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Book Summary – The Innovator’s Solution: Creating and Sustaining Successful Growth

Financial markets demand that companies deliver ever-faster growth. Yet, sustained growth is rare, especially once a business matures and growth flattens naturally. In this book, Clayton Christensen and Michael Raynor explain how both startups and established companies can use disruptive innovations to systematically create and maintain profitable growth.  In this free version of The Innovator’s Solution summary, you’ll learn the difference between sustaining and disruptive technologies, as well as the 9 strategic questions that managers must address to leverage disruptive technology for growth.

What’s The Innovator’s Solution About?

Most investors care more about a company’s rate of growth than its profits or assets. Unfortunately, growth usually plateaus once a company’s core business matures, and few companies can sustain consistent, profitable growth.

Once growth stops, it’s hard to pick up momentum again. Executives may try to develop new areas of growth, but this takes time and most new innovations fail. In fact, the pursuit of growth can lead to huge losses that cripple a company and destroy shareholder value. For example, after AT&T divested its telephony services in 1984, it tried to seek new areas of growth through a series of unsuccessful acquisitions. It ended up losing about $50 billion in 10 years.

The Innovator’s Dilemma vs The Innovator’s Solution

To generate predictable returns from innovation, you must first understand how innovation truly works.

In The Innovator’s Dilemma, Christensen explained why the same practices that allow well-run companies to serve their best customers also leads them to neglect potentially-disruptive solutions.

The Innovator’s Solution elaborates on how you can become a disruptor yourself, to beat established players and generate new waves of growth. It addresses 9 practical questions that managers must grapple with, to successfully maintain growth.

9 Questions for Sustained, Profitable Growth

So far, there’s no proven framework or approach yet for companies to systematically and regularly launch disruptive solutions successfully. However, there are 9 strategic questions that any manager must address in order to deliver profitable growth.

The Innovator's Solution summary - 9 strategic questions
In the book, Christensen and Raynor answer these 9 questions in great detail, complete with many case studies and analyses of various companies and industries. Let’s take a quick look at the answers for each question. You can get a more comprehensive walkthrough in our 17-page, complete version of The Innovator’s Solution summary.

1. How Can You Beat Your Top Competitors?

The answer lies in using disruptive innovation that allows new entrants to penetrate a market and eventually establish a strong position.

Sustaining Innovation vs Disruptive Innovation

Technology in this book refers to the process used to convert inputs (e.g. money, materials, manpower, information) into outputs of higher value.

There are 2 main types of innovation:

Sustaining innovation improves existing products (by adding or adapting features) for established markets.

Disruptive innovation changes the playing field through new products for new markets. Usually, these new products aren’t as good as existing ones, but they offer greater simplicity and convenience at lower prices, to generate new demand and new customers.

Incumbents usually triumph in situations where existing customers will pay more for better products. This allows the companies to keep growing through sustaining innovation. However, new entrants can beat the incumbents because of 3 key disruptive elements:

• In any market, there’s a finite rate of improvement beyond which customers cannot benefit from the higher performance. For example, you can design a car that’s much faster than competitors, but it won’t matter if customers are stuck in heavy traffic. This is the performance level that the average customer is satisfied with.

• Market leaders keep targeting high-end customers with higher performance, until the pace of technological innovation exceeds customers’ demand and they’ll no longer pay more for further improvements.

• This creates an opportunity for disruptive innovators to offer a simpler, cheaper, and more convenient product that appeals to new or less-demanding customers. Incumbents don’t counter the threat directly because they (i) don’t see the new entrants as a threat, or (ii) are unable to do so because their cost structure and resource allocation system are designed for high-yield customers. This gives the disruptors time to gain a foothold in the market and improve to the point they can directly challenge the incumbents.

The Innovator's Solution summary - How Disruptive Innovation Works

Disruptive innovation can be further broken down into 2 types:

Low-end disruptions occur at the bottom of the original market, using a lower-cost business model to cater to overserved customers. For example, Korean automobiles penetrated the North American market with cheaper alternatives for buyers who didn’t need high quality vehicles.

