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?