The Innovators Solution by Christensen and Raynor

-Creating and sustaining successful growth-

1 The growth imperative

It is hard to create growth, especially when the core business has matured and the
company seeks aggressive growth opportunities in different businesses. Pursuing growth
the wrong way can be worse than no growth at all. E.g. AT&T, Cabot; they tried to grow
too fast, and in the end, they just ended up where they started.
But even for growing companies, there is an obligation to grow more. Shareholders
expect a certain growth, and are only satisfied when the growth is bigger than the
anticipated growth. In addition, shareholders make expectations, also based on new lines
of business that yet need to be established. E.g. Dell: 78% of its valuation is based on the
belief of investors that Dell would be able to invest in new assets.
What makes it worse: studies point out that once growth has stalled, it is almost
impossible to restart it.
Managers cannot escape the mandate to grow yet their chances of success are
very low.
Is innovation a Black Box?
Why is sustaining growth so hard? Three possible explanations, not all of them are
accepted by the authors.
1) Find a better manager: No, this would mean that 90 % of the managers are below
average.
2) Managers become risk averse: No, because managers often place big bets on
innovation; sometimes they win (IBM, 360 mainframe computer), sometimes they lose
(DuPont, Kevlar tire cord).
3) Creating new growth businesses is unpredictable: No, the authors believe that the
black box process of creating new-growth business is just not yet well understood. In
this book, we will open the black box and study the processes that leads to success or
failure in new-growth businesses.
Forces that shape innovation
Make this process more predictable. We can do this, not by trying to predict what
individuals might do, but by trying to understand the forces that shape the actions of
these individuals.
In other words, every idea-maker or manager is different, but they all face similar
forces when trying to put ideas into a business plan.
Middle management is very important in this situation. They filter out the ideas that they
think are good, and pass them through to senior management. Three problems:
- They need to back up their ideas with credible data. Mostly, this data comes
from existing customers (who like the existing ideas)
- Ambitious managers only want to present ideas to seniors that they think these
seniors might like
- Talented middle managers are quickly promoted, they have no incentive to
promote long-term ideas
This process supports the shape of ideas that are similar to the ideas of
the past. Most of the time, the problem lies in the shaping process, and
not in the ideas itself.
Predictability comes from a good theory
Managers dont like theories, as they are seen as impractical. However, every manager
uses a theory to shape an idea. The problem is that they are rarely aware of which theory

they are using, and that they use the wrong theory for the situation. Therefore, we
discuss a model of how good theories are built and used:
Building theory
Three iterative stages:
1) describe phenomenon that we wish to understand
2) classify phenomenon into categories
3) articulate a theory that states what causes the phenomenon to occur, and why
Getting the categories right
= key in developing a useful theory
When something has proved to be good for one excellent company, it does not mean
that it will work for every company. The critical question is: What are the
circumstances in which the theory presented is successful?
Comparison with flying: Early researchers found a correlation between feathers and
wings with the ability to fly. However, this alone was not enough to be able to fly. They
secondly needed to understand the mechanism. Thirdly they needed to understand the
circumstances in which that mechanism worked, to make it predictable. How to
categorize: the circumstance boundaries that mattered were those that demanded a
fundamental change in piloting techniques in order to keep the plane flying.
We can trust a theory only when its statement of what actions will lead to success
describe how this will vary as a companys circumstances change.
The outline of this book
This book summarizes a set of theories that can guide managers who need to grow new
businesses with predictable success to succeed predictably, managers must be good
theorists. This book focuses on nine of the most important decisions that all managers
must make in creating growth decisions that represent key actions that drive success
inside the black box of innovation. Each chapter offers a specific theory that managers
can use to make one of these decisions in a way that greatly improves their profitability
of success.

2 How can we beat our most powerful competitors?

How to predict the outcome of competitive fights?

Two distinct categories are identified:
1) Sustaining circumstances: make better products and sell them for more money
to attractive customers. Here, the established leaders win.
2) Disruptive circumstances: Sell a simpler product that sells for less money and
appeals a new or unattractive customer set. Here, the new entrants win.
We will discuss the disruptive innovation model both from the perspective of the
disruptee and the disruptor:
The disruptive innovation model
Three critical elements of disruption, as shown in the figure on page 33.
1) In every market, there is a rate of improvement that customers can utilize or absorb.
For example, the cars keep getting better, but most of us can only use a small part of the
performance that they provide (due to traffic jams, speed limits, etc.).
But, this is not the same for everyone. A rich guy with his own racetrack always wants a
faster car.
2) In every market, there is a trajectory of improvement for every product. For example,
when the computer was commercialized, the Intel chip could not follow the speed of
typing. Nowadays, most computer chips are way too fast for a daily user.
Then again, this is not the same for everyone.
3) Distinction between sustaining and disruptive circumstances. On the figure, the line of
disruptive innovations starts under that of the sustaining technology: It is not a better
product than the existing ones, but it goes back to basics, it is new, more convenient and
simple. It attracts new customers, and once it has proved to be a success, the

improvement starts (towards sustaining circumstances).

Entrants win the disruptive race, as established companies tend to keep improving their
products, without focusing on the lower-end market, which disruptive entrants find
attractive. = Asymmetric motivation = core of the innovators dilemma = start
of the innovators solution.
Excellent example story of disruption at work in the steel industry
Integrated steel mills: massive, expensive mills that can produce every steel product
Minimills: (disruptive) smaller cylinders that can melt steel cost-effectively
At the start of the story, Minimills could not produce high-end steel products. The huge
steel companies did not invest in Minimills, small companies did asymmetric
motivation.
These smaller entrants attacked the rebar market (low-end steel product, that does not
need a high quality of steel), and the established companies were happy to be rid of this
highly competitive commodity business. The Minimills enjoyed attractive profits against
the integrated mills, until the last integrated mill business left the rebar market. Now, the
low-cost Minimills were competing against each other. Minimills figured out a way to go
up-market. Technical experts did not think they could make these high-end steel
products, but necessity remains the mother of invention. They HAD to find a way to
produce these products, and did find a way. Minimills went up-market.
Now, most integrated mills are bankrupt. Disruption works because it is much
easier to beat competitors when they are motivated to flee rather than fight.
Role of sustaining innovation in generating growth
The authors do not argue against sustaining innovation. Of course this is important, it is
critical for the successful exploitation of the disruptive opportunity. This is the source of
the dilemma: Sustaining innovations are so important and attractive, relative to
disruptive ones, that the best sustaining companies ignore disruptive opportunities and
threats.
-Starting a company with a sustaining innovation is not a bad idea, but disruptive theory
suggests that, when a new entrant is faster at implementing a sustaining innovation,
they should sell this technique to the established companies.
-However, a sustaining technology is not a good way to build new-growth business, as
the competitors will be motivated to fight rather than to flee in this case! For example:
NCR (national cash register) totally missed out on electronic cash registers, but kept
fighting and after a few years, they also adopted this innovation and could catch up
quickly because of its extensive sales organization.
Disruption is a relative term
An idea that is disruptive to one business may be sustaining to another. The idea must be
disruptive to ALL the established players in the targeted market, or you should not invest
in the idea. E.g. in the beginning of the internet, Compaq had a disruptive idea to sell
over the internet (they were used to sell in retail stores). But for Dell, who already sold
over the telephone, the internet was just a sustaining technology.
A disruptive business model is a valuable corporate asset
A disruptive business model that generates profits at the low end of the market is a
valuable corporate asset. All good managers move up the trajectory into the more
valuable products at the high end of the market and dispose of the less valuable products
at the low end of the market. Standing still is not an option. One should target products
and markets that the established companies are motivated to ignore or run away from.
Two types of disruption
New figure on page 44. Three axes of the disruption diagram performance, time and
new customers and contexts for consumption.
1) New market disruptions

