It’s been more than 25 years since I wrote my first book, The Innovator’s Dilemma. Since that time I’ve learned that the best answers to the enormous problems we are struggling with always starts with asking the right question. I’ve since written 11 other books (and more magazine articles than I can count) but each has always started with my desire to answer a simple, but perplexing question.
The Innovator’s Dilemma asked: Why do great firms fail, especially at the hand of smaller and less resourced upstarts? The answer: Disruptive innovations.
These are innovations that are less expensive and poorer performing than existing products on the market. Disruptive innovations are often targeted at customers for whom products on the market are either too complicated or too expensive. The Innovator’s Dilemma has helped entrepreneurs, managers, and investors understand how these upstarts could eventually upend their market.
More recently, I’ve asked what may be the most important question yet:
Where does lasting prosperity come from?
The answer: Market-Creating Innovations.
These are innovations that transform complicated and expensive products into products that are simple and affordable so that many more people in society can access them. In some cases these innovations are disruptive, but in every case the new markets that are created serve as a strong foundation for sustained economic growth.
Over the years, I have had the opportunity to learn how to ask good questions from so many people — my family, my students at Harvard Business School, executives of major corporations, and Presidents and Prime Ministers of nations. But the goal of asking questions is always to get to better answers. So I offer here some of the most important answers I’ve found over my years of teaching to life’s most challenging question.
1. Not all innovation is created equal
The word innovation has become a buzzword routinely used to describe things that are new, shiny, feature-rich, and, in some cases, breakthrough. While all those are certainly characteristics of innovations, they are less helpful when trying to understand how companies and nations can organize themselves in ways that can truly foster growth. And so, for clarity, I use this definition, the same one I used in my first book: innovation is a change in the process by which an organization transforms labor, capital, materials, or information into products and services of greater value. That definition helps us understand that, from an economic development standpoint, there are primarily three types of innovation: market-creating, sustaining, and efficiency.
Market-creating innovations do exactly what the term implies: they create new markets. But these are not just any new markets; they are new markets that serve people for whom either no products existed or existing products were not accessible for a variety of reasons, including cost or the lack of expertise required for their use. Market-creating innovations include transforming complicated and expensive products into ones that are so much more affordable and accessible to an increased number of consumers who are able to buy and use them. In some cases, such innovation can create entirely new product categories.
For example, when Henry Ford developed the Ford Model T, he made the car simple and affordable for millions of Americans that so many people were able to buy the product. The new market Ford created led to many other markets that provided a solid foundation for growth and prosperity in America.
Sustaining innovations are improvements to existing products and services already on the market and are typically targeted at customers who require better performance. For example, when an automaker includes new features such as heated seats, power windows, and adaptive cruise control, these are all sustaining innovations. They are important for companies and their host countries to remain competitive, but they have a very different impact on an economy than market-creating innovations. For instance, companies rarely need to build new sales, distribution, marketing, and manufacturing engines when they develop sustaining innovations in a mature market because they are selling to an existing customer base from relatively known segment of the population using already-developed channels.
Efficiency innovations enable companies to do more with fewer resources. Examples are outsourcing a firm’s activities to take advantage of lower wages or using technology, like automation, to reduce costs. With efficiency innovations, companies can become more profitable and, critically, free up cash flow, but they often sell to already crowded and competitive markets.
When we understand that there are different types of innovations, we begin to see how each impacts both a company and an economy differently. It turns out that, contrary to the conventional wisdom that a society must “fix” itself — its infrastructure, courts, legislatures, financial markets, and so on — before innovation and growth can take root, our research at the Christensen Institute suggests that innovation is the process by which a society develops. Innovation funds our infrastructure, cultivates our institutions, and mitigates corruption. When a country’s prosperity stalls despite a lot of activity within its borders, that country might not have a development problem. It might have an innovation problem.
2. Data is not the phenomenon
More than ever before, we are awash in data about virtually everything. Data about products, customers, economies, poverty, and progress. We need data. But what does data really tell us? Data, metrics, and statistics are not the phenomena of many of the things we seek to understand. Data simply represents the phenomena. But substituting data for the phenomenon without truly understanding what is going on underneath that data can lead to devastating outcomes. Consider how it often plays out in corporations.