New-market disruptions create new demand by targeting non-consumers. For example, personal computers and desktop photocopiers made it possible for people to start owning computers and copiers at home instead of only using them in offices. Such solutions are perceived and used in vastly different ways from the incumbents’ original solutions.

There are different criteria for low-end disruptions vs new-market disruptions (more details in our full Innovator’s Solution summary). Regardless, a truly disruptive idea must be disruptive to all established players. It won’t work if only disrupts some players in the market but not others.

2. What Products Will Customers Want To Buy?

The answer lies in using circumstance-based segmentation instead of conventional segmentation by product or customer attributes. Focus on understanding what your customers want to get done, then design products to help them do those things more easily. In our full summary, we’ll explain why attribute-focused segmentation doesn’t work, and why/how to slice your market by circumstances, i.e. focus on when customers purchase or use the products, and why.

3. Who Are The Best Customers For Our Product?

This question is about identifying the initial customers who can lay a strong foundation for your business, and figure out how to reach those customers.

For low-end disruptions, your ideal customers are simply existing customers who don’t want to pay for premium features. New-market customers are more complex and harder to find, since you cannot predict which non-consumers will start to use your products.  However, by studying several real-life examples, the authors present 4 steps you can use to start identifying and converting potential nonconsumers into new customers.

Generally, it’s better to target a disruptive solution at non-consumers instead of mainstream customers. Yet, established companies rarely do so because new market opportunities seem small and uninteresting compared to their core markets. Even if they recognize the long-term threat, they’d try to quash it rather than leverage it as potential source of growth. The solution is to pass the innovation to an autonomous organization that can pursue the opportunity with commitment and flexibility (elaborated in section 6).

4. Which Activities Should We Do Inhouse Or Outsource?

Conventional wisdom says that you should focus on your core-competence and outsource the rest. Yet, in a world of disruptive innovation, what’s non-core today could become critical tomorrow, and what’s essential today could become obsolete in the future.  So, don’t focus inwardly on your core-competence. Instead, match your product architecture to your competitive circumstances:

  • If existing products are below market expectations, use a proprietary or interdependent product architecture, so it’s easier to integrate the components and optimize the interfaces to significantly improve the product.
  • If existing products already exceed market expectations (and customers won’t pay for further enhancements), use a modular architecture so it’s easier to outsource the sub-systems, to offer better speed, convenience, and simplicity at discounted prices.

To address this question, you need an understanding of product architecture. Do check out the complete version of The Innovator’s Solution summary, where we explain:

• What are product architectures and interfaces, and the difference between interdependent vs modular architecture;

• Why you should use interdependent architecture for underserved markets and modular architecture for overserved markets; and

• The dilemma that any company ultimately faces once its products overshoot customer expectations.  That’s because (i) if it starts to modularize, it risks being commoditized (see the next section), but (ii) if it doesn’t modularize, it will probably be disrupted.

5. How Can We Stay Profitable and Avoid Being Commoditized?

In the book, the authors explan the process of commoditization in detail. The simple answer to this question is this: commoditization is a natural part of product and market development, and can’t really be avoided. The good news is, whenever something is being commoditized, something else in in the value chain is being de-commoditized.

So, if your product is becoming commoditized, move to another part of the value chain where there’s still a performance gap in the sub-system. Then, use interdependent integration to differentiate yourself, leverage economies of scale, and capture profits in the value chain.

6. What’s the Best Organizational Structure for the New Venture?

To answer this question, you must first understand an organization’s resources, processes and values (RPV). That’s because an organization’s RPV define both its capabilities and disabilities. And, your goal is to choose the best set-up that can provide the new business with required RPVs to succeed.

In our full summary, we’ll define (i) what are resources, processes, and values, (ii) how they affect a company’s abilities (or become disabilities that block the company), (iii) how to choose the right commercial/development team structure based on how far existing RPVs fit the new business, and (iv) how to create or purchase new RPVs.

In a nutshell, the answer looks like this:

The Innovator's Solution summary - the ideal structure

7. How Can We Develop Effective Business Strategies?

To develop the right strategies, you need the right processes.  Do check out our full summary to learn more about (i) the differences between deliberate vs emergent strategy-making processes, (ii) what it means to match of processes to your stage of business development, and (iii) what managers must look out for to allocate resources wisely, since your resource allocation ultimately defines your strategy.