Disruptions that create a new value network. New-market disruptions compete with nonconsumption this has to be overcome. They have to be good enough to pull customers
out of the original value network into the new one. These products are more affordable
and simpler to use a whole new population of people. E.g. personal computer: It was a
completely new product, nobody had used a prior generation of these computers. A new
value network was created established companies feel no pain and thus do not fight.
2) Low-end disruptions
Disruptions that attack the least-profitable customers at the low end of the original value
network. These do not create new markets, they are simply low-cost businesses in a
different way. E.g.: minimills.
New-market disruptions make incumbents (the established leaders)
ignore the attackers, while low-end disruptions motivate the incumbents
to flee. Many disruptions are hybrid. E.g. cheap, short-distance airlines focus on
new customers who travelled by bus or car, but also steal customers from
expensive airlines. Disruption is an ongoing force always at work disruptors in
one generation become disruptees later.
Shaping ideas to become disruptive: three litmus tests
Litmus test: a decisively indicative test
Beginning of the chapter: product or technology ideas are usually not inherently
sustaining or disruptive they go through a process. Many of the initial ideas that get
shaped into sustaining innovations could also be shaped into disruptive business plans
with greater potential. There are three questions to answer to know whether or not an
idea has disruptive potential. However, the first set and the second set are
interchangeable of course.
First set (can the idea become a new market disruption? at least one of these two
questions has to be answered positively)
- is there a large population who did not have the money, expertise or skill to do
this thing for themselves, and thus do not use this or ask and pay someone else to do it?
-to use this product, do customers need to go to an inconvenient location?
Second set (can the idea become a low-end disruption? both questions have to be
answered positively)
-are there customers who do not need all the performance and would be happy to
pay less for a simpler product?
-can we create a business model that enables us to exploit this?
Once an innovation process passes one of these two tests, there is still a third test:
Third
-is the innovation disruptive to all of the significant existing firms in the industry?
An idea that fails the litmus tests, cannot be shaped into a disruption.
!! Figure page 51: three approaches to creating new-growth businesses
- Sustaining innovations
- Low-end disruptions
- New-market disruptions
Use of the litmus test: three cases
HP vs. Xerox: Can Xerox disrupt low-end? Probably not, HP uses the cheapest way to
produce printers. Can Xerox disrupt new market? Probably yes, if they find a way to
incorporate a printer into a notebook.
Airco: Can Hitachi disrupt low-end? Probably only in the beginning, until competitors also
start to use the low-cost manufacturers. Higher up, the market is occupied. New market
then? Yes, if they could make a small airco for the small Chinese apartments.
Internet banking: most of the answers to the litmus tests are no.

 Disruption makes it possible to better predict the outcomes of competitive battles

in different circumstances
Not all innovative ideas can be shaped into disruptive strategies
Disruption does not guarantee success

3 What products will customers want to buy?

The authors once again argue that the failures three-quarters of the money spent in
product development investments result in products that do not succeed are not
random at all. They are predictable and thus avoidable, if managers get the
categorization stage (market segmentation) of theory right. Chapter overview:
1) describe a different way to think about market segmentation
based on the notion that customers HIRE products to do specific JOBS
2) explore why managers segment wrong
3) other important challenges to help disruptive businesses grow
Combined, this provides a theory of how to connect disruptive innovations with
the right customers
Pomp and circumstances in segmenting markets
What is segmentation? identifying groups of customers that are similar enough that the
same product or service will appeal to all of them. Theories based on attribute-based
categorization can reveal correlations between attributes and outcomes. However,
correlation is not enough. We need casualty, and we can achieve this through
circumstance-based categorization. The critical unit of analysis is the circumstance and
not the customer. Predictable marketing requires an understanding of the
circumstances in which customers buy things.
Companies that target their products at the circumstances in which customers
find themselves, rather than at the customers themselves, will launch successful
products.
A very nice example: quick-service restaurant effort to improve the sales and
profits of milkshakes
First approach:
The company first structured its market by product, and then by the characteristics of
existing milkshake customers. It then assembled a panel of these customers, and asked
them which flavours they would like.
Attribute-based
Second approach:
A research team tried to look for the reason why customers hired the milkshake. What
was the job they were trying to get done? Morning consumers were looking for
something easy, that they could carry in one hand, that took long enough to drink to
overcome the bored travel to work, and to avoid being hungry at 10.00. That was the
milkshakes job. Evening consumers (mostly parents of children) needed a fast drink,
that would satisfy their kids.
Circumstance-based
Using circumstance-based segmentation to gain a disruptive foothold
Disruptive foothold = the initial product or service that is the point of entry for a newmarket disruption. Afterwards, it can be exploited through sustainable innovation.
How can these opportunities be identified by managers? Observe and question
consumers, and try to figure out what the job is they are trying to get done. This will
lead to a product that is much closer to what consumers value (e.g. Sony until the
eighties, when attribute-based techniques took over).
Innovations that will sustain the disruption
Gaining a disruptive foothold is just the first step. Real growth happens when an
innovation improves, and moves on to the more profitable customers (= sustaining

