investing in
disruptive innovations. So Toyota made cars
affordable for mankind. Honda made motorcycles
affordable for mankind. Sony made a 10-transistor pocket
radio that allowed teenagers to listen to rock-and-roll. And the reason why
you guys have printers in your offices and your homes
is that Canon disrupted Xerox. But because they made things
affordable and accessible, billions of people
around the world were able to own and use
things that historically had been beyond their reach. And that forced these companies
to make more products. And that meant that they
had to hire more people to make them and distribute them
and sell them and service them. And for 30 years, they had
no economic recessions. They had no unemployment,
because they were going after people
who were competing against non-consumption. And in the late 1980s,
the analysts in Japan started to measure their
success as gross margins and net present values and
internal rates of return. And since 1990, in
Japan, they have not yet generated a single new
disruptive innovation. And their economy
just went “ppt.” It’s been flat-lined
for 25 years. And they have
capital everywhere. And the cost of
capital is nearly $0. And yet, they can’t grow,
because of the metrics that they have chosen. And that’s what I worry a
lot for the United States. Increasingly, the
financial analysts are causing us to use our
capital to create capital. And the cost of
capital is nearly $0. And yet, most companies aren’t
organized to invest to grow. And you guys are doing
a good job temporarily. [LAUGHTER] Anyway, those are just
a few of the thoughts that we have about
where growth comes from and how to deal with it. AUDIENCE: So for a
company like Google, what metrics would you
suggest to break out of this vicious cycle? CLAYTON CHRISTENSEN:
Well, there is no metric that any analyst has developed
or is motivated to develop. So there are analysts,
like Moody’s and S&P– any indicator that they
have is very short-term. They have their metrics about
this year and next year. But that’s it. And we don’t have a metric
that will allow an analyst to say, for this company,
10 years from now, they are going to
be in great shape. Because these are the products
that they have in the pipeline. And so, you guys have
to develop your own. It turns out that God didn’t
tell us to use those metrics. Somebody decided to
use those metrics. But it wasn’t God who told us. And so, we ought to
then say to those– whoever it was that told us
the metrics– screw you guys. Here’s the metric by which
we want to be analyzed. It’s a great question. Yes? AUDIENCE: So you opened talking
about how the labor force takes a long time to
come back and it’s because people are investing
in the things that give you more capital efficiencies. And one of the ones that
I think is the bigger investment that you
see here at Google is artificial intelligence. So if you look at
humanity as a job to be done, before the
Industrial Revolution you had to get
things built or made. And human muscles were
a good way to do that. And this decade, we’re
looking at, the job to be done is people need to think about
things and solve problems. And human brains are
pretty good at that. But now, AI is coming. It’s cheaper. It’s more scalable. What are going to be
the jobs that humans can do after this AI revolution. CLAYTON CHRISTENSEN: Yeah,
that’s a great question. So these are just
a couple of things that I worry about
in that initiative. So we might think, by
analogy, a driverless car as a technology is a
complicated problem. If we are targeting
the California freeway as the application
for a driverless car, that is a very
complicated application. And there are all kinds of
legal issues that are just– and the technology needs
to be pretty sophisticated. And maybe that’ll happen. Maybe it won’t. But we don’t think
about, if we change this, what are all of
the other things that need to change in order
to enable this technology to develop? And so, our theory says
that where you ought to look is on a farm. And John Deere has wireless
tractors going up and down. And the application
is very simple. And almost always,
when you try to make it affordable and
accessible, you start with very
simple applications and then, little by
little, do that on. But competing with
non-consumption is really critical. And so, AI– what
I worry about is, although we think
that it will make us be able to be better
thinkers at lower cost, I worry that the
applications of these are actually quite complicated. And that we don’t
think about, what are all of the other things
that have to occur in order to for our piece to make it? And so, it could be a big thing. But I’d bet that,
in the process, we’ll realize that we should
go after simple applications. And that typically forces
us to hire more people. But it’s a good one. Because whether you call
it an efficiency innovation or a disruptive innovation
makes a big differences as to the outcome. Thanks. AUDIENCE: I just want to
say, thanks for coming. Reading your book was actually
one of the reasons I did my MBA and ended up here. CLAYTON CHRISTENSEN: Oh geez. AUDIENCE: So you had a pretty
tangible effect on my life. But– CLAYTON CHRISTENSEN:
Oh, you’re kind. AUDIENCE: So I want to see
if you could help clarify the way that we talk
