Tuesday, June 07, 2011

World Innovation Forum - Clay Christensen

Today I am blogging live at World Innovation Forum (#WIF11). I have blogged before at this event. I love the stimulation I get from going to seminars like this. Attending and listening to speakers helps plant the seeds of innovation in my mind.

First speaker is one of my favorites - Clay Christensen. Of course he spoke about disruptive innovation. He is a young guy but recently suffered from a stroke. Seems to be recovering well though.

The example he used was the steel business where the big steel mills were attacked at the bottom by low cost minimills. They began by taking the low end of the market - rebar. The big integrated mills were happy to exit the business - margins were low and competition fierce. Eventually they all left the business. The cost of rebar plummeted once there were only low cost minimills.

So the minimills looked up to the next market - Angle iron. Again - same story. Big mills left and were not even upset since this was the worst part of their business. Again once the minimills were the only game in town, prices dropped.

And once again, minimills moved up etc etc. Eventually the minimills ended up with 65% of the market and the big integrated mills were mostly out of business.

Disruptive innovation often happens at the low end of the market.

Another example would be Toyota that moved from the low end corolla eventually ending up selling Lexus.

One principle he calls scary is: "Focus on your core competency. Outsource everything else." Why is this scary? Things change over time. And often those that are outsourced to are outsourced at the low end. It works well for a while but in time the outsourced company starts to move upscale. Eventually, they become a competitor.

The example was Asustek outsourcing for Dell. They approached Dell to make their circuit boards. Not Dell's core competence - so of course. Then Asustek approached them to make the PCs. Then logistics. Then design. As time went on, Dell made more money each time they outsourced more. But in the end, they created a formidable competitor that has now started to bypass Dell.

A good company ends up weaker and a new one takes over.

He suggests medicine/health care will be one area that gets disrupted over the next decade. Industries that tend to get disrupted are those that overshoot the needs of the customers. He argues that hospitals can keep people alive for months but often without quality of life.

So what is my takeaway lesson from this? Always be learning and think change. What is not your core competency today can always be yours tomorrow. So I need to think about the future and what my core competency should be.

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