innovation).
For low-end disruptors, this is fairly easy they know where to go specifically up-market
(e.g. minimills).
For new-market disruptors, it is more difficult they have to invent the up-market path,
they do not specifically know where to go because nobody has been up that trajectory
before.
E.g. Blackberry brought email to the handheld (compete against non-consumption).
What should they do next?
- In attribute-based thinking product view we would just try to get in all the features
(camera, word, wifi, gps, etc.) that competitors have. They compete against other
wireless phones.
- In segmentation according to the jobs that people try to get done job-to-be-done
view it would be different. They try to be productive in times they are waiting (e.g.
airport, bus stop, etc.). They compete against the Wall Street Journal for example, or
against Sudokus. Blackberry should try to implement these features, instead of making
an commoditized all-purpose device.
a suicidal trajectory results from framing the market in terms of the attributes of
products and the attributes of customers, rather than in terms of jobs to be done.
Why do executives segment markets counterproductively?
The previous is all known, it is not new. But why do so many managers then still base
product improvements on attribute-based segmentation schemes? At least, there are 4
reasons:
Fear of focus
Clarifying what job a product should be hired to, often clarifies what it should not be hired
to do focus helps and hurts. Therefore, focus is scary, but only until you realize that in
means turning your back on markets you could never have anyway. The authors suggest
here that Blackberry should stay focused on Email, and not try to steal Palms customers
by implementing an organizer. So actually, the authors were a little wrong about this
case, as Blackberry is very popular now because of its excellent organizational functions.
Senior executives demand for quantification of opportunities
Market research is typically hired to quantify the size of opportunities, rather than to
understand the customer. Marketers know very well that an understanding of the jobs
that the customer tries to do is necessary, but senior executives mostly care about
market size.
IT collects data, but does not understand the job. We cannot structure the customers
world the same way as the data are aggregated, but this is what is done most of the
time. Consequently, new products will not be successful.
The structure of retail channels is attribute focused
Many retail channels are attribute focused rather than on the jobs that customers need
to get done.
Best explained by the example:
A company developed a new tool to hang doors in a room. Before, workmen needed at
least 7 different tools to hang doors, but this company developed a tool that made it
much easier. Problem: it could not be categorized as a screwdriver, a hammer, etc. In the
Gamma, there simply was no place for this tool.
Most of the time, this leads the company to disrupt established channels (chapter 4).
Advertising economics influence companies to target products and customers
rather than circumstances
Companies segment markets by attributes because it facilitates communication with
customers.
Go back to the milkshake example. How could the company explain to the customer
that he needs to buy a long-consuming milkshake, and come back later with his kids to
buy the small liquid milkshake? It would be an expensive or confusing advertisement.

Solution: just as the chain needs to develop products for the circumstance and not the
customer, it needs to communicate to the circumstance, and not to the consumer. This
can be done by a brand, using the right brand strategy. In order to avoid that the
disruptive, new, yet-to-be-improved product will harm their established brand, they might
add a purpose brand = a second word to their brand. E.g. Kodak Funsaver, to clarify
that it is not a high-quality camera, but just a throw-away camera. And thus it was able
to even strengthen the Kodak brand.
Effective brand strategies make it easier for customers to connect a job that
arises and the product they can hire to do the job.
The danger of asking customers to change jobs
The jobs that people are trying to do, stay relatively stable over time. So, a product will
not succeed when it tries to get a new job done, rather, it would succeed if it can do an
existing job more efficiently. Customers will not change jobs because a new product
becomes available.
E.g. replacing study books with tablets that can connect to the internet for even more
information, do not focus on the job students try to get done (not read the book at all).
Thats why for example a site full of summaries would have more success.

Recap 2 and 3:
2: although sustaining innovations are critical to the growth of existing business, a
disruptive innovation offers a much higher capability of success in building new-growth
businesses.
3: Managers often segment markets along the lines for which data are available, rather
than in ways that reflect the things that customers are trying to get done.

4 Who are the best customers for our products?

For low-end disruptions: easy, its just the consumers who want to go back to basics.
For new-market disruptions: hard, the market lies where people are trying to get a job
done, but are unable to accomplish it themselves too expensive or complicated nonconsumption
New-market disruption: Three case histories
New-market disruption follow a remarkably consistent pattern, always and in every type
of industry. We will discuss this pattern from three disruption: one in the 1950s, on from
the 1980s and still continues, and one in its nascent stage:
Disruption of vacuum tubes by transistors
RCAs products were based on vacuum tubes, Sonys products were based on transistors.
It is actually the same story as the minimills one, with different players. In the emerging
days of the transistor, it was only good enough for small devices, such as a hearing aid.
They did not hurt RCA yet, because Sonys products were not of high quality and they
targeted young people (non-consumption market). Transistor technology became better,
RCA disappeared. RCA simply could not switch to transistor technology when they
understood how big the crisis would be, because their distribution network was made for
vacuum tube products (which needed regular replacement of the tubes by professionals).
Sony could just sell its products in the supermarket.
Angioplasty: a disruption of heart-stopping proportions
Angioplasty = an operation to repair a damaged blood vessel or unblock a coronary
artery.
People who suffered from heart disease were not treated. Only the ones who were in real
danger, could get a heart surgery. Angioplasty made it possible to treat people, before
they were in real danger, as a prevention. This is not a low-end disruption, as the patients
were not yet tired of the over-performance of bypass surgery. They just needed
something else. The heart surgeons felt no pain at first, because they even got more
patients (the angioplasty made people to discover they were in real danger). After a

couple of years though, angioplasty had caused less people to suffer from dangerous
heart diseases. Also, angioplasty can be delivered in cardiac care clinics instead of real
hospitals (channel disruption).
Solar versus conventional electrical energy
It is very difficult for solar energy to compete against conventional electrical energy in
developed countries (sustaining innovation). Why not enter new markets in the third
world (non-consumption) with cheaper solar technologies then those that would be
needed in developed countries?
Extracting growth from non-consumption: a synthesis
Four elements out of these cases that can be combined as a template to
find ideal customers for disruptive innovations:
1) Target customers are trying to get a job done, but because they lack the money
or skill, a simple inexpensive solution has been beyond reach.
2) These customers will compare the disruptive product to having nothing at all.
Product does not have to be perfect.
3) The technology that enables the disruption might be sophisticated, but
disruptors deploy it to make the purchase and product use simple, convenient,
and foolproof.
4) Disruptive innovation creates a whole new value network. New channels, new
venues.
Disruptions that fit this pattern succeed, because the established leaders do not
care about the entrants. They respond by investing loads of money into more
sophisticated products, thus allowing the entrant to have a sustaining
development of his lower-end product, until it becomes better than the product of
the established leader.
What makes competing against non-consumption so hard?
If you read the above, it would look like a dream. Growing is easy, if you find a nonconsumption market. However, growing is not easy. There is a mechanism which causes
the established competitors in an industry to consistently push the disruptive technology
into the mainstream market. In the following, we discuss guidance to established
companies to avoid this trap and capture the growth created by disruption.
Threats versus opportunities
Studies:
- If you look at a phenomenon as a threat, it consequently has a far more intense and
energetic response than if you frame it as an opportunity.
- When people encounter a significant threat, a response called thread rigidity sets in.
Focus everything on countering the threat in order to survive.
To see a disruption as a threat is both positive and negative:
Positive: allocate more resources
Negative: focus on protecting existing customers and current business
How to get commitment and flexibility
Twofold solution:
1) First, get top-level commitment by presenting an innovation as a threat during the
resource allocation process.
2) Later, shift responsibility for the project to an autonomous part of the corporation
that can look at the innovation as an opportunity.
Asymmetry of perception: incumbents see innovation as a threat, entrants as an
opportunity.
How to get research commitments and target them at disruptive growth
opportunities?
high commitment and flexible plan
Example: Newspapers:
Newspaper companies faced the online innovation. News could be put online. Existing

