Innovation_in_Connected_Economy_Christenseen

Innovation in the Connected Economy: A Conversation With Clayton Christensen

Thomas Petzinger Jr.

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The Big Idea

Innovation in the Connected Economy: A Conversation With Clayton Christensen

Clayton M. Christensen, a professor at Harvard Business School, is the author of the prizewinning and best-selling The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail. Before joining Harvard Business School, he served as chairman and president of Ceramics Process Systems Corporation, which he co-founded with several MIT professors in 1984.

He holds a B.A. with highest honors in economics from Brigham Young University; an M.Phil. in economics from Oxford University, where he studied as a Rhodes Scholar; an MBA with High Distinction from Harvard Business School in 1979; and a DBA from Harvard Business School.

Thomas Petzinger Jr. spent 22 years as a reporter and editor at The Wall Street Journal, where he wrote the paper's popular "Front Lines" column. He is now chairman and chief executive officer of LaunchCyte LLC, a

layton Christensen has revolutionized how the world sees innovation. Established companies, he discovered, pursue innovations that support their existing business models—a practice that blinds them to radical innovations—ones that often come from out of the blue. His longtime study of sustaining versus disruptive technologies has exploded in popularity as a way of interpreting this era of dizzying change.

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Christensen certainly believes that the connected economy in general—and the Internet in particular— exposes many industries to the potential for disruptive innovation. But his views are nuanced. In some ways, he believes, the connected economy brings about sustaining innovations that simply reinforce existing business practices. And nothing in the technological landscape, he says, has altered fundamental human resistance to change.

Pittsburgh-based business incubator fostering convergence of the life sciences and information sciences. He has written three books, including The New Pioneers: The Men and Women Who Are Transforming the Workplace and Marketplace, and is a visiting fellow of the Cap Gemini Ernst & Young Center for Business

In this one-on-one dialogue, Thomas Petzinger Jr. embraces a more enthusiastic view of the effects of the connected economy. He adopts the view of molecular biologist Stuart Kauffman that the capacity for innovation explodes as the potential for combination increases.

Innovation. He holds a B.S. in journalism from Northwestern University, where he was a Richter Scholar.

Christensen and Petzinger met over a tape recorder in Prof. Christensen's office at Harvard Business School.

Petzinger: We have a more connected economy, of

that there's no doubt. Connection increases both access to information and the potential for action.

Doesn't that mean that we have a more innovative economy, a deeper capacity for innovation?

Implications of Networked Business Models . . ., pg. 40

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While connectivity increases both access to information and the potential for action, it doesn't necessarily mean that we have a more innovative economy, or a deeper capacity for innovation. Innovation may be far more dependent upon how rapidly individuals' behaviors change—independent of whether the Internet, or other mediums of connectivity, have invaded our lives.

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Christensen: I don't think you can make any gener-

ally applicable statements about this, but certainly, there are pieces of the economy where people have been able to maintain profits for a long time because they hold privileged access to information, such as location of inventory or demand. I think those kinds of businesses are very ripe to be disrupted and the world will be far better off as a result.

Petzinger: You think of travel agents and financial

services—businesses that centralized information or restricted access to it.

Christensen: That's right. The connected economy

will make all of that stuff go transparent. If I manage a portfolio of bonds for Travelers, and I want to dispose of some of my bonds, I go to Salomon Smith Barney, which knows how many people are interested in those bonds on the buy side. They keep that information to themselves. Wall Street generates about $25 billion in profit because they have that kind of information. And the stock exchanges are the same way.

A lot of these kinds of industries have been competing a long time on reliability. You may resent to the end Salomon Brothers' ability to make money from the transaction, but you know if you work through them, they're going to get the transaction done. You pay a huge premium for that. Now, the Internet is going to change that world. Salomon is going to have to compete on a very different basis. They'll need innovations that keep me coming back, because the alternative is Internet-based transaction systems that

are so low in cost that there's no way Salomon Brothers can play in that game. Their world's going to change a lot.

