How to Avoid Disruption in Businesses and in Higher Education
He highlights the case of a successful product which becomes a commodity due to product imitations and copycats. In Prof Clayton Christensen’s own words “[It] start(s) to exceed what people actually need or are willing to pay extra for”. If replicas could disrupt an industry, complacency is the lethal poison for academia. The opposite of complacency is innovation boosted by creativity, energy and cross-fertilization. “Stay Hungry, stay foolish” to quote someone who had some success in the business world – Steve Jobs summing up elegantly what we mean.
At Acabiz we think that the secret recipe to maintain both worlds (academia and business) innovative is a strong collaboration between them, which provides a mutual stimulus.
Don’t be complacent and read the full article!
Harvard business professor Clayton Christensen, one of the leading expert in the field of innovation and technology disruption, thinks that Apple, Tesla Motors, many successful venture capitalists and most of the nation’s colleges and universities should be afraid.
The author of The Innovator’s Dilemma said on Wednesday that all of them could be “killed by less advanced competitors in the same way that many once dominant technology companies have been in the past.”
Speaking to an attentive crowd of young entrepreneurs and funders at the Startup Grind conference in Mountain View, Christensen shared his theories about how innovative giants are often replaced by relatively less sophisticated rivals,
Basically, his theory of disruption centers around how dominant industry leaders can and will react to a newcomer: “It allows you to predict whether you will kill the incumbents or whether the incumbents will kill you.”
If a newcomer thinks it can win by competing at the high end, “the incumbents will always kill the newcomer.”
If they come in at the bottom of the market instead and offer something that at first is not as good, the legacy companies won’t feel threatened until too late, after the newcomers have gained a foothold in the market.
Christensen offered as an example the introduction of cheap transistor radios. High fidelity, vacuum-tube powered incumbents felt no threat from the poor quality audio the transistors produced and missed the technological shift that eventually killed many of them.
Below is what Christensen identified as likely genuine threats for Apple, Tesla, the VC world and the world of academia in general.
A new course for academia
Christensen wrote his first opinions on why Harvard Business School and other higher-end institutions were in line to be disrupted back in 1999. Much of what he predicted then has come true, with the disruption recently accelerating.
“For 300 years, higher education was not disruptable because there was no technological core. If San Jose State wants to become a globally known research institution, they have to emulate UC Berkeley and Cal Tech. They can’t disrupt,” Christensen said.
“But now online learning brings to higher education this technological core, and people who are very complacent are in deep trouble. The fact that everybody was trying to move upmarket and make their university better and better and better drove prices of education up to where they are today.
“Right now, Harvard Business School is investing millions of dollars in online learning, but it is being developed to be used in our existing business model, and we’ll sell it to other universities to use in their existing business models.
But there is a different business model that is disrupting this in addition to online learning. It’s on-the-job education. This model of learning is different: you come in for a week and we’ll teach you about strategy and you go off and develop a strategy. Come back later for two weeks on product development. You learn it and you use it. These are very different business models and that’s what’s killing us.”
“Fifteen years from now more than half of the universities will be in bankruptcy, including the state schools. In the end, I am excited to see that happen.”
Is Apple too good for its own good?
Apple could be on the classic disruption path in Christensen’s view. Successful innovative products like the iPhone are usually based on proprietary technology because that is how the dominant business carves out, protects and builds its top market position.
But at some point as they get better and better, they start to exceed what people actually need or are willing to pay extra for (remember and internalize this sentence!).
“When that happens, the people who have the proprietary architecture are pushed to the ceiling and the volume goes to the open players. So in smartphones, the Android operating system has consummate modularity that now allows hundreds of people in Vietnam and China to assemble these things.
Just like I pray for Harvard Business School, I pray for Apple!
They always have won [the game] with their proprietary architecture and because of their initial advantage. If you ask them what is the core of the company, they will say it is design and the interaction with the customer. Manufacturing really is not their core competence.”
“So you just give that to the Chinese. But then what happens to them? As the dominant architecture becomes open and modular, the value of their proprietary design becomes commoditized itself. It may not be as good, but almost good enough is often good enough.”
The real value in making the iPhone, Christensen argues, is in the sophisticated manufacturing that is being done on it overseas, something that can no longer be done competitively in the U.S. He believes that and the commoditization of smartphones threaten Apple in the long run. But then again, in the long-run, we will all be dead!
Tesla is going down the wrong road
Instead of coming in at the low end of the market with a cheap electric vehicle, Tesla Motors competes with premium offerings from legacy automakers.
“Who knows whether they will be successful or not,” he said. “They have come up with cars that in fact compete reasonably well and they cost $100,000 and god bless them [for that].”
“But if you really want to make a big product market instead of a niche product market, the kind of question you want to ask for electric vehicles is: I wonder if there is a market out there for customers who would just love to have a product that won’t go very far or go very fast. The answer is obvious.
The parents of teenagers would love to have a car that won’t go very far or go very fast. They could just cruise around the neighborhood, drive it to school, see their friends, plug it in overnight.”
Because that kind of electric car offers something that doesn’t threaten incumbents and provides a low-end solution, Christensen says that has a greater chance of surviving and ultimately upending the auto market than Tesla’s flashy Roadsters and sedans.
VCs aiming too high
Christensen said he thinks the venture capital world needs to be disrupted because it is focused too much on making big killings on big investments at a time when there are plenty of good smaller investments to be made on companies that will be disruptive.
He offered as an example his friend, former Massachusetts Gov. Mitt Romney. Before teaching, Christensen ran a small company in Massachusetts at the same time Romney started Bain Capital, and the firm invested $1 million in Staples when it was just starting out.
Romney actually took the time to call and to ask him to buy his supplies from Staples, even though he was just a small business. But when Christensen some years later sent another friend who was raising $1 million for a good idea, Romney told the man that Bain didn’t make those kinds of investments any more. They only wanted to invest $10 million or more.
“Venture capital is always wanting to go up market. It’s like the Rime of the Ancient Mariner ‘Water, water everywhere and not a drop to drink.” People in private equity complain that they have so much capital and so few places to invest. But you have lots of entrepreneurs trying to raise money at the low end and find that they can’t get funding because of this mismatch. I think that there is an opportunity there.”