firms saw this as a threat. Some also started up an independent group to take care of this
part of the business. These autonomous groups looked cannibalistic at first, but they
shifted to a new market because of different market strategies, channels, etc. The
companies that kept this part of the business in-house did face cannibalism indeed, as
they did not change their strategy, channels, etc. for this part.
Reaching new-market customers often requires disruptive channels
Fourth element of the pattern of successful new-market disruption. Broader definition of
channel any entity that adds value to or creates value around the companys product.
Retailers and distributors need to grow through disruption, too
Retailers and distributors need to keep moving if they dont, their margins will decrease
to the minimum. Innovating managers should find channels that are keen on selling their
products, because it is profitable for the channels too. Example: Honda was not allowed
to sell their scooters through Harley-Davidson dealers. This was good for them, as the
salespeople would probably get a higher commission on Harley Davidsons, and thus
would not mention the Honda. Honda started selling them through sports stores, which
was good for the sports stores, as they could gain higher returns here mutually
beneficial relationship.
Disruptive products require disruptive channels.
Customers as channels
In the services industry similar to the products industry technological progress
enables less-skilled providers to disrupt more highly trained and expensive providers
above them.
Healthcare example: New, easier technology should be sold to less-specialized physicians
(disruptive) then to specialized people who know how to do things without this
technology, for whom the product would just make things more easy (sustainable).

5 Getting the scope of the business right

Which activities internal? Which activities outsource? Open industry standards or closed
ones?
Widely adopted theory to decide which activities to outsource: If it is a core competence,
you should do it inside. If it is not, and another firm can do it better, then outsource it.
However, what might seem to be a non-core activity today, might become an absolutely
critical competence in the future. E.g.: IBM outsourced its operating system to Microsoft.
To see accurately what the future will bring, we need to use circumstance-based
theories.
Integrate or outsource?
The core/non-core categorization can lead to serious and even fatal mistakes. The
authors find that it is best to integrate when products are not yet good enough, and to
outsource or specialize or disintegrate when products are more than good enough
notice the parallel with low-end disruptions. To explain figure 5-1, we need to explain the
concepts of interdependence and modularity.
Product architecture and interfaces
A products architecture determines its constituent components and subsystems and how
they must interact to achieve the targeted functionality. The place where any two
components fit together is an interface.
Interdependence versus modularity:
- If one part cannot be created independently of the other part, than the architecture is
interdependent at the interface, and the same organization must develop both of the
components. Here, interdependent architecture means the same as proprietary or
optimized architecture.
- If all interfaces are standardized no unpredictable interdependencies as well as the
architecture, then modularity occurs. Modular components fit and work together in wellunderstood and highly-defined ways. It does not matter who makes which component.
Flexibility is optimized at the expense of performance.

 Most products fall somewhere between these two extremes.

Competing with interdependent architecture in a not-good-enough world
In the left side of the figure, the new product is not yet good enough for the consumer
performance gap; remember the Intel chip, which was too slow for the typist. Here, the
product has to become better, and this can best be done by using an interdependent
architecture, since a modular architecture does not optimize performance. Companies do
not have a choice the product has to become better.
Companies that use such proprietary, interdependent architectures must be integrated:
control the design and manufacturing of every critical component of the system in order
to make any piece of the system. During the not-good-enough era, the most integrated
companies were the dominant competitors. However, from the point where products start
to become too good, the success of integrated companies starts to worsen.
Overshooting and modularization
On the right side of the figure, there is a performance surplus too fast cars.
Customers will not be willing to pay for even more horsepower, but they will want the
cars faster, customized, etc. We say that the basis of competition in a tier of the
market has changed.
Here, modular architecture is the best way to compete. Performance will decrease, but
the costs as well. Modularity enables independent, non-integrated organizations and
outsourcing.
From interdependent to modular design and back
The progression from integration to modularization repeats itself over and over again as
products improve enough to overshoot customers requirements.
What drives this process is this predictable causal sequence:
1) The pace of technological improvement outstrips the ability of customers to utilize
it
2) This forces companies to compete on a different basis conveniently give
customers what they want when they need it
3) Companies evolve their products architecture from being proprietary and
interdependent toward being modular
4) Modularity enables the disintegration of the industry non-integrated firms will
now dominate the industry
Example:
Apple was very successful in the beginning of the personal computer, as they had a
proprietary architecture. Companies whose strategy was primarily modular, had
difficulties with providing the same performance. However, the PCs became too powerful
for most consumers, and they wanted more customization (e.g. Dell). At that moment,
modular strategy was the most successful.
Of course, if the circumstances change, the strategic approach concerning architecture
and integration must change. In the next section we describe one factor that drives
reintegration.
The drivers of reintegration
Customers needs can change too usually at a slower pace. On occasion there can be a
discontinuous shift in the performance/functionality that customers demand, shifting the
dotted line upward. This flips the industry back to the left side of the diagram and resets
the clock into an era in which integration once again is the source of competitive
advantage.
Example:
Apple first was successful, afterwards, modular companies became more successful.
WordPerfect and Lotus were modular architectures that could be implemented in a
Windows system. However, in the early 90s customers needed more functionality,
especially in word processing documents and so on. The industry flipped to the not-good-

enough side. Microsoft introduced its proprietary Windows together with the Office-suit
and browser. This worked, because people needed this performance, the programs were
better than WordPerfect or Lotus. Its integrated structure responded better to the new
performance demand than non-integrated companies.
Aligning your architecture strategy to your circumstances
The failure or success of a growth business based on modular architectures when
circumstances require interdependent ones, or vice versa, can be predicted.
Attempting to grow a non-integrated business when functionality isnt good
enough
Three conditions must be met in order to sell/buy modular components and thus, in
order to be sure that one is competing in a modular world. These three conditions
constitute an effective modular interface:
1) Both suppliers and customers need to know what to specify which attributes and
components are crucial and which are not (specifiability)
2) They must be able to measure those attributes so they can verify that the
specifications have been met (verifiability)
3) There cannot be any poorly understood or unpredictable interdependencies across
the supplier-customer interface (predictability)
It is employing the right strategy in the right circumstances that makes the
difference.
Being in the right place at the right time
Pure interdependence and pure modularity are two extremes. Companies can choose
strategies anywhere in between:
- Thus if a firm adopts a modular strategy when the basis of competition is functionality
and reliability, it will have a hard time, but may survive until modularity becomes the
dominant architectural form.
- When proprietary leaders are overshooting performance, they need to open up, and
become a supplier of key subsystems and avoid the trap of being a niche player on the
one hand or of an undifferentiated commodity-supplier on the other hand.
The next chapter will help managers to steer their companies to where the money
will be in the future not where is was in the past.

