How much wisdom can one glean from a 20-minute chat with Professor Clay Christensen? I would say — if one keeps his mouth shut and asks the right questions — a lot. Here are notable highlights from my chat with the famous Harvard Business School professor, founder of the Innosight Institute and author of such best selling books as The Innovator’s Dilemma and Disrupting Class.
Jobs at hand
Steve Jobs and the company he co-founded just might be one of the few companies to look the innovator’s dilemma right in the eye and stare it into submission. Jobs’ Apple decided that it was better to cannibalize itself rather than have others do it. And so, the briskly selling iPod was replaced by the iPhone, and the iPad became the new low-end computer. When I asked Professor Christensen what made Jobs special, he said, “Jobs never said he understood the customer, but instead he tried to learn what they are trying to do, and that was his genius.”
Why? Because that helps focus on what matters the most: helping your customers get the job done. The professor pointed out that most people tend to focus on the wrong things, especially in the fast changing world of technology. Christensen argued that when companies make products that help make everyday stuff easier and get the job of life (or work) done, in the end customers don’t need any persuasion. That is precisely why a company like Apple can find buyers for its products so much more easily. Christensen pointed out the fundamental insight Steve Jobs had was that he focused on the “job.”
“Jobs are very stable in a sense and don’t change very much,” he said. For example, Julius Caesar used a chariot to get messages across from one city to another. Fed-Ex uses planes and trucks, he said. The job of delivering the packages hasn’t changed; just how it is done has changed.
Companies that realize this are fine, and will always find a way into the future. Apple understood that people would buy music, just not from a record store. Amazon (s AMZN) is another company that has figured out that people love buying books, though it might not be from a bookstore, or even in a paper form. That is one of the reasons it introduced Kindle.
I asked the famous academic what he thought of the increasing rhetoric around a decreasing emphasis on fundamental innovation and long term thinking in our society. He said that the problem isn’t with a lack of teaching or learning; instead it is a problem with finance.
Financial institutions and educators have propagated a way of thinking that is poison for innovation, Christensen said. And that thinking is around internal rate of return or IRR. As a result, investors are looking to put money to work fast and take it out as quickly as possible. This behavior is not only prevalent inside companies but also inside the venture business, he said. Christensen said that typically it takes about seven years or so to get a company to the finish line and get a good return on investment. Now compare that with an incremental product (or improvement) that you can flip quickly – that gives a big boost to the IRR.
As a result, venture capitalists are focused on short-term innovations and that is just nuts, he added. “I keep saying, don’t be distracted by the siren song of synthetic message of IRR,” he said. “It is dollars and not IRR percentage that matters.”
Professor Christenen was critical of the migratory capital that sloshes from one sector to another or one country to another — moving in and out after locking in short-term gains. He thought the government should consider a new kind of tax structure that encourages longterm investments and stability. For instance, no capital gains taxes for investments that last as long as eight years. “Then you will find people like Steve Jobs and the vibrancy of innovation will return.”