about disruption in regard to the technology itself. And we have a couple of
technologies at Google that could be considered–
that are often called disruptive technologies,
artificial intelligence, machine learning, which is very
much being built internally to the organization. It’s helping improve
what we do as a company and could be seen as a
sustaining innovation. And then, we have
autonomous cars, which are being treated–
built at X, external– much more in line with
the disruptive model. So is it the technology
that’s a disruption? Or is it the application
of the technology? Is it the market effect
that makes it disruptive? What is it disruptive to? CLAYTON CHRISTENSEN: Yeah,
that’s a great question. It’s actually really
important for you to say what you just said. Because in many ways, I made a
mistake calling the phenomena disruptive disruptive. Because there are so many
connotations of the word disruptive in the
English language. And so, there are
a lot of people who call anything that
is a dramatic improvement or a breakthrough–
we call it disruptive. And that’s not true. So almost always, disruption
is built within the business model of the enterprise, not by
developing the best technology. Because typically, you
can take a technology and deploy it onto
the California freeway or on a corn field in Iowa. And how you deploy it
determines it’s disruptiveness. And that’s really an
important one to do. And people say that I’m a
Jewish mother of business in that I’m always
worried about everything. But I worry about you guys. Because I think
that you are very good at developing potentially
disruptive innovations. But I don’t think
you worry nearly enough about the
business models that you have to build that
would then take your technology into an
application that competes against non-consumption. And I think that’s a
very important concept. And I don’t think I’m
totally wrong about that. AUDIENCE: So I also want to
start by praising your book. I think it’s the best
book I’ve ever read. And it’s hard to think of
something else that has impacted how I think as much. But– CLAYTON CHRISTENSEN:
You’re kind. You have low standards, but– [LAUGHTER] AUDIENCE: You think so? Well, here comes the but. So I’ve been wondering
this for a little while. But how do you explain
certain products that have transformed industries
and up-ended incumbents but don’t fit into the
framework of low-end disruption? So off the top of my
head, Uber, iPhone, Tesla, all started from the
very, very highest end of the market and trickle
downwards from there. CLAYTON CHRISTENSEN: Yeah. Well, let’s take them one at
a time, because those are all really good examples. So the theory would
say that Tesla is a sustaining innovation, right? So they come in at the
high end of the market. And they’re deploying it in
a very demanding application, which is the California freeway. And what the theory
says is that they might be able to
develop the product that is the best in the world. But if they go after the
best customers of the leaders up there, these guys are going
to harness whatever they can. And they will do their
best to knock them out. Or they will acquire them. So in a lot of ways, you
could think of disruption as a theory of
competitive response. If I do this, what will
the competitors do? And when Toyota came in
with the simple product, the theory predicts that
Detroit will just ignore them. And so, what’s
happened is, yes, Tesla is the best with
the best product. But Porsche has spent
$1 billion dollars. And they have a completely
electric car now. And you can just smell
BMW all around them. And so, the theory
might be wrong. But the theory would say that
these other guys are either going to kill Tesla
or acquire them. And that’s what it would be. But just like a $100,000 Porsche
has not transformed the world, a electric car at that
price point actually won’t. And that’s what the theory says. And Christine and I were
in Beijing four weeks ago, walking down the road. And here is this electric
car that was as wide as me. And if I had a passenger I
had to fold her up and put it in the boot. And it cost $2,500. And that’s where I think the
transforming technology will come from. Apple– there are a
couple of answers to that. But what allowed
them to survive when they came in at the high end
of the wireless phone market, is they came in to
disrupt the laptop. And they have
disrupted the laptop. And that’s why they
have succeeded. If they had stayed
and simply tried to compete against BlackBerry–
they had the benefit for a while of– the BlackBerry
had an architecture that was excruciatingly interdependent. And so, you couldn’t
develop apps for it. And then, Apple came
up with– internally, it’s interdependent. But there was a standard port,
so apps could be developed. And that blew BlackBerry
out of the water. But then, the Android operating
system and Huawei and Samsung are just killing Apple. Because they’re being disruptive
in the conventional way. So on average, I think we can
understand why it’s happening. But sometimes, it takes a few
years rather than a few months. AUDIENCE: So what about Uber? CLAYTON CHRISTENSEN: Yeah. AUDIENCE: The incumbent’s
not going to acquire Uber. CLAYTON CHRISTENSEN:
That’s right. And it taught me a lot
about the theory with Uber. So it is true. Well, first, they