6 How to avoid commoditization

There is a fear that in the end, every product becomes a commodity. However, there is
hope: research has pointed out that when commoditization takes place somewhere in the
value chain, de-commoditization takes place in another part of the value chain.
This chapter will help managers understand how the process of (de-)commoditization
works.
The processes of commoditization and de-commoditization
The process that transforms a profitable, differentiated, proprietary product into a
commodity is the process of overshooting and modularization (chapter 5). Overshooting
means going from the left to the right of the disruption diagram, page 44 (or the
example: making too fast cars = overshooting).
At the left side of this figure, the not-good-enough side, integrated companies are most
successful. Why?
1) Interdependent, proprietary structure makes differentiation straightforward.
2) Strong cost-advantages due to the high ratio of fixed to variable costs.
When this not-good-enough circumstance changes when these companies overshoot
what their main customers can use the game is over, and the product becomes
commoditized. It is overshooting that connects disruption with commoditization (both are
two sides of the same coin). A company in the overshooting circumstance cannot win.

Either they get disrupted, or their market becomes commoditized. When your world
becomes modular, you will need to look elsewhere in the value chain to make any serious
money. Ironically, this de-commoditization occurs in places in the value chain where
attractive profits were hard to attain in the past.
The steps of both commoditization and de-commoditization are described below:
Commoditization
1. New market: company develops a
proprietary product that comes closer
to customers needs than any of the
competitors, thanks to its proprietary
architecture.
2. As the company wants to stay ahead of
its competitors, it eventually
overshoots the functionality that
customers in the lower part of the
market can use.
3. This causes a change in the basis of
competition.

4. This causes an evolution toward

modular architectures.
5. This facilitates the disintegration of the
industry.
6. This makes it very difficult to
differentiate the performance or costs
of the products. Everybody has access
to the same components and
assemblies according to the same
standards. This starts at the bottom of
the market and moves up.

De-commoditization
1. Low-cost strategy of modular companies
is only profitable when they can compete
against higher-cost opponents. When the
latter disappear, they have to move upmarket to take them on again to keep
earning attractive profits.
2. The mechanism that can help them
move up-market, becomes now not-goodenough so they are flipped to the left side
of the disruption diagram.
3. This competition among subsystem
suppliers causes their engineers to think of
designs that are proprietary and
interdependent in order to deliver better
performance to their customers.
4. Leading providers of these subsystems
are now in a profitable situation because
they sell differentiated, proprietary
products.
5. Cycle restarts (1 in commoditization).

It is thus the circumstance in which a company happens to be, that may cause it to
be profitable. What makes an industry appears to be attractively profitable is the
circumstance in which its companies happen to be at a particular point in time, at each
point in the value chain. The processes of commoditization and de-commoditization are
continuously at work, causing the place where the money will be to shift across the
value chain over time.
For example, IBM assembled hard disks. For hard disks, heads and disks are needed
(supplier). IBM made its own heads and disks, and did also the design and assembly of
these hard disks. During the 90s, IBMs integration was unprofitable for the 3.5-inch
disks, as these had become a commodity (thus, modular structures are more profitable).
However, in the 2.5-inch disk market, they were highly profitable; due to the not-goodenough syndrome (better 2.5 disks were needed to put in notebooks). A few years later,
the 2.5-inch disks became too good, and IBMs proprietary structure was not profitable
anymore. What should they do?
IBM sold the design and assembly knowledge to competitors, and focused on the head
and disk making (supplier for modular companies). This head and disk industry was still
on the not-good-enough side, because assemblers kept on trying to make their 2.5 disks
more cost-effective. But this assembly-side of the value chain was not profitable anymore
(modular, overshooting), the head and disk supply-side was.

IBM was so successful, because it could flexibly couple and decouple its operations (
modular). It could sell parts of its proprietary structure, and keep other parts.
Core competence and the ROA-maximizing death spiral
Firms that are being commoditized often miss the opportunity to move where the money
WILL be in the future. Investors pressures to increase ROA often causes companies NOT
to go where the money will be.
The ROA death spiral:
Investors ask for a better ROA. How can a company do this? They can improve their
returns which is nearly impossible in a modular circumstance or they can cut down on
assets. This death spiral traps many companies that assemble modular products in a toogood world.
Core competence is a dangerously inward-looking notion. Competitiveness is much more
about doing what customers value than doing what you think youre good at.
In the example, TCC Texas Computer Corporation (the supplier of CC) takes over noncore competencies of Components Corporation. This is a good thing for CC, as they can
get rid of some assets. However, TCC keeps taking over non-core competencies of CC,
until CC has nothing left. CC did not notice this, because it felt good, their ROA became
better each time they outsourced an activity.
It never occurred to CC that all these activities werent core activities for TCC neither. But
this should not be the determining factor of the decision to outsource it (instead look
where the money WILL be). However, CC cant do anything else in many ways, this is
inevitable. TCC took over the activities, but was also able to reconfigure the integration
so that they could better deliver against the new basis of competition.
Another instance of asymmetric motivation: The supplier is motivated to
integrate forward into more activities, while the modular assembler is motivated
to get rid of some activities.
Good enough, not good enough, and the value of brands
Brands become (de-)commoditized too so executives cannot rely on their brands to
avoid commoditization of their products. Brands are most valuably created in the notgood-enough stage brands are able to close the gap when customers are not yet
certain about a products performance.
Example: IBM was a big brand concerning PCs. However, as PCs became too-good
(overshooting), customers cared more about the operating system or the processor
inside. This is where Intel and Microsoft started stealing the valuable power of the IBMbrand. The OS was not-yet-good-enough (one can ask whether or not it is good enough at
this moment, probably yes, so we can expect a shift) .
Example: Jeans, nowadays, jeans are more-than-good-enough. Most jeans are of high
quality, and this has made the channels valuable brands. They sell the jeans
conveniently, but it could still be better (not-good-enough).
Final note: Is Dell integrated or not integrated? It is integrated across the not-goodenough interaction with the customer. It is not integrated in the more-than-good-enough
modular interfaces concerning the components within its computers.
A view of the automobile industrys future through the lenses of this model

7 Is your organization capable of disruptive growth?

A lot of innovations fail because the market is not ready yet because managers who are
not capable are given the task for these innovations. Therefore, this chapter offers a
theory to guide executives as they choose a management team and build an
organizational structure. An organizations capabilities during sustaining circumstances,
often become its disabilities under disruptive circumstances.

