Clay Christensen is one of the most influential thinkers in the corporate innovation arena. In the latest episode of Innovation Answered, we ask, “How do Clay Christensen’s ideas apply in 2019?”

Listen to the full episode or read the transcript below. You can also learn more about our “Innovation Answered” podcast, listen to past episodes, or subscribe here. Special thanks to our friends at Techstars for sponsoring this episode.

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[THEME MUSIC]

Kaitlin Milliken: Hey, you’re listening to Innovation Answered, the podcast for corporate innovators. In each episode, we ask a central question about the things that make change hard at large companies. Then, we get answers from experts about how businesses can overcome these challenges and make an impact. I’m Kaitlin Milliken from Innovation Leader.

Clay Christensen in his office on the campus of Harvard Business School. Photo by Tony Luong for Innovation Leader.

For our first episode of the season, we wanted to know: How do Clay Christensen’s ideas apply in 2019?

Clay Christensen 2

Clay Christensen in his office on the campus of Harvard Business School. Photo by Tony Luong for Innovation Leader.

Clay Christensen is one of the most influential figures in corporate innovation. He was the first person to define disruptive innovation, and his book, The Innovator’s Dilemma is still considered a business leader must-read. Today, Christensen teaches at Harvard Business School. The Prosperity Paradox, his most recent book, which tackles the issue of global poverty, was released earlier this year.

Innovation Leader’s editor and CEO, Scott Kirsner. He interviewed Christensen for the cover story of our 2018 magazine. Scott shared with me what Christensen thinks corporate innovators should know. We’ll also play clips from his interviews so you can hear directly from Christensen. Like when Clay describes the flaw in how companies define success.

Clay Christensen: What’s gone wrong in our system is that the way we measure success causes us to over-invest in efficiency innovations, and make it very hard to invest in market-creating innovations. … We haven’t articulated why growth is critical for continued success. If you’re not growing, then the people who are giving their lives for the enterprise, there’s no place for them to grow into.

Kaitlin Milliken: We’ll be back with more from Clay and Scott after this break.

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[MUSIC]

And we’re back with Innovation Leader’s Scott Kirsner. Scott, you talked to Clay Christensen for our 2018 spring magazine, but you’ve also interviewed him several times before that. Can you talk a little bit about your relationship?

Scott Kirsner:  Yeah, so I actually don’t remember how I first met Clay, but I’ve interviewed him a couple times on stage at different events which is always fun. And I’ve interviewed him a couple times in his office. … The Innovator’s Dilemma, his probably most important, most well-known book, came out in 1997. The first interview recording I have that I did with him was around 2005, so we probably met in the early 2000s.

Most times I’ve interviewed him, that haven’t been on stage, have been in his office at Harvard Business School. The campus is exactly as you would imagine from movies like Legally Blonde or something. It’s a lot of brick buildings. It’s a lot of ivy. It’s beautifully manicured landscaping. And the thing that always strikes me about going to Clay’s office at Harvard Business School is the doorways to the office somehow seem a little bit small. It’s almost like going into a little cave, a little hobbit cave. And Clay is so tall that when he comes, sort of stands up from his desk and comes to meet you at the door of his office, he more than fills the doorway. It’s almost this kind of bigger than life person coming to shake your hand at the door of his office.

And in part because it’s so hard to schedule an interview, his agenda is so busy everyday of the year giving talks or doing consulting projects or writing or teaching classes, that you always feel this sense of anticipation. Like, I can’t believe I finally got on his schedule, and I’m here at his office to spend some time with him.

Kaitlin Milliken: Sounds like he can make people a little starstruck.

Scott Kirsner: Clay is honestly, he’s just a very nice person. He’s very human. He remembers things about you. And he wants to have a personal interaction with you — a human-to-human interaction as opposed to. “here, I’m just giving an interview and I’m gonna be like a jukebox you know playing answers to the most commonly asked questions.”  

Kaitlin Milliken: Christensen is really just this huge figure in the innovation community. When you came into his office for office hours, how did you decide what questions to ask?

Scott Kirsner: Because I interviewed him a few times before, and we’ve talked about his books, and some of his ideas, and his models of how innovation does and doesn’t happen in large companies, for this interview that he did in 2017, Kelsey Alpaio, my colleague and I thought what if we crowdsourced questions from the Innovation Leader community? Things that people at large companies would like to ask Clay if they had the time with him.

And so we got dozens and dozens of questions. We tried to filter down the ones that we thought were most unique and interesting  and might trigger interesting thoughts from him. And I think we spent about 35 or 40 minutes asking these questions so we tried to squeeze in as many as we possibly could into that time.

Kaitlin Milliken: One of the questions that was highlighted in the magazine piece talked about disruption. And he had a really interesting perspective on a word that we hear so often in the Innovation Leader community. Can you talk about that a little?

