Clayton Christensen – Two Surprising Reasons Good Companies Fail

Clayton Christensen is an inspiring guy. Not only has he disrupted the business world throughout his career as one of the foremost innovation academics, he has also overcome a bout with cancer and a recent stroke. Introduced as “the Kobe Bryant of the innovation world,” he kicked off the 2011 World Innovation Forum. He began by informing the audience of close to 1,000 that after his stroke one month ago, he had to relearn to speak one word at a time. He then went on to discuss some of the reasons good companies falter. He offered two particularly surprising explanations:

What causes innovation to be a crapshoot is following the management principles taught in business schools.

This is not the explanation one would expect from a Harvard Business School professor. He went on to say that if you’re doing everything by the book, then you are doomed. His point was that disruptive innovation often comes from unexpected places – the tiny competitor, the startup company in the garage, the rebel manager. To some extent, necessity fuels innovation. It’s cozy at the top, and coziness is not a hotbed for disruption. Christensen also warned that with China and India coming on strong, the U.S. needs to continue to innovate or the country is in danger of getting “stuck at the top” the way Japan’s economy did. It is important to push for innovation in both good times and bad.

Focusing on core competencies and outsourcing noncore activities can cause good companies to fail

Christensen told the cautionary tale of how Dell’s repeated outsourcing of noncore activities to Asustek ultimately led to the liquidation of Dell’s business model. At every step, it seemed like Dell’s managers were making a rational decision; focusing on the highly profitable aspects of their business and diminishing costs for the rest. There are two dangers with this approach. First, companies need to think about what their core competencies need to be in the future, not just what is most profitable now. It is important to forecast where the market is gong and anticipate how you will serve your customers as the landscape changes. Second, if you continue to outsource everything from customer service to distribution you wind up losing contact with your customers. Suddenly, you are completely removed and out of touch with the people whose problems your products/services are supposed to be solving.

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Chris Dolan is a Business Innovationist at Creative Realities, Inc. the innovation management collaborative. You can follow him on Twitter @theChrisDolan.