A simplified answer to this question goes like this:

• In the early stages of development, use emergent processes to quickly test and learn what works. These are unplanned, and emerge from tactical decisions throughout the organization.

• Once you’ve identified the right strategy, use deliberate processes to focus your resources and grow quickly. These are intentional, top- down and analytical.

8. What Are The Best Ways To Fund the Innovation?

You need money to fund the new business/innovation. And, the type of capital you choose determines the expectations and obligations you must meet.

It actually doesn’t matter whether you choose corporate capital or venture capital. What matters is how patient the investors are about growth. In the early phases of a business, choose sources of funding that expect fast profits, but not fast growth.  Investors should only demand rapid growth when the team is ready to move into deliberate strategy, and can allocate resources to generate real growth from disruptive innovation.

In our complete version of The Innovator’s Solution summary, we explain (i) why it’s so critical to follow the recommendation above, (ii) how good money can turn bad to kill a promising company, and (ii) the 3 policies you should adopt to keep your growth engine running strong.

9. What’s the Ideal Role for The CEO and Senior Executives?

Disruptive businesses must always be championed by someone senior in the organization. This could be the CEO, or a senior executive dedicated to driving disruptive growth. The person in charge must fulfill 3 main roles:

• Straddle between disruptive and mainstream businesses to make sure the right RPVs are applied to the new business;
• Continually monitor changes and teach others to do the same; and
• Build a disruptive growth engine that captures the organization’s know-how for launching growth businesses.

Getting More from “The Innovator’s Solution”

Obviously, developing and harnessing disruptive innovation is no simple undertaking. If you’d like to learn more about each of the 9 strategic questions above, and get specific tips, steps and examples to start building your own disruptive innovation, do check out our full book summary bundle that includes an infographic, 17-page text summary, and a 31-minute audio summary.
The Innovator's Solution summary - Book Summary Bundle

This book is packed with examples and case studies over the last 5 decades, including mini-mills, computers, automobiles, solar energy, internet banking, and so on. The authors analyzed a wide range of disruptive companies, and shared their predictions and recommendations for several ongoing industry shifts. You can purchase the book here or visit theinnovatorssolution.com for more information.

About the Authors of The Innovator’s Solution

The Innovator’s Solution: Creating and Sustaining Successful Growth was written by Clayton M. Christensen and Michael E. Raynor.

Dr. Clayton Christensen (1952-2020) was an American academic and business consultant best known for developing the theory of disruptive innovation. He was the Kim B. Clark Professor of Business Administration at the Harvard Business School, and cofounded Innosight, Rose Park Advisors, and the Innosight Institute. Dr. Christensen also served as chairman and president of CPS Corporation, as a White House Fellow (during President Reagan’s administration), and as a management consultant of the Boston Consulting Group. He received his B.A. in economics from Brigham Young University, an M.Phil. in applied econometrics from Oxford University, and an MBA from the Harvard Business School. He was the author of several books and more than a hundred articles. Please visit visit www.claytonchristensen.com for more details.

Michael E. Raynor (born 1967) is a director at Deloitte Research LP and an expert on business management practices. He holds a degree in Philosophy from Harvard College in Cambridge, and an MBA from the Richard Ivey School of Business, and a Doctorate in Business Administration (DBA) from the Harvard Business School.

The Innovator’s Solution Quotes

“Competitiveness is far more about doing what customers value than doing what you think you’re good at.”

“Be patient for growth, not for profit.”

“The critical unit of analysis is the circumstance and not the customer.”

“Disruptive products require disruptive channels.”

“The process of commoditization and de-commoditization both begin at the periphery, not the core.”

“Each resource allocation decision, no matter how slight, shapes what the company actually does.”

“Strategy is determined by what comes out of the resource allocation process, not by the intentions and proposals that go into it.”

“A company that succeeds in creating a disruptive growth engine will place itself on a predictable path to profitable growth.”

Click here to download The Innovator’s Solution summary & infographic

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