This is a great lecture from Professor Clayton Christensen at Business of Software 2011. He is a lecturer and professor at Harvard Business School and has some brilliant insights, something all entrepreneurs should understand. In this talk he describes disruption (referencing disruptive innovation) as the art of killing rather than being killed. How do you take on the incumbents in the marketplace? You can’t outspend them, and you probably can’t out innovate with new features and added benefits onto already existing products and services.
He implies that if you can focus on the job required to be done and the causal mechanism behind a customers decision then you can retain the ‘bleeding edge’ high ground and ensure continued profitability. Becoming a purpose brand is vital, i.e. one that states what job it tackles so as to become that brand people go to when thinking of a task. This is the only way to ensure sustained profitability. An example here is ‘furnishing my house’ and IKEA.
Drucker has a great quote:
“A customer rarely buys what the company thinks they are selling him (/her)”
Investigate what job people are using your product for, and improve on it. Companies are often wrong about how people are really using their services. People use chairs to change lightbulbs and not to sit on (all the time) so should chair companies make chairs that do both jobs better, or innovate with a new product for changing lightbulbs?
If you do the job well enough as a service (or product) then you don’t need a marketing budget. Sounds so simple hey? Too many companies compete on the same axis of performance and competition. Innovate on different axis, centered on the task only. Simple examples are Salesforce.com and Oracle, Toyota and Ford Motors.
Oddly he tells us not to listen to the customer but to be sure that the company makes the job easier and cheaper. A great example here is when Ford was the innovator in the market, and the famous line from Henry Ford himself:
“If we asked the customer what they wanted, they would have asked for a faster horse”.
Henry Ford understood that the problem was getting from A to B, and so simply innovated to make this task easier and quicker. He did not try to breed faster horses. People are willing to pay a premium for a product/service that provides a better solution.
Its true customers don’t know what they will need in a few years time, and companies do have to lead the way. However if they lose sight of the job being performed they lose track altogether. Jobs don’t change quickly. So don’t add features above customer requirements or capabilities. Yes it adds complexity, and makes it harder to copy, but sometimes you will get so far ahead of the customer that you become too complex and replaceable. Not a good place to be as a business. Christenson suggests rather than innovate on the same axis/market, look to create zero consumption markets with simple products.
He makes a point that refers to innovation as a culture, and investing in the services of the future before you need them. Because if you wait until you need the innovation persuading shareholders to move away from key business activities to invest in higher risk projects is difficult, if not impossible.
Finally he describes how companies are now competing on business models. This is something that i have mentioned before of how it is now ‘Battle of the Business Plans’. The three business models he describes are summarised below:
Solutions Shop Business
In this business model you define a problem and offer a solutions. Business consultants are perfect examples of this.
Value Adding Business
These business take something in at one end, add value, and sell it at a profit. Great examples are clothing manufacturers.
Facilitated Network Business
These are closer to customer company collaboration to find a better solution. Perhaps the sharing economy falls into this category also. There are many examples of this, but a couple are Lyft and Sharedesk. These companies will take revenue per transaction.
Lastly he talks of ‘stupid managers’. Be careful as a company that looks only at the Return on Net Assets (RONA) or Internal Rate of Return (IRR) as measures of profitability and a guide to decision-making. If you are not careful, you can easily outsource your core competency further down the supply chain even though we are taught in business school that this is the right framework within which to make decisions. Dell is a perfect example of this managerial oversight. He says the best way to make decisions, is on how many tonnes of cash you make.
Anyway, enough of my summary. Watch this, and let me know what you think.
……. Also since writing this post, i have been asked to share this link for the Business of Software blog post with Clayton’s talk, which also includes a transcript of the talk. Happy reading. Sorry i did not do this the first time around. I forgot.
[blip.tv http://blip.tv/play/AYLsphIC?p=1 width=”550″ height=”443″]
When running a business it is important to identify external and internal factors of influence, and once this is done to decide and implement a strategy for gaining a competitive advantage over the competing firms. Michael Porter (also know for Porter’s Five Forces Model) has suggested there are 3 general methods in which a firm can gain a competitive advantage. These include:
Cost Leadership Stratgey
This form of strategy, involves the firm minimising the cost of production (increasing production efficiency/technical efficiency) so that it can offer (without decreasing the quality of production) the lowest priced goods.
Through product innovation, branding, customer service and support, marketing and brand affiliation, a firm can increase the apparent quality of their product, develop customer loyalty and thus increase sales without producing at the lowest cost. A great example of this is the premium car brand, Mercedes.
With this strategy a company can use either Cost Leadership or Differentiation in a narrow sector of the market to gain an advantage over a broader focussed competitor. This form of competitive strategy can be used for a newer entrant to the market, and one that is keen in ‘getting its foot in the door’. Once the firm has entered the market, and attained market share then a broadening of products and services can occur to compete on a larger level with competitors.
Porter goes on to argue that if none of the above it decided upon and implemented, then the firm runs the risk of ‘being stuck in the middle‘.