Scott Kirsner: Well I mean I think the worlds disruption, over the last 10 years certainly has been used to describe anything new, anything that emerges from a startup or seems to come out of nowhere and poses a threat. One of the ideas of disruptive innovation is that its not version 9.2 of an existing product where you’ve added a little feature that three people asked you for and you’re now going to raise the price 5 percent. Like that is not disruptive innovation, not every startup introducing a new product is disruptive innovation.

So he really comes back, and he drew some interesting sketches on a legal pad while we were doing this interview. He comes back to the idea that it makes things more affordable. It makes things more accessible. It kind of broadens the relevance and opens up new audiences for something.

Kaitlin Milliken: Let’s hear Clay’s take on that.

Sketch of concentric circles drawn during interview by Clay Christensen

Sketch drawn during the interview by Clay Christensen

Sketch drawn during the interview by Clay Christensen

Clay Christensen: Every market has a set of concentric circles around it that represent the larger populations of people who have progressively less money and less skill. And a disruptive innovation is not an innovation that makes good products better. But rather, it makes it so much more affordable and accessible that much larger populations of people have access to it.

Kaitlin Milliken: So making things more accessible, opening things up, that’s a lot of change. What are the industries that he talked about that could look really different in the next decade from what we know today.

Scott Kirsner: Well yeah. Two that he touched on are the healthcare industry, which he’s written a lot about and studied. I think he’s an advisor to some healthcare startups and insurance companies. And the other is academia. Even though he’s a professor at one of the top business schools in the world, I think he looks at the price of Harvard Business School and says this is not something that’s increasing its affordability and it’s accessibility in the 21st Century, even though you can do education be video conference. And there’s many examples of massive online courseware, digital courseware. A lot of universities have not been that quick to innovate and expand access to their product.

Kaitlin Milliken:  And in terms of health care, who’s making a difference in that sector?

Scott Kirsner: Clay has a few examples including this startup named Iora Health.

Clay Christensen: And then there’s a company in the Boston area, and I think they got more than a dozen places around the country, called Iora. And their model is that they have a coach. And the coach is responsible to make sure that you lose weight and that you do all these things. I asked him how can you add all that overhead on a horribly burdened system. And their response is, it’s actually dirt cheap. They’ve learned that when you help your customers stay healthy, you make money. And when their patients get sick, they lose money. And if they’re sick, they make money if they help them get better faster, you know? So there’s a model there. Kaiser Permanente has done a similar thing.

Scott Kirsner: I think health care is one of those industries where you’d say video conferencing, internet access, mobile apps should make answers, and quick consults, and telemedicine so much more inexpensive. But we are all insured by these enormous companies that sort of can’t figure out how to lower the barriers to access.

Kaitlin Milliken: Opening things up to challenges folks across sectors may face, what are the big roadblocks that he talked about over the course of your interviews that make corporate innovation difficult?

Scott Kirsner: So we talked about the challenge of creating new kinds of metrics or new kinds of milestones to make sure you are innovating and thinking of long-term growth and ensuring the company’s relevance long term.

Kaitlin Milliken:  I know he spent some time talking about common metrics that companies traditionally use like internal rate of return and return on net assets or RONA. Let’s hear a little bit about that.

Clay Christensen: And both of these measures are fractions. And so in a fraction there’s the numerator and the denominator. And the numerator is profit. And so sure, if I want to get higher internal rate of return or RONA, I can make more profit. That comes from innovation. But if that’s hard then I can get that measure up by reducing the denominator of that ratio. So RONA, if I can’t make more profit, what I can do is outsource everything and get assets off the balance sheet, because RONA goes up either way. How you measure success completely dictates what you can invest in and what you don’t. And if they don’t change that, any kind of CIO of Innovation, they truly have no hope.

Scott Kirsner: We’ve also have talked in the past about M&A as a challenge, and just those deals where one enormous company buys another. I think a few years back we were talking about Procter & Gamble buying Gillette, and the challenges.  Because the next year or two are spent thinking about integration and all of the problems of, we have these two different systems, we have these two different product sets. How do we rationalize that? Who are we going to keep around? Who’s going to get promoted? Who’s gonna get shown the door.

Clay Christensen:  By merging we can push more products through distributions channels and leverage what prior generations of managers have created, and we as now custodians are trying to optimize. It’s a reflection of a broken innovation engine. So for the employees inside of that company, it’s really a bad story, because now you have a company that is not substantially larger in revenue but what that means is fewer and fewer innovations are going to be attractive these guys.

Scott Kirsner: We’ve talked about M&A as an enemy of innovation. A third challenge that Clay and I have talked about in the past is really about being addicted to today’s established product lines and today’s established revenues. And just how when those revenues are in the billions of dollars it makes it hard to explore and experiment with new sources of revenue which that today might be hundred thousand dollar businesses or million dollar businesses. I mean that’s what fuels startups is discovering and building upon those kind of opportunities.

One really interesting clip from an earlier interview that we did which relates to that dedication to the core business is about Kodak. And in 2005, Clay talked about Kodak as a company that understood the shift from film-based photography to digital photography.