Petzinger: Let's talk about the origins rather than the

effects of disruptive innovations. Innovation is clearly not a human innovation, so to speak. It's inherent in the process of change called evolution, which is more than three billion years old. We all know that as the speed of evolution increases, so does the speed of innovation, which is why geneticists study fruit flies instead of elephants. Right now, from all I see, the pace of evolution is accelerating in this new economy, and so is the rate of innovation.

Christensen: Yes, unquestionably. But it's not clear to

me that in every case, the connected economy is the fundamental root cause of the acceleration. When interactions between buyers and sellers become a lot more efficient, you'd certainly expect that to facilitate faster innovation. But those kinds of innovations are sustaining in character, almost all of them. The disruptive innovations in many ways are far more dependent upon how rapidly consumers' behavior can change, and in many ways that's independent of whether the Internet has invaded our lives or not.

Petzinger: But surely the Internet will cause consumer behavior to change!

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Christensen: Yes. But again, those things are rela-

tively lengthy processes. Let me give you a good example. Right now we type at a number of levels. We write papers and articles on word-processing equipment on which spell checking, grammar, and syntax are very important. Then we sit down and we do e-mails not nearly as carefully. We don't spell check.

Sometimes a lot of people don't even capitalize. At the low end, kids in chat rooms are very casual about this stuff.

Petzinger: You obviously have teenagers, too.

Christensen: Yes. So now, let's think about voice-

recognition technology. My research would predict it will take root in chat rooms first—the kind of very undemanding applications that bring in disruptive technology. The marketing issue is, Where can I find a group of people who would be delighted to use a lowquality product? Where's a market willing to accept only 90 percent accuracy versus typing?

Petzinger: In a chat room, that would be a big

improvement in accuracy.

Christensen: That's exactly right—but take a secre-

tary who already types 100 words a minute with 99 percent accuracy. To ask someone like that to speak very slowly and distinctly—that requires lots of behavioral change. So this disruption needs to take root in the chat room. Then maybe it will get ported to a Palm Pilot married to a Qualcomm phone. And then next it will be used for e-mail on a desktop computer. And only after that will you and I have developed the

comfort and the intuition for how to speak the articles and the papers we are trying to write.

Petzinger: And it will be the companies we've never

heard of today that will develop the lousy, early-stage versions. And IBMs of the world will sell the later versions with lots of features and terrific reliability.

Christensen: Exactly. And how fast these innovations

grow from beginning to ultimate market, to me, is affected in a tangential way by the Internet and the connected economy. But there is so much nonInternet technology development that has to happen, and so much behavioral change that has to happen.

Petzinger: Innovation is generally the result of

combination, the uniting of disparate things. Jacob Bronowski once said, "Every act of imagination is the discovery of likeness between things which were thought unlike." In a previous issue of this very journal, Stuart Kauffman of Bios Group argued that the economy is entering a supercritical zone in innovation, because the more things you have, the more things there are that can exist as complements to what you already have. Doesn't that guarantee an acceleration of innovation?

Journal Issue 4, Growing the Adaptive Enterprise, pg. 7 Meet the Connected Economy’s New Corporate Species . . ., pg. 13

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For innovation to truly occur in an organization or a community, individual often resists it. The connected economy accelerates innovation by providing a platform by which individuals can share insights that will ultimately lead to new creations. While the human factor may slow down the rate of innovation, the Internet will diffuse information, thereby enabling more people to have a chance to share ideas, gain skills, and improve efficiencies.

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Christensen: All of our instincts would be to say yes,

because the more analogous situations you get confronted with, the more insights you are likely to receive. But let me offer a counter-example. The people who are bringing to the market these "netpliances" have great growth projections. They're assuming that 40 percent or 50 percent of American homes don't yet have a computer because they are too costly. Inherently they're assuming that if I can price this thing at $199, a lot more people will go online. That may be true, but it may also be true that roughly half of the households in America don't see their lives benefiting by going online. They've just never felt the need. My intuition is that there are so many low-income homes that do have computers that people who don't have them now won't feel the need at any price.

