Smart People Making Good Decisions and Killing Growth

Probably without realizing it, Clayton Christensen takes us (the “lean community”) to task in this talk about investment and growth.

We have been “selling” continuous improvement – in all of its forms whether we call it “lean” or Six Sigma, or Theory of Constraints, or Total Quality Management as a cost reduction tool for so long that most managers out there believe that is all it is for.

In this talk, which I got from Mike Rother’s YouTube channel, Christensen makes the distinction between market creating innovations, which create demand where none existed; sustaining innovations, which improve the product, but don’t create new customers; and efficiency innovations which allow us to do more with less.

In Christensen’s view (which I happen to support), the only one of these which creates growth in the economy is a market creating innovation.

Growth stagnates because efficiency innovations show much better short-term return on key metrics.

Take a look at the video, then let’s discuss where we need to go with this.

In a market where there are two or three stable players, without breakthrough market creating innovations, they can only “grow” by taking market share from one another. This dictates a strategy of becoming very good at sustaining innovation (making your product better) and efficiency innovation (so you can sell it at a competitive price).  These are important, because they are required for survival which is, in turn, required to fund market-creating innovation.

Because the vast majority (not all, but most) of continuous improvement effort is focused inward, it tends to work in these areas – improving existing products, improving operations.

We do have the “Lean Startup” movement that is hacking out space for true market creating or disrupting innovation. The question (and I don’t know the answer) is how do established companies get past their completely rational financial decision making and pull that “seek new customers” thinking into their portfolios? The only companies I know who are doing this are privately held, and actually run by the owners (vs. private equity owners)… and I’ve seen a couple of privately held companies turn away game changing ideas as well for fear of cannibalizing their other products.

Apple has been the exception. It’s too early to tell if that exception was actually Apple or just Steve.

Maybe that’s the normal business cycle. What are your thoughts?

9 thoughts on “Smart People Making Good Decisions and Killing Growth

  1. I am thrilled to see someone else say this. That the banner of continuous improve is really a euphemism for cut, cut, cut and does not lead to sustainable growth.

    Innovation is the key: Education, Ethics, Excellence.

    1. The banner of continuous improvement is what we have made it.
      Therefore, we can change it.
      To do so we (the continuous improvement community) needs to expand our focus from simple efficiency to growing the scope of the enterprise.
      The tools to do so are the same ones we have been using all along. It’s a matter of language and application.

  2. I think the tools need to change as well as the language.

    Businesses need to learn how to innovate.

    I’m not sure ‘continuous improvement’ is wise to retain in the lexicon. At this point it is merely a word set with little meaning. Sometimes it’s best to throw out all of the old and make a fresh start.

    1. Charles –
      Can you elaborate on what you mean by “with the exception of smaller business entities in big corporations?” Just curious.

      As for GE and FastWorks, the Lean Startup methodology is logical application of quick cycles of PDCA, always checking results vs. expectations to drive fast cycles of learning. Seeking information from outside, especially once we think we have the answer, is difficult and (as the article points out) sometimes humbling. The hardest part, I think, is for senior leaders to let go of the idea that they know the answers an simply have to issue good instructions.

      The other hard part is probably for sales and marketing to let go of their traditional role of being a firewall between engineering and customers.

      While GE appears to be applying the methodology to improving existing product lines, what they are learning in the process will give them the know-how to launch into disruptive or new markets if they choose to do so. Generally speaking, though, GE has not had a history of doing that. Then again, neither has your company.

  3. Very good message for the Lean community to hear, I think. Underscores the systemic nature of the Toyota approach, and how the value of the production system is inextricably linked to the other management components. Lexus, Prius, etc weren’t accidents.

  4. “Apple has been the exception. It’s too early to tell if that exception was actually Apple or just Steve.”

    This exception seems to fail because I am not sure if Apple has created jobs. This makes me wonder if they are actually a market creating innovator or if they are actually a sustainment innovator. The lines between these types of innovation seem a little blurry to me. Has Apple actually created a new market for smartphones or have they simply taken market share from two existing markets, namely cell phones and home computers.

    The model of Silicon Valley has long been to look at existing technologies and figure out how to combine them or optimize them to work more effectively for their users. This does not create growth. By Christensens definition, it would only create growth if they made improvements that would allow the technologies to new users.

    At the macro level, this model makes a lot of sense to me but when I try to put actual examples to it, I am hard pressed to think of any innovations that actually create new markets without replacing an old one. Maybe this is because it has been so long since it has happened.

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