came up and they disrupted the black sedans. And that’s unambiguous. But then, they came
down and they’re making a better
product than the taxis at roughly the same price. And they’ve blown
them out of the water. They didn’t come
in at the bottom. And what we realized
is that there is a correlation
between their coming at the bottom of the market and
being successful as disruptors. But the reason why that’s
correlative not causal is, you look at the
business model of Uber, and the taxi is very
asset intensive. They own the car
and the medallion. And their costs are
fixed cost intensive. And they just had to have
these taxis on the road 24/7 in order to make money. And the Uber business model
is they have no assets. And their costs are all
variable, not fixed. And the taxis actually just
can’t get there from here. And so, in our
thinking, we’ve decided that we don’t want to say they
always start at the low end. But they have to
develop a business model where the incumbents just
can’t get there from here. And that’s what
makes it disruptive. So I learned a lot from that. AUDIENCE: Thank you. CLAYTON CHRISTENSEN:
You’re welcome. Thank you. MATT: All right, I’m going
to read one from the Dory. What did you notice in your own
life or the world around you that inspired you to write “How
will you Measure your Life?” And how can companies
and institutions help their employees approach
measuring their lives in a better way? CLAYTON CHRISTENSEN: Wow. Thank you for your question. We’re hitting at 3 o’clock. So can I answer this one? And for you guys, can
we just talk afterwards. I’m sorry to do that to you. AUDIENCE: Yeah, sounds good. CLAYTON CHRISTENSEN:
So why we wrote this book about how
you measure your life is just I described here how
the metrics that they were using caused them to spend their
time and energy in developing– they did not intend to do
what they actually did. And what I realized
is why they so invested in things
that cause them to fail wasn’t that they were stupid. But the resource
allocation process– the metrics caused them to
put their money in a direction that they did not
intend to pursue. So anyway, where I worked at
the Harvard Business School, the core competence of the
Harvard Business School is we are really good at soaking
our alumni for donations. [LAUGHTER] And so, every five
years, we invite all of our alumni to come back. And we remember them to
please bring their wallets. And we’re really good at this. So because Christine and
I have lived in Boston ever since I
graduated, we’ve gone to all of these 5,
10, 15-year reunions. And I remember when we came
back for our fifth reunion. Oh my gosh! Most of my friends
had married people who were much better looking
than my friends were. They had kids that
were well-behaved. And their jobs were going well. And just everything that
we imagined would be true was unfolding as we thought. But then, I noticed
for the 10th reunion, gosh, a lot of people who I
was looking forward to seeing didn’t show up. And when I asked common
friends, where is so-and-so? More often than I ever
imagined the answer was that he’s in the
middle of an awful divorce and he just doesn’t
want to talk about it. And for the 15th reunion,
there were even fewer people. And when I’d ask about
them, more often it was not, it’s he’s in an
awful divorce or their spouse remarried and now they’re
raising their children on the other side
of the country. And they just don’t want to
talk to anybody about what life had turned out the wrong way. And then, by the 20th
and the 25th reunions, it was really scary. And it was the same problem. I can tell you with
perfect certainty that not a single
one of my classmates when we graduated
from Harvard planned to go out and raise
children who hate their guts and get divorced one
or two or three times. Our intention was to
create homes where there was happiness there. And it was a source of happiness
for the rest of our lives. But that was what
we intend to do. And how we spent
our time and energy was just the opposite of that. And the reason why is
the very same thing. It’s the metrics. So those of us who are
driven to achievement– that includes at
least 100% of us– when we have that
need for achievement, then, when we have an
extra 30 minutes of time or an ounce of energy,
we instinctively spend our time and energy
on whatever activities will give us the most
immediate and tangible evidence of achievement. And our careers provide that. So every day at work, I ship
a product, I finish a project, I get promoted, I get paid,
we close another deal. And every day, I get immediate
and tangible evidence of achievement at work. And then, when I walk
into the front door, there’s not a lot of
evidence of achievement when you look at your kids. On a day-to-day basis,
they misbehave every day. The place gets
cluttered every day. And it really is not
until 20 years down the road when you’re
able to look at your kids and put your hands on your
hips and say, my gosh, we created a wonderful
young man or woman. But on the day-to-day basis,
there’s no evidence of that. And as a result of that, we
invest our time and energy in our careers and
under-invest in our children and our spouses,
even though we plan to have that be the
source of energy. And so, that’s why I decided
I would write that book, “How Will You Measure Your Life?” Anyway– [APPLAUSE]