So let's apply this analogy to the issue of combination.

It is very true that, as discussed in Thomas Kuhn's The Structure of Scientific Revolutions, the true breakthrough insights have come at the intersection of disciplines—rarely from within the discipline. Long before the Internet ever happened, that was well known, right? And yet, the vast majority of practitioners have never said, "If I want to change the world, that means I better step up out of my little silo and stick a foot into some other silo." The vast majority stayed right where they were. Now why was that? Was it because there is something about human nature that causes most people to want to stay within something that they understand?

Petzinger: Maybe it's not human nature. Maybe there's something in industrial culture, in the hyperspecialization of modernism, that rewards people who stick within their domains. And maybe the connected economy will destroy that culture. A short walk from here, over at Harvad University’s Museum of Comparative Zoology, Professor Edward O. Wilson has spent a lot of time studying how human nature and human culture each change with the other.

Christensen: Either way, the availability of informa-

tion is quite independent from how rapidly people can change their own behavior. I am quite inclined to think that in the connected economy, more people will come across more analogous insights that will help them come up with new things. But I would be reluctant to then expect things to explode exponentially—because you do have human behavior involved.

Petzinger: On the subject of resistance to innovation, let's talk about what I rank the most infamous case of all: healthcare delivery. I'm working with a group of healthcare leaders trying to foster the diffusion of innovation. Even incredibly simple innovations like administering aspirin within 30 minutes of a heart attack can't seem to take hold. What's the deal? Why is that industry so singularly resistant to adoption of innovation?

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behavior must change. While the Internet facilitates such change, human nature

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Christensen: I've done a lot of thinking about this,

and I've just been given an appointment on the Harvard Medical School faculty. Here is something I realized only after I wrote The Innovator's Dilemma.

Disruptive innovations typically enable a larger population of less skilled people to do things previously performed by specialists in less convenient, centralized settings. It has been one of the fundamental causal mechanisms through which our lives have improved. So take the computer, for example.

Remember when you had to take your punch cards to somebody else in a central office? Then along comes the PC. It couldn't do nearly the sophisticated problems that you can solve on a mainframe—but it brought the masses into the computing business. And from that disruptive root, it has gotten so good that we can now do in the convenience of our homes and offices so much more. And we consume far more computing than we ever did before. You could tell the same story about photocopying—or equity investing.

Charles Merrill brought Wall Street to Main Street and then E-Trade brought Wall Street to the college dorm.

Petzinger: So disruptive innovations tend to distrib-

ute expertise and access, to decentralize them?

Christensen: Exactly—but in medical care, this has

not happened except in a very few isolated situations.

We still need healthcare innovations that enable individuals to do for themselves what historically nurses had to provide, that enable nurses to do what you needed a family-practice physician to provide, and enable family-practice physicians to do what you

needed a specialist to do. And we need innovations that enable care to be delivered in a home that historically you had to go to a doctor's office to get, and in an office where you needed to be in an outpatient setting to get, and in an outpatient setting where you had to go to a hospital to get.

In cases where that's already happened, we've actually received the Holy Grail of lower cost, higher quality and more convenient healthcare.

Petzinger: Where has it happened in healthcare?

Christensen: Angioplasty. It used to be you had to be

near death in order to justify having open-heart bypass surgery. And it could only be offered in centralized, high-cost, inconvenient settings provided by very expensive specialists. Angioplasty enabled a much larger population of less skilled practitioners whom we call cardiologists. They don't normally think of themselves as less skilled, but they are not openheart surgeons. At the outset angioplasty wasn't nearly as effective. It could only be used on mild cases. But it has gotten better and better and better and better. And that class of patients is far better off.