Clay Christensen: The most recent triumph has been Kodak because digital photography is hammering film much faster than anybody thought. And Kodak had been investing in digital photography, but their attempt had been to make digital cameras so good that a digital camera could supplant film when the time came. And then they came here and we had a conversation about it, and it helped them see, “If we’re really going to create growth, we have to use digital imaging to come down market and make cameras that are so simple and affordable that a whole new population of people can use cameras for things that they never used them for.

So they came down with a product line called the Kodak Easy Share Camera, and Kodak now is by far the world’s market share leader in digital cameras. Very profitable, almost a two billion dollar business. And the rest of the world kind of thinks that Kodak is a dinosaur, but they’re just making a marvelous transition from one business into another.

Scott Kirsner:  I remember actually buying for my mom and for my in-laws a Kodak branded digital photo frame. So they knew photography was going digital. I think Clay gave them props for understanding that trend. But overtime we saw that Kodak was not able to move fast enough and really transform the company from selling film and selling film based cameras to the digital world.

Kaitlin Milliken: What’s the take away from that? Is it that companies should be strategic about what they take into the future, and potentially leaving parts of the core business behind?

Scott Kirsner:  Well to me, the lesson there is a lot of companies see trends. They see the locomotive coming down the track at them, and they probably don’t do enough to respond. and doing enough could be a lot of things. It could be investing in startups that you think might have a response, or understand that trend, and might be reacting to it better than you, and potentially one day acquiring those startups. I think it could also be developing your own products through an innovation or R&D organization, and finding ways to get those products to market more quickly than you have in the past. A lot of companies think about multi-year product development and rollout cycles. And when the locomotive is moving pretty fast it’s important to acknowledge, “This locomotive is coming really fast, this could change much more quickly than people think it’s gonna change, so we have to respond in months or a few quarters, not a few years.”

Kaitlin Milliken:  So we covered a lot of different issues over the course of this interview. But, I’m going to ask you to play the TA one more time and  relay something from the professor.

Scott Kirsner:  I’m not worthy to be Clay’s TA but I’ll try.

Kaitlin Milliken:  Are there any other key takeaways that you think innovators should know from your conversations with Clay Christensen?

Scott Kirsner: Well there are these two phrases that stuck with me from an interview that I think we did from the end of 2013, just as Innovation Leader was getting started. And he said two things: The CEO does not have a magic wand to make all kinds of change happen in the company. Companies are made of thousands of tens of thousands of people, and diplomacy and political skills and relationship building are really important for change-makers.

And then also understanding the corporate laws of physics, what drives people, what motivates people, what businesses is the company interested in protecting and they feel like we can never change this, are there’s some things that the sales force is good at selling and they’re just not going to be able to sell this new thing so you need to figure out a different strategy for getting it to market. Understanding the corporate laws of physics is something that Clay has talked about that’s really an underrated skill set and it takes quite a few years to develop that skill set when you work in a large company.

Kaitlin Milliken:  That’s all from Scott, but before we go, let’s close out with one last quote from Clay. In this, he talks about working with the CEO which can be very difficult when that person isn’t aligned with the innovation team. Let’s hear some advice Clay has for your boss.

Clay Christensen: If the CEO understands all of the processes, and vectors, and forces, and constraints, and measurements, if they CEO understands them perfectly, they can do remarkable things. But the majority view of the CEO is that, “I sit on top of the company and if I will something to be so [MIMICKING EXPLOSION SOUND] it is so.” And that’s the problem. So if you understand how the resource allocation process works, and how the salespeople are compensated, and where are we in the transition from closed to open, and all of these things. If you understand them, oh my gosh you truly can be successful at innovation over and over again. But the minute you think that I know it, and I just have to will it to be so [MIMICKING EXPLOSION SOUND].  

Kaitlin Milliken: So whether you’re the CEO or on the innovation team, Christensen has advice that can help your company move the needle.

[ACKNOWLEDGEMENTS]

You’ve been listening to Innovation Answered. This episode was written and produced by me, Kaitlin Milliken. Special thanks to Scott Kirsner and Clay Christensen for sharing their insights. To join the Innovation Leader community, sign up for a membership on our website. Check out innovationleader.com/podcast to read our cover story on Clay Christensen. If you loved this episode, rate and review us on iTunes. that helps other innovators find the show. Thanks for listening and see you next time.

[SPONSORED MESSAGE]

Special thanks to Techstars for sponsoring this episode. Innovators know the importance of tapping into the startup ecosystem to see what new technology can transform their businesses. But it’s difficult to both find and forge meaningful relationships with the startups that will go on to disrupt industries. That’s where Techstars comes in to support corporate partners.

With more than $18 billion in equity from thousands of startups in their portfolio, Techstarsattracts the best and the brightest entrepreneurs from every tech vertical from around the globe. Techstars has worked with hundreds of corporations from fin-tech to energy to retail to healthcare. By matching industries with the right entrepreneurs, they are accelerating innovation across every industry. So no matter how much experience you have in the sandbox, Techstars has something for you. For more information visit techstars.com