Resources, processes, and values: RPV

Unpack the concept of capabilities into three sets of factors that define what an
organization can and cannot accomplish:
Resources
There are lots of resources (cash, personnel, equipment, technology, etc.). Resources are
usually people or things they can be hired and fired, bought and sold, etc. They are
visible, measurable and flexible. However, the choice of the right manager is often the
most important decision. Two approaches to choose a manager:
- The first is by right-stuff thinking. This means that one will look at a managers talents,
like a good communicator, decisive, etc. Those with the right stuff are often the wrong
people the authors argue that this approach gets the categories wrong.
- The second is a circumstance-based theory. Choosing the right manager is finding the
manager who has had the experiences needed for the job. Look at where the manager
has been, and what he probably has learned there (compare a business experience with
a course). Examine the problems he has solved in the past to determine the skills he has
developed. This theory is a much more reliable guide for executives who attempt to get
the right people in the right positions at the right time.
So, three steps in choosing the right manager:
1) List the challenges that the project probably will encounter
2) Apply McCalls theory: which courses needs the manager to be able to handle
these challenges? Specify the circumstances in which the manager will be asked
to manage.
3) Compare this set of needed experiences with the experiences of the candidates.
Finding the right managers is a critical step in finding the required capabilities to
succeed.
Processes
Processes are the patterns of interaction, communication, coordination and decision
making though which organizations create value by transforming inputs into outputs. Can
be formal, informal (how we do things here), or cultural (long informal process). A
process is fixed on doing a certain task. Thus, it defines a capability but concurrently
defines a disability in doing a different task. The problem in creating new-growth
businesses, is that managers often try to start these new businesses using the old
mainstream processes. The cause of a new ventures failure often is that the wrong
processes were used to build it.
Values
Some values are ethical, but in the book we talk of values as the standards by which
employees make prioritization decisions. It is very important for executives in large
companies to train their employees to make prioritization decisions consistent with the
strategy of the company.
Resources and processes are often enablers of what an organization can do,
but values are the constraints, they define what an organization cannot do
(what cannot be prioritized).
E.g.: A large company cannot invest in small low-profit markets, because their values
demand that larger-profit projects get prioritized. This creates the asymmetry of
motivation between disruptees and disruptors! disruptors invest in low-profit
products, that disrupt the market and eventually will become high-profit products. Large,
established companies do not invest in these low-profits, and are too late when they
become high-profit products.
Successful firms tend to change in two predictable ways:
1) Companies values change as they move up-market their cost structure changes
2) The required returns (values) become larger. Whats good for a small business, is
just not good enough for a big business = real disability in creating new-growth
business. They lose the capability to enter small emerging markets.
Solution: keep flexibility by organizing business into small business units.

The migration of capabilities

In the start-up of a new business, the resources are most important (managers,
employees, etc.). Over time, the organizations capabilities shift toward its processes and
values. In the end, this way of working becomes institutionalized: organizational culture
members of the organization adopt ways of working and criteria for decision making.
Culture enables employees to act autonomously and consistently. When this
organizational culture is established, the business often has succeeded. However, change
becomes very difficult now.
Example: in consulting firms, large numbers of students are hired year after year. This is
possible, because they have evolved into the stage where processes and values are more
important than resources.
Selecting the right organizational home for a new disruptive business
The organizations develop a capability for sustaining innovation that resides in their
processes. Moreover, disruptions are inconsistent with the leading companies values.
Established companies have the resources required to succeed at both
sustaining and disruptive technologies, but their processes and values
constitute disabilities in their efforts to succeed at disruptive innovation. In
contrast, smaller, disruptive companies are more capable of pursuing emerging
growth markets. Thus, the requirements of an innovation need to fit with the
host organizations processes and value, or the innovation will not succeed.
!! Figure 7-1 page 191 + explanation page 192
A framework for finding the right organizational structure and home. It helps managers
decide when to exploit current organizational capabilities and when to create or acquire
new capabilities to launch a new-growth business it connects the organizational value
fit to the organizational processes fit.
Creating new capabilities
Make-or-buy decision for resources, processes and values:
Creating management bench strength (resources)
Good managers are necessary. The right-stuff approach is not good (see higher). We
need to find managers who learned the right capabilities by experience. But people who
do not yet have these skills, will never have these if they cannot try to acquire them.
Therefore, it is important to look for employees who are willing to learn learningoriented measures such as seeks opportunities to learn, seeks and uses feedback,
asks the right questions, etc. However, it is still difficult to choose between a manager
who already has experienced these things, and thus is not keen on learning much more;
or between an employee who does not master these skills, but wants to learn.
Launching growth businesses after growth business creates a very good opportunity to
train employees in-house. In-house management development creates an optimized,
interdependent interface between the skills of the manager and the processes and value
of the company.
Making new processes
Vertical axis in figure page 191 shows when heavyweight, lightweight or functional
teams are needed. Heavyweight teams create new processes, while lightweight and
functional teams exploit existing processes!
When unpredictable interdependencies exist between what one does and what another
does, a heavyweight team should be put together that can solve this problem. After
doing this a couple of times, the team makes a new process out of it. To be successful,
these teams should be co-located.
E.g.: Chrysler structured its product development groups around components. But the
changing competition forced Chrysler to be able to develop a car faster. Heavyweight

teams were put around one car, and had to find a new kind of process that could make a
car design from start to end.
Creating new values
Companies can create new prioritization criteria, or values, only by setting up new
business units with new cost structures. An organization cannot disrupt itself (take back
the example of online newspaper: in-house vs. autonomous business unit). Due to the
fact that new processes and especially values are needed, an autonomous organization
needs to be put in charge of the new disruptive innovation. A key issue here is that this
autonomous organization needs to have complete freedom in making new processes and
cost structures.
Buying resources, processes, and values
Every time a company acquires another company, it buys its resources, processes and
values:
- If a company is bought because of its resources, it makes sense to integrate these
resources the acquired firm in the parental company.
- If a company is bought because of its processes and values, it is best to slowly put the
parents resources into the acquired companys processes and values.
Thus, it is very important to know what makes a company worth the money. The
resources, or the processes and values?
The cost of getting it wrong: cases
Great opportunities can be missed and a lot of money wasted when managers have highpotential ideas but place them in a wrong organizational context. Two examples:
The foundation of an online bank. This was a failure, as online banking is a sustaining
technology (litmus test chapter 2). Everybody has a bank account (non-consumption),
and there are no customers who are over-served, and it is surely not possible to make a
feasible business plan around these customers (profit-margin is way too low).
Discount retailer was successfully found as a autonomous disruptor. After a few years,
however, the parent company tried to integrate it in their structure. The discount retailer
department had to be closed. Companies cannot disrupt themselves.