100 thoughts on “Clayton Christensen: “Where does Growth come from?” | Talks at Google

  1. wow!! its amazing to hear these thoughts (especially after he told the audience about his loss of speech situation!)

  2. Clay is one of the few people at Harvard Business school who I don't consider to be full of hot air. 🙂

  3. At 1:10:25 he says that the theory predicts that other car companies are either going to kill Tesla or acquire it. But it's really hard to see a scenario where that can happen. Just to fulfill the car battery supply alone, they would have build a better gigafactory, which can also produce more electrical batteries than the rest of the world's factories combined, in order to compete with prices (economies of scale). And this is just one small detail in a large panorama of what Tesla does. Another small detail is that in future one can imagine great integration of electrical products (like Solar Roofs and electrical cars) made by Tesla. Are bigger companies also going to start to start a Solar panel company and then integrate it with their electric car products?

    There are many unique tactical moves that Tesla made which are going to be hard to repeat, if any competition wants to kill Tesla. And it's hard to imagine current management selling Tesla.

  4. He's wrong about Porsche having spent 1bn and having an electric luxury car market ready. They're about to spend that money on R&D, and the presumably USD 150k car will hit markets earliest 2018 (probably later). I agree with his remarks about China & BYD Auto, though.

  5. A revolution in the fundamentals of Marketing ,unfortunately these theories will sustain powerful monopolies rather than help potential micro companies become great companies.

  6. The talk reminds me of the importance of long term thinking. However, immensely successful disruptors can give the wrong impression about the realities of changing course. For the most part, the companies and individuals that stick to their knitting, and adapt over time, are the ones who are successful.

  7. Great talk, now at 46:08 he says that companies can survive disruption by setting up independent divisions with new processes for producing new, potentially disrupting products. Interesting if Google has set up Alphabet Inc. based on this advice, or was that earlier ? Is Alphabet now seen as a successful initiative, or is it too early to judge ?

  8. 14:30 "There's gotta be a job out there for which they hire a milkshake to solve, and we need to understand what the job is."

    Woah.

  9. It's a theory about competitive response. In some instances, it takes the form of the competition not caring and hence not responding until it's way too late. In other instances, like in the Uber example, it is laws and infrastructure that keep the big guys from being able to respond in time.

    In the Tesla example, the job that needed to be done at first was that some of the hippies got rich and needed a way to show how much they loved the trees. The more expensive and impressive, the better. Tesla was competing against non-consumption in that way. Their reputation is what has enabled them to be successful up until now. But, even though the competition may have been skeptical at first, they are now jealous of the attention and actually doing something to move into that market, and Tesla has some great risk ahead of it.

    But how fast will their response be? The infrastructure and research is difficult to catch up with, so Tesla might survive after all. Will the other car companies build their own Gigafactories? I don't think Tesla will sell batteries to them, because they can't even meet their own demand yet.

    The basic principle is that startups need to build momentum in order to survive. If they have enough momentum, it will carry them into new markets and clear anything out of their path, including the monolithic establishments. In order to build momentum, they need room first.

    So the time that a startup has to obtain critical mass or escape velocity would be something like
    T_C < T_A + T_J
    T_A is the time it takes for the establishment to become aware that they are threatened
    T_J is the time it takes for them to adjust their infrastructure to be able to handle the threat

    Critical velocity is achieved when the startup is growing too fast for the future iterations of T_A and T_J to ever be lower again.

    That's the basic principle, I think. These are pretty loose terms, but this is how I think about it. The real value I have gained from the "Innovator's Dilemma" is the idea that the time it takes for big companies to become aware of a threat can be surprisingly long. The more timid people are, the more they depend on metrics and short-term assurances. When an entity only has things to lose, they develop a certain fear that can lead them to overvalue guaranteed, short-term success.

    There are some industries that attract disruption more than others because T_A and T_J are so high. Education is one of them. Space is another. The car industry. Banks. Basically, every entrenched institution that tends to attract insecure people who crave guaranteed outcomes. Those are, ironically, the industries that are at the highest risk of being disrupted.

