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Best Business Books 2003: Strategy

These three complementary books together offer more than practical suggestions about how to achieve growth: They outline growth strategy, remarkably different from Porter’s competitive strategy. Although none of the books claims to replace Porter, together their strategy of growth may prove to be strategy as growth — if not in the business school curriculum then at least in the hands of managers searching for a systematic way to accelerate growth.

Clayton M. Christensen and Michael E. Raynor’s The Innovator’s Solution: Creating and Sustaining Successful Growth (Harvard Business School Press, 2003) is the most analytical approach to growth, grounding actionable insights in a sound theory of industry dynamics. It’s also our pick as the best strategy book of the year. The authors’ starting point is the five-step “low-end disruption” industry dynamic that was the subject of Christensen’s The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail (published in 1997 by Harvard Business School Press and named best business book of that year at the Financial Times/Booz Allen Hamilton Global Business Book Awards):

  • Successful companies in an industry rapidly improve the value they provide customers through a combination of incremental and breakthrough improvements in both product development and cost reduction.
  • Customer needs increase much more slowly than does the value that successful companies offer.
  • Initially, because companies provide less than customers need, the pattern is a positive one: As companies meet customer needs more completely, they’re rewarded by increasing margins. However, once these companies offer most customers more than they really need or want, the basis of competition shifts. Existing customers value each improvement less and less, companies compete more on price, and margins are constantly pressured.
  • Eventually, a new disruptive competitor introduces products and services that are not as good as what’s currently available, but that offer other benefits (simplicity, greater convenience, or lower cost) that appeal to new or less-demanding customers. Secure in their mainstream customers, the established competitors often welcome the disruption, exit the market that seems “fringe” to them, and for a time enjoy higher margins.
  • As the new competitor rapidly increases the value it provides, eventually it meets the needs of mainstream customers, too. Then, the disruptive competitor is on a path that will ultimately destroy the established competitors.

The steel industry’s minimills, the airline industry’s discount competitors like Southwest and JetBlue, discount retailers like Kmart and Wal-Mart, and discount stockbrokers like Charles Schwab all illustrate this pattern of low-end disruption. Personal video recorders like TiVo are beginning to show a disrupting effect on established television networks. Christensen’s earlier book developed this five-step dynamic to explain how “many of history’s most successful and best-run companies lost their positions of leadership.” Using 75 examples of industry disruptions, The Innovator’s Solution demonstrates that the dynamic affects more than a few industry leaders: It’s pervasive.

Christensen and Raynor extend the low-end disruption dynamic in three important ways. First, they add a second type of disruption, “new market,” in which the disruptive competitor introduces products that “are so much more affordable to own and simpler to use that they enable a whole new population of people to begin owning and using the product, and to do so in a more convenient setting.” The personal computer, Sony’s first battery-powered transistor radio, and Canon’s desktop copier are examples. New-market disruptions are distinctive because their initial target is new consumers who haven’t been consumers of the previous products and services, because they require new value networks, and because the competitive dynamic is slightly different (because the value offered by the disruptive competitor increases more rapidly than the needs of established customers, customers jump from the established value network to the new network). However, both types of disruption produce the same result: rapid growth in revenue and profit for the disruptive competitor and destruction of the established competitors.

 
 
 
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