Balancing Innovation and Customer Service

Question: How can established companies pursue disruptive innovation but yet continue to satisfy their customer base?

Christensen:    Well, every business model is an optimized and interdependent system.  So, a business model starts with a value proposition that you want to offer to a particular customer base.  In order to deliver that value proposition, you’ve got to put into place a set of resources in your company.  So, these are people, technology, products, equipment, facilities, and so on.  As you use the resources to deliver the value proposition, process is coalesced, just habitual ways of getting things done.  And then, as you follow the processes to use the resources to deliver the value proposition, a profit formula ultimately emerges, and the profit formula basically set, dictates how you make money.  In order to cover the cost of these resources, we need these kind of gross margins.  To break even, we’ve got to be this big.  We have to turn the assets over at this pace in order to get adequate returns.  And that profit formula then determines the kinds of value propositions that business model can and cannot offer, and, very quickly, all of those four elements of the business model, the value proposition, your resources, your processes and your profit model become interlocked, and it’s actually designed not to change.  So, the only way a corporation can continue to lead in the original market it’s serving and also become a leader in a disruptive market is to set up a completely independent business unit underneath the corporate umbrella and give it a charter to create a different economic model for the different need in the market place.  And if a, when a corporation is willing to do that, they can succeed at disruptive innovations very well.  If they’re not willing to do it, the probability of their success is nearly zero.  It’s kind of like in biological evolution.  Individual organisms don’t evolve.  They are born, they die, but, little by little, the mutants gain market share, and so the population can evolve, even though the individuals within it do not.  And the same thing holds true for corporations.  The business units within a corporation don’t evolve.  They’re designed to profitably serve a particular set of customers who have a particular job to be done, but if the corporation will close down obsolete business units and create new business models, the corporation can evolve quite well.  IBM has done that very well, three times created very different economic models as the computer industry has evolved.  But they’re the only computer maker from the ‘60s, ‘70s that has survived to this date.  When discount retailing emerged, Dayton Hudson in Minneapolis set up a different business model that it called Target, and they were the only department store to catch the wave of discount retailing.  All the other 315 department stores have consolidated down now to about 8 because they haven’t created this independent business model. 

The Harvard Business School professor on how to live in the present and the future.

LinkedIn meets Tinder in this mindful networking app

Swipe right to make the connections that could change your career.

Getty Images
Sponsored
Swipe right. Match. Meet over coffee or set up a call.

No, we aren't talking about Tinder. Introducing Shapr, a free app that helps people with synergistic professional goals and skill sets easily meet and collaborate.

Keep reading Show less

What’s behind our appetite for self-destruction?

Is it "perverseness," the "death drive," or something else?

Photo by Brad Neathery on Unsplash
Mind & Brain

Each new year, people vow to put an end to self-destructive habits like smoking, overeating or overspending.

Keep reading Show less

34 years ago, a KGB defector chillingly predicted modern America

A disturbing interview given by a KGB defector in 1984 describes America of today and outlines four stages of mass brainwashing used by the KGB.

Politics & Current Affairs
  • Bezmenov described this process as "a great brainwashing" which has four basic stages.
  • The first stage is called "demoralization" which takes from 15 to 20 years to achieve.
  • According to the former KGB agent, that is the minimum number of years it takes to re-educate one generation of students that is normally exposed to the ideology of its country.
Keep reading Show less

Douglas Rushkoff – It’s not the technology’s fault

It's up to us humans to re-humanize our world. An economy that prioritizes growth and profits over humanity has led to digital platforms that "strip the topsoil" of human behavior, whole industries, and the planet, giving less and less back. And only we can save us.

Think Again Podcasts
  • It's an all-hands-on-deck moment in the arc of civilization.
  • Everyone has a choice: Do you want to try to earn enough money to insulate yourself from the world you're creating— or do you want to make the world a place you don't have to insulate yourself from?
Keep reading Show less