    But some of them are protected by the general population. The consumers have to believe that the product that the establishment offers isn't made of magic. With space, it took some time for people to believe that a private company could do a good job. With electric cars, people believe(d) that gasoline cars are the sacred way of moving, and nothing could ever be better. With education, people's superstitions are obvious.

    These can be factored into some kind of relation that gives the expected amount of time for an industry to be disrupted, but it's a little complicated and I don't have the time to figure that out right now. It would be interesting, though.

    When all is said and done, I think that the way Elon Musk has gone about it might end up being studied in textbooks. He managed to stay under the radar for a few years before the auto industry started to actually take him seriously. What's the difference between that and going after the rebar? The number of cars he has produced before being taken seriously has been significant. We will see if it is enough to let Tesla scale up and beat the rest of the auto industry before they get there in time to stop it.

  10. Profesor Christensen is like the economics profesor in "Ferris Bueller's Day Off", he could probably learn a lesson on monotonic speech, however this talk is brilliant.

  11. A theory is a set of principles or axioms we use to understand or predict behavior.
    Some of these axioms are known to be incomplete.

  12. a great talk. Really admire Prof. Christensen. The question about Tesla, Uber and iPhone (from 1:08:17) was very interesting. I would like to challenge though, that the success of iPhone is not because it disrupted laptop. At least, within my knowledge, people I know who bought iPhone is not because that iPhone allows them to save on their laptops. iPhone is a product innovation, which simply created a new category (smartphones bundled with API) and there were no incumbents in that category when iPhone was first launched (Nokia and Blackberry had smartphones but their API were just daunting). In the meantime, Huawei, Oppo, Vivo and Xiaomi, all those low-cost brands are killing Apple with disruptive innovation, making the product accessible and affordable to the greater public.

  13. I'm headed out to hire a milkshake, a nice big hot bagel with cream cheese, and a Snickers bar. Wash it all down with Milkshake #2. That should get the job done!!

  14. I like Clayton but he shouldn't refer to college students as the rebar of humanity. This is a bit of pandering going on here. The rebar of humanity is the trucker. The carpenter. The trash collector. The factory worker. The pipe fitter. Golfers.

  15. We have new thinking to improve our education system, to bring growth to our younger generations yet to come, we must remove the obstacles of the past system that does not help with the growth of the brilliant young brains, that's suppressed.

  16. As an Inventor with many new ideas, like the one that won a National Road Safety Award from the Institute of Highways and Transportation Sponsored by the Mobil Oil Company. The ICI published an article in their plastic Engineering Magazine, which said a bright idea for road safety by Malcolm Manby exploits Daikon to its full potential, this is the material I used for roadlites.

  17. To have a better product than your compactors is from the SOUL not from competition, and this process of creating can coms from the love of humanity, and the direction from an internal power, which is eternal and only need the same power of love.

  18. well, the thing is that the nature of these NewEvil internet "businesses" is that one lucky bastard steals it all, takes worldwide market in certain niche (much worse monopolists than all the marxians ever feared)… and most of the time they don't even produce anything, just living off the ad mindfcukers (stolen worldwide ad busines and killed serious journalism in the process)

  19. 1:20 "Success is very hard to sustain" And so big companies always turn away from innovation and toward control. Sadly this is evident today in Google (YouTube censorship/demonitizing), in Amazon (removing the dislike vote from comments) and of course with Microsoft with Windows 10, NSA Edition.

  20. This is an amazing talk and a highly recommended watch. True to form, Prof. Clayton is insightful, forward thinking and able to explain the theory and practical applications with clarity. This talk is engaging and offers a different perspective to the one currently being taught and practiced in many organisations. Prof. Clayton is an exceptional intellect and storyteller, his work and thinking is truly inspirational.

  21. All built on the assumption that growth, on a finite planet, is a good thing, that creating a desire for more consumption should be our goal.
    I have a hunch one day in the not-too-distant future we will look back at this as part of the problem…

  22. 08:36 Intro to 4 types of innovation
    09:29 Type 1. Potential innovation
    29:11 Type 2. Sustaining products
    30:40 Type 3. Disruption
    31:45 What is disruption?

  23. Splendid, I like the last four minutes of how to apply the disruptive theory in our family life , …very useful

  24. This guy is absolutely wrong as to the reasons why Japan had a successful post-war economy.
    "Over the period 1961-1991, the Bank of Japan (BOJ) attempted to directly control the volume of commercial bank credit by providing lending targets for selected banks. This policy of "window guidance" (WG) applied to only a subset of lending institutions."

