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(originally published by Booz & Company)


The Discipline of Managing Disruption

S+B: Was Schumpeter saying, in effect, that in any healthy capitalist society, many business leaders will be thinking like Andy Grove?
Christensen: That’s a good way to frame it. And Intel succeeded under Grove because he thought that way; for instance, he oversaw the introduction of modular innovations like the Celeron chip, designed for disruptive devices like the inexpensive laptops of the late 1990s. But subsequent executives at Intel didn’t ask the questions the same way. The company is in trouble now because its leaders focused on the robustness of their traditional chips in laptops and desktops and didn’t look down the market to see the tablets and smartphones coming up.

Of the managers I’ve known, I think Scott Cook, who is the founder of Intuit, is most prone to think this way. I also think of Steve Jobs and Jeff Bezos. Amazon has launched three really important disruptors: online retailing, the disruption of publishing, and the cloud services that give everyone access to sophisticated IT technology. But you have to hope that this approach is institutionalized at Amazon, and not dependent on the instincts of one person.

S+B: Can you get to that way of thinking through the way you measure things in your business?
CHRISTENSEN: Not in a programmatic way. Like the theory of jobs to be done, almost everybody needs a theory of the segments of their market. Businesspeople tend to define these segments by demographic or product characteristics. But they often have no idea where the definition comes from, even though it determines what products they make and who they see as their most important competitors. It turns out that they are often defining their market according to where they happen to have data available—for instance, they have data on customer ages and locations, so they define their market by demographic groups. Inadvertently, they’ve accepted a way of life in which some of the most important decisions are not being made consciously.

S+B: What do you say to people who are coming into senior management positions and facing the need to think more consciously?
CHRISTENSEN: The answer isn’t obvious. Let me start with an example that’s related to the theory of modularity in industry change. This theory says that during the early stages of an industry’s history, when products are not good enough to meet the needs of most customers, the best way to compete is by making great, reliable products. To compete that way, almost always, the architecture of the product has to be proprietary and independent of other companies. But later, when the industry matures and the general performance of products is more than good enough for what people need, then the best way to compete is through modularity. Innovators who are fast, flexible, and responsive can command premium pricing. The architecture of the product has to become open in its character.

A great example is going on right now in smartphones. In the early 2000s, Research in Motion dominated the industry with its very proprietary [BlackBerry] architecture. Then Apple came along with an architecture that was not quite as proprietary, and now [the field] is opening up with Google’s Android operating system. The theory says this will create significant trouble for Apple, just as Compaq and Dell, with their open architecture, created real trouble for Apple’s Macintosh. That’s the what.

Now suppose Apple’s leaders believe this theory and recognize the threat. How do they meet it? That’s the how. How do they keep the high end of their products proprietary, even as they open up the architecture toward modularity? They have to think about how to accomplish this at a very granular level. It’s the same question that an executive at Northwest Engineering might have asked about hydraulic excavators: How do we deal with this?

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