8 Managing the strategy development process

- Manage the process used to develop the strategy -

This chapter describes two simultaneous both always operate in every company but
fundamentally different processes of strategy formulation:
1) Deliberate strategy making (= well-advised; carefully considered)
This one is conscious and analytical, top-down implemented and has a discrete beginning
and end. This is the best way to organize a company if three conditions are met:
a. Strategy must address every detail and must be understood by those who are
responsible
b. Strategy needs to make sense to all employees, as collective and consistent
action is required
c. Almost every influence from outside must be anticipated
difficult to meet these 3 conditions. Thus, the emergent strategy making process
almost always alters the strategy that the company actually implements.
2) Emergent strategy making
This one bubbles up from within the organization, it emerges from the tactical, day-today operations made by middle managers, engineers, salespeople, etc. Once a strategy
like this is recognized, it is possible to formulate it, improve it and exploit it until it
becomes a deliberate one.
On one hand, emergent processes should be used when the future is hard to read and it
is not clear what the right strategy should be during the early years of a company. On

the other hand, deliberate processes should dominate once a winning strategy has
become clear.
The crucial role of resource allocation in the strategy development process
Ideas and initiatives are whether deliberate or emergent origin are filtered though the
resource allocation process (driven by the values of the organization). This process
determines which ones get funded and implemented complex, diffused and operates at
every level at all time. Each of these decisions shape what the company actually does.
Significant differences between a companys actual strategy and its deliberate strategy
occur when the values that guide prioritization decisions in resource allocation are not
the values that the deliberate strategy wants.
It does not matter what goes in the filter (strategic intentions), what matters is what
comes out (strategic actions).
An illustration of resource allocation in strategy making: the case of Intel
Intel focused on developing DRAMs. They also produced EPROMs and microprocessors.
The resource allocation process was defined in a way that the products with the highest
profit-margin would firstly be allocated the production capacity they needed. This until
the lowest margin product was given whatever part of the production capacity that was
left.
In the 80s, Japanese competitors emerged on the DRAM market. The profit-margin on
DRAMs dropped, and consequently, Intels allocation process favoured microprocessors
and EPROMs. This without an intentional change in strategy! Moreover, the strategy was
still focused on DRAMs, as most of the R&D budget was put in DRAMs.
Finally, Intel recognized that they had become a microprocessor company, and thus they
could put this emergent strategy into a deliberate strategy. It was the resource
allocation process that transformed Intel from a DRAM company to a microprocessor
one.
Match the strategy-making process to the stage of business development
Rarely, entrepreneurs get the strategy right from the first time. They have to accept the
fact that their strategy has to learn strategy is never static. The unanticipated
opportunities, changes, etc. form the emergent strategy allow the business to respond to
an evolving reality rather than on a stable strategy. When everything is clear, this can be
put in a deliberate strategy.
Managing two fundamentally different strategy processes: a rare and tricky
skill
The interaction/changing between emerging and deliberate strategies is very
important, but very difficult.
When disruptive growth occurs, two ways of failure can be distinguished:
a. Companies try to implement a deliberate strategy from the beginning, even
though the
right strategy cannot yet be known.
b. Companies fail to put the emerging strategy into a deliberate strategy.
The switch from an emergent to a deliberate strategy is crucial to success in a
corporations initial disruptive business.
Then again, when a new disruptive growth occurs, two other difficulties arise:
a. The deliberate allocation process filters out all new initiatives.
b. Once the deliberate strategy is implemented, they find it difficult to apply an
emergent
strategy again.
In different stages of maturity, different processes of strategy development need
to be chosen. This is very difficult.
Points of executive leverage in the strategy-making process
Managers must:

1. Create a cost structure that finds the right customers attractive.

Executives must pay very careful attention in creating a cost structure and business
model. The only way that a manager can compete against non-consumption with a
simple product is to put in place a cost structure that makes such customers and
products financially attractive.
If a company has too large cost commitments, then it will be impossible for this
company to compete on the lower end of the market, where the disruptive innovation
starts.
2. Accelerate the emergent strategy process.
Executives need to employ discovery-driven planning to help make a strategy
emerge more quickly than if it would use less-structured trial and error.
A discovery-driven method for managing the emergent strategy process:
Sustaining innovations:
Deliberate planning
1. Make assumptions about the future
2. Define a strategy based on those
assumptions, and build financial
projections based on that strategy (and
go back to step 1 until the projections are
good)
3. Make decisions to invest based on
those financial projections

Disruptive innovations:
Discovery-driven planning
1. Make the targeted financial projections
(start with this, as this is what matters)
2. What assumptions must prove true in
order for these projections to materialize

3.
M

3. Implement a plan to learn, to test

whether the critical assumptions are
reasonable
4. Invest to implement the strategy

4. Implement the strategy in order to

achieve the projected financial results
anage the mix of emergent and deliberate strategies
It is dangerous to allow the strategy development process to operate on autopilot. In
time, some businesses need to be managed through deliberate strategy processes,
while other through emergent processes. Moreover, as already said, it is very
important to switch from emergent to deliberate process as the situation changes.

9 There is good money and there is bad money

Getting funded is an obsession for most innovators with a great idea. The authors have
concluded that the best money during the native years of a business is patient for
growth, but impatient for profit. This chapter tries to show why the other category of
capital which is impatient for growth but patient for profit will condemn innovators to
a death march if it is invested at early stages.
In early stages, the best money is patient for growth, because in a disruptive innovation,
the markets are small for a time. Money has to be impatient for growth at a later stage
in deliberate-strategy circumstances because the managers need to have an incentive
to test whether or not the customers want their product, and are willing to pay something
for it to accelerate the emergent strategy process.
We will discuss how good money becomes bad:
The death spiral from inadequate growth
There are five steps in the spiral that turns good money bad:
Step 1: Companies succeed
Companies successfully used an emergent strategy, and now focus on implementing the
deliberate strategy. This step is crucial for success, however it also means that no newgrowth businesses are launched.
Step 2: Companies face a growth gap
Investors want more than the anticipated growth. Investors expect to sustain growth;