    So basically Japan Central Bank used a Quota-based system (instead of purely Intrest Rate System) for allocating capital availability (read: they got to target sectors with a fixed . amount of loans, i.e. central planning)

    Oh and. guess. what? China is doing the exact same thing today.
    "
    source: http://www.grips.ac.jp/r-center/wp-content/uploads/07-04.pdf

  25. I think this "Jobs to Be Done" concept is perfectly matched with Less than Zero Moment of Truth (Less than ZMOT) concept https://www.eventricity.biz/the-less-than-zero-moment-of-truth

    To add explanation for this phase, Less than Zero Moment of Truth (Less than ZMOT) happens in the very beginning when customers identify their problems or needs or jobs to be done (whether consciously or unconsciously) before searching for the solutions or need fulfillment (ZMOT).

    This phase can happen consciously (i.e when customer carefully consider a vehicle for family transportation) or unconsciously (i.e when customer feel thirsty or hungry while travelling). Phase Less ZMOT will then be continued with phase ZMOT where customers start searching for the solutions or need fulfillment from various sources (offline or online), such as their memories, other's suggestions, search engine, etc.

    In my opinion, understanding the phase of problem or need or job identification (Less than ZMOT) will be very beneficial for research studies because it is the very first moment before companies know what products/ services to offer to customers.

    This phase can be identified through studying consumer behavior, habits and cultures. I think many technologies in the future will further help us to identify customers problems or needs.

    Understanding this phase will help companies to create (innovate) a product/ service for the customers and identify their real competitors that also compete in fulfilling the same needs, hence avoiding Marketing Myopia https://hbr.org/product/marketing-myopia-harvard-business-review-classics/2601-PBK-ENG

    Understanding when customers first identify the problem/ need/ job to be done and the type of solution to fulfill the need are also important. Customers who feel thirsty or hungry while travelling may only rely on information in their memories or available retailers around them (without having to search on the internet) to find foods or drinks. But customers who need a new communication device may have a lot of time to search and research on the internet.

    Regards,

    Ishak Sianturi

    www.linkedin.com/in/ishaksianturi

    plus.google.com/u/0/+IshakSianturi

    www.facebook.com/sianturi.ishak

    twitter.com/IshakSianturi

    www.instagram.com/ishak.sianturi

  26. Some takeaways.
    1. The customer is not the right unit of analysis; the "job" needing to get done by "hiring" a product/service is.
    2. Marketing with such "jobs" in mind is referred to as using potential innovations.
    3. Entrants using disruptive innovations tend to defeat incumbents using sustaining innovations (which are still critically important).
    4. Sustaining innovations make good things better, and are replicative in nature; important but not bulletproof. Often overshoot what the customer actually requires.
    5. Incumbents survive disruptive entrants by also engaging in disruptive innovation on the side with completely independent business units.
    6. Efficiency innovations do more with less, keeping a company competitive and increasing profits with the side effect of reducing jobs.
    7. Outsourcing is easier than increasing profits, so companies outsource to improve their ratio.
    8. Focusing on ratios is detrimental to national economic growth, which is critical for the market to prosper.
    9. Disruptive innovations stimulate economic growth. Companies focusing only on efficiency innovations causes economic recessions.

  27. His last advise seems to be sacrifice your career in order to save your family and kids … One of the parents has to be a full time parent at home?

  28. I'm a home made entrepreneur and I like the content of this video. Clayton might feel that his voice and speech has become an issue, but I disagree. His voice is much easier to listen to than most speakers who deliver their message with such urgency, over excitedly and tensions of discomfort. Whereas Clayton Christensen speaks as if he is sitting in a chair across from you with a cup of coffee or wine. This was a very important and quality conversation, I enjoyed it very much. Thank You Google, and Clayton Christensen.

  29. I started my business on a 286 Intel … I maxed out the RAM at 32 MB, my hard drive was 254 MB and it was still crawling, I wondered why. I was a bad ass with 32, 1.5 MB diskettes and a 14.4 baud rate Fax Modem, and a 16 bit bus motherboard. I could hardly wait to eventually add a CD burner to my system. I use to browse PC Magazine in awe of the latest technologies. I settled for a glossy mouse pad for the meantime. A bunch of disruptive innovation products. Lol

  30. The milkshake sentence is by far one of the funniest AND most brilliant things( at the same time) I've heard in my 44 year life…..hats off

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