Dell Computer hit its stride in the 1990s and quickly became one of the most successful and profitable computer companies in the world. But over time, in an attempt to continually improve its efficiency metrics and financial ratios such as RONA, the company outsourced many of its operations to a Taiwanese company, Asus. Profitability skyrocketed and Dell analysts rewarded the company accordingly. The data on Dell’s balance sheet looked good. But the phenomena behind the data — the innovative prowess of the company — didn’t. In 2005, after Dell had outsourced enough activities to Asus — effectively putting the company into business — Asus announced the creation of its own brand of computers. And the rest, as they say, became history. All along, the numbers had looked good to Dell. But what the numbers had not shown was the impact these decisions would have on Dell’s future.
3. Management can be a noble profession
One of the theories that gives great insight on the question — "How can I be sure I find happiness in my career?" — is that the most powerful motivator in our lives isn’t money; it’s the opportunity to learn, grow in responsibilities, contribute to others, and be recognized for achievements.
Over the years, I have told my students about a vision I had while I was running a company I founded before becoming an academic. In my mind’s eye I saw one of my managers leave for work one morning with a relatively strong level of self-esteem.
Then I pictured her driving home to her family 10 hours later, feeling unappreciated, frustrated, underutilized, and demeaned. I imagined how profoundly her lowered self-esteem affected the way she interacted with her spouse, and her children. The vision then fast-forwarded to another day, when she drove home with greater self-esteem — feeling that she had learned a lot, been recognized for achieving valuable things, and played a significant role in the success of some important initiatives. I then imagined how positively that affected her as a spouse and parent. It was then that it hit me: Management is perhaps the most noble of professions if it is practiced well. No other occupation offers as many ways to help others learn and grow, take responsibility and be recognized for achievement, and contribute to the success of a team.
Management isn’t simply about P&L statements, meeting quarterly growth and profitability targets, and creating brand awareness. Those are byproducts of good management.
Management is about waking up every day and helping people become better people so they can do better work and live better lives.
4. Don’t reserve your best self only for your career
Your decisions about where and how you allocate your resources — time, energy, and talent — ultimately shape your life’s strategy. For me, there are many things that compete for these resources: I’m trying to have a rewarding relationship with my wife and five children, contribute to my community, succeed in my career, contribute to my church, and so on. And I have exactly the same problem that a corporation does. How much do I devote to each of these pursuits?
Allocation choices can make your life turn out to be very different from what you intended. Sometimes that’s good: Opportunities that you never planned for emerge. But if you make poor choices about how to invest your resources, the outcome can be bad. When people who have a high need for achievement have an extra half hour of time or an extra ounce of energy, they often unconsciously allocate it to activities that yield the most tangible accomplishments. And our careers provide the most concrete evidence that we’re moving forward. You ship a product, finish a design, complete a presentation, close a sale, get paid or promoted. In contrast, investing time and energy in your relationship with your friends and family typically doesn’t offer that same immediate sense of achievement. Kids, for instance, misbehave every day, and it’s not until 20 odd years later that you can say, “I raised a good kid.” You can neglect your relationship with your spouse, and on a day-to-day basis, it doesn’t seem as if things are deteriorating. People who are driven to excel have this unconscious propensity to underinvest in their families and overinvest in their careers — even though intimate and loving relationships with their families are the most powerful and enduring source of happiness.
5. God does not hire accountants
As I have thought about all the things I have accomplished as a Harvard Business School professor, the co-founder of many organizations, and a husband, father, and friend,
I learned one of the most important lessons of my life: God does not hire accountants in heaven.
In essence, because human beings have finite minds, we need to aggregate. And so, every year, we aggregate sales, costs, and figure out earnings. We aggregate responsibilities and the person who is responsible for many things is valued as such. The CEO, for instance, is the most valuable person in an organization. It’s the way we — finite beings — make sense of all the things going on.
But God is different. Because he has an infinite mind, he does not need to aggregate above the level of an individual. As I thought about this, I realized that the way God would measure my life is different than how we measure each other’s. Instead of aggregating all my accomplishments, comparing them with the accomplishments of my friends and colleagues, and then giving me a grade, he would simply want to know how I helped other people.
It will not be about my degrees, books, or awards, but about the lives I was able to assist along the way.
Solving our toughest problems may not be as simple as asking better questions, but it’s certainly the right way to start. This requires us to challenge our assumptions, see the problem through new lenses, and open ourselves to ideas and approaches that may be difficult at first.
But as Marcel Proust once said: "The real voyage of discovery consists, not in seeking new landscapes, but in having new eyes."
Clayton M. Christensen, Efosa Ojomo and Karen Dillon are the co-authors of The Prosperity Paradox, How Innovation Can Lift Nations Out of Poverty, on which this article is based.