We don't yearn to return to the days when you had to go to Denton Cooley for bypass surgery. We actually consume far more cardiac care today than we did back then because it is lower cost, more convenient, and higher quality.

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Disruptive innovations enable less-skilled people to do things healthcare, education, and technology and arguably enhance the quality of life—at a cheaper cost via the Web.

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Or in diabetes, we've seen the same thing in blood glucose monitoring. I have diabetes, but now I don't have to go to the hospital to get my blood tested. I do it for myself. And now I go to my doctor and I tell him how I am doing.

Petzinger: Soon you'll be doing more via the Web. A

website will monitor your sugar and beep your doctor when there's a problem.

Christensen: Yes, or it will beep me, and I'll go to a

doctor only when there's something that I can't solve.

Already the demand for endocrinologists is down a significant fraction from what it was 10 years ago.

Petzinger: But you're talking about exceptions.

Healthcare and medicine are singularly powerful at blocking disruptive innovations.

Christensen: Yes. Nurse practitioners are fully

competent to diagnose an earache. In fact, they are fully competent to diagnose diabetes. But 38 of the 50 states have regulations prohibiting these people from doing what technology enables them to do. Much of medical care is simple rules-based stuff: I do this test, if I get this reading, I am pregnant and if I get that reading, I am not pregnant. Many things that used to be solved in a problem-solving mode, scientific progress now enables us to solve in a patternrecognition mode. Again, it's those kinds of innovations that enable a larger population of less skilled people to do things that historically you needed specialists to do.

Ericsson’s Geobility Goes for the Connected Customer, pg. 21

I had a guy come in here about six months ago who told me to put on this set of glasses he brought in.

They were really thick and black with a funny little rubber bulb on each end. He had me take my glasses off and put his on. He put an eye chart over there and told me to cover my left eye and pump the right bulb and to stop as soon as I could read the bottom line. I repeated with the other eye and in 15 seconds, I had corrected my own vision.

Petzinger: Let me guess. The ophthalmologists have

crushed him.

Christensen: The healthcare community sees this and

says, "You can't let people correct their own vision!

Because what happens if they have glaucoma or cataracts? Who is going to catch this?" Well, that's the right answer to the wrong question. The right question is how can we enable individuals to do for themselves what they can do? And what other innovations in this system or in the technology will be required so that we don't allow glaucoma and cataracts to go untreated?

Medical specialists are aligned with the interest of the hospitals, who are aligned with the interests of the American Trial Lawyers Association, who are aligned with the interests of the regulators, to prevent disruption from happening.

Petzinger: Sometimes, the most bitter enemies actually need each other.

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previously performed by specialists. These innovations exist in

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Christensen: That's a good point.

Petzinger: I have a hunch the connected economy

will route around obstacles like that. I once wrote about an internist in Hartford named Jerrold Spitz, who took one of his friends to the emergency room on a Friday night with heart attack symptoms. The attending physician needs to see a baseline EKG, right? But the patient's baseline is locked up in a doctor's office somewhere till Monday morning. So they admit the patient for the entire weekend, and it turns out he had heartburn instead of a heart attack.

So Dr. Spitz started a service called EKGonline. Now any physician anywhere can access your baseline EKG from the Web. Christensen: To the extent that the Internet brings

more information to physicians who already don't have enough time to digest information, I am not sure it is going to change a whole lot. But where the Internet enables a broader group of less skilled people to do things that historically only specialists could do in a centralized setting—this fits the pattern of disruptive innovation.

Petzinger: We could probably have a similar discus-

sion about education, couldn't we?

Christensen: Yes. Now people must come to the

Harvard Business School, a centralized, expensive, inconvenient setting, to get educated by high-cost specialists. We need innovations that enable people at Motorola University to deliver content of the quality you receive at the Harvard Business School, for a fraction of the cost, for the greater convenience.

Petzinger: Education, health care—can you

imagine higher stakes? Whether the connected economy accelerates them or not, disruptive technologies are certainly headed our way. It's both scary and exhilarating.