they only get surprised by the extra growth that disruptive innovations can bring.
Problem is that as a company gets bigger, eventually they will not be able anymore to
exceed the growth expectation. Stock prices will drop, and managers who are not willing
to play the game of perpetually higher revenues will be replaced by managers who are.
Step 3: Good money becomes impatient for growth
The company seeks projects that will provide fast money, to meet investors growth
demands. This is where the prioritization values change, and the money becomes
impatient for growth.
Only big projects get through the allocation process, and small (e.g. disruptive)
innovations get ignored.
Step 4: Executives temporarily tolerate losses
Loads of money is needed to compete on these big projects. Executives accept
temporary losses because these big investments will lead to big profits. However, the
cost structure is not attractive to the customers they need. They are competing against
consumption, the customers already buy the same product from a vendor they trust.
The money has now become bad: impatient for growth but patient for profit.
Step 5: Mounting losses precipitate retrenchment
New management team is brought in. They stop all the expenses, go back to the core.
They realize that the expectations of growth from the investors cannot be met. However,
the investors are now even more impatient, and we go back to step 3.
How to manage the dilemma of investing for growth
The dilemma of investing for growth is that the character of a firms money is good for
growth only when the firm is growing healthily. It is when growth slows, that investing to
grow becomes hard. It is at this moment that things must get very big very fast, and
there is no time for a disruptive innovation.
Research points out that more than 95 % of successful companies whose growth had
stalled, were not able to restart growth again. Once growth had stalled, the money
turned impatient. In privately held companies, these pressures are much less present.
The only way to keep investment capital from spoiling is to use it when it is still
good.
Use pattern recognition, not financial results, to signal potential stall points
Financial results reflect investments made years ago the reflect how healthy the
business was, not how healthy it is. They are particularly bad to manage disruption,
because moving up-market is temporarily good for the financial numbers.
Nice example: MBAs being disrupted by company training.
If we look at patterns that show that MBAs are being disrupted (competing against nonconsumption; different job getting done; shift in the basis of competition to speed,
convenience, and customization; interdependent vs. modular curricula) we would
conclude that they indeed are being disrupted.
If we look at the data (high starting salaries for MBAs, numbers of students in MBA,
reputation, etc.) we would conclude that there is no disruption at all.
Create policies to invest good money before it goes bad
The policies force the organization to:
- Start early launch new-growth businesses regularly when the core is still healthy,
when it can still be patient for growth. This is a great strategy for creating and sustaining
a corporations growth.
- Start small keep dividing business units so that as the corporation becomes large, the
business units remain small enough to benefit from investing in small opportunities.
- Demand early success be impatient for profit. Minimize subsidization of new-growth
ventures minimize the use of profit from established businesses to subsidize losses in
new-growth businesses.

Good venture capital can turn bad, too

Corporate versus venture capital is not the question. It is more a question whether the
money is patient for growth.
For example: A venture capitalist who has had many successes in the past, and has now
lots of money, wants to invest in a new company with a disruptive innovation. He puts in
too much money, and demands fast return, because his values have changed (because
of his previous successes). Here, the money is impatient for growth, and gets trapped in
the death spiral.

10 The role of senior executives in leading new growth

Executives that repeatedly seek new waves of disruptive growth have 3 jobs:
1) Be close to the interface between a new-growth business and the mainstream
(sustaining)
business, to properly assign which resources are for new businesses and which
are not.
2) Create a disruptive growth engine: keep launching new-growth
businesses.
3) Sense when the circumstances are changing. Look for evidence that the basis
of competition is changing
Standing astride the sustaining-disruptive interface
At the time of writing, no company had been found yet where the creating of successful
disruptive growth businesses was embedded in a process = disruptive growth engine.
Maybe it is possible, like change management can be embedded in a corporate culture.
The authors provide four critical steps that executives can take to develop such an
engine (see later).
At present, resources are the main driver of new growth-businesses and the most critical
of these resource is the CEO.
A theory of senior executive involvement
The personal oversight of a CEO is the most critical resource of a successful disruptive
business.
Who should make which decision? Senior management or middle management?
Common theory: big money decisions require big guys. This theory ignores the fact that
many questions are asked by middle management, who already filtered out the projects
that they think the CEO will not accept. We already saw this, the competence of middle
management is very important in sustaining innovation. Thus, senior executives envision
themselves as making the big decisions, but in fact they most often do not.
Other common theory: big size company requires big guys. Large businesses require
more active senior management involvement, whereas lower-level managers can cope
with the demands of smaller businesses.
Both of these theories get the categories wrong. A better circumstance-based theory
helps managers better in deciding which decisions ought to be made at which levels. It
argues that senior executives are needed when the mainstream processes cannot be
used for a decision disruptive innovation. The lower management can handle the
sustaining decisions, however big they are delegation works effectively here.
The importance of meddling
Can any executive lead disruptive growth?
Is it possible for any senior person to succeed?
The text notes that founders are more able to lead disruptive growth, than professional
managers (non-founders) are. This can be understood in the fact that founders are not
afraid to push the business in another direction, while the professional managers are
afraid of the reactions of the employees.
Creating a growth engine: embedding the ability to disrupt in a process
If it feels so good to disrupt once, why not do it again and again? Companies should
develop a predictable, repeatable process for indentifying, shaping and launching

successful growth valuable growth engine. Such an engine would have four critical
components:
Step 1: Start before you need to
The engine needs to operate by policy, rather than in response to (bad) financial
numbers. As seen in chapter 9, the disruption needs to start when the core business is
still healthy.
- best time to invest is when the company is still growing
- pressure to get big fast forces ventures to do many things wrong
Step 2: Appoint a senior executive to manage ideas into the appropriate
shaping and resource allocation process
Particularly important when the success still relies heavily on the resources, rather than
on the processes. He should be able to separate disruptive innovations from sustaining
opportunities. Over time, his role can change as the growth engine becomes a process.
- senior managers monitor the resource allocation process
- decide which corporate processes do and do not apply
- keep communication flowing across disruptive-sustaining boundary
Step 3: Create a team and a process for shaping ideas
= create an expert team of shapers and movers
The problem is not the ideas, it is the shaping of the ideas that make them lose their
disruptive potential. The teams responsibility is to create a core process that can shape
these ideas into disruptive business plans.
- responsible for shaping ideas to fit the litmus tests of disruption
- use theory to ensure that each action is appropriate to the circumstance
Step 4: Train the troops to identify disruptive ideas
Making the lowest level competent!
The employees should be trained in the recognition of sustaining and disruptive
innovations, and thus need to acquire a deep understanding of the litmus tests.
- engineers and salespeople who are closest to the market need to know what to look for
- if properly trained, can send the right ideas into the right process

Epilogue passing the baton

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