Office Hours with Clay Christensen

January 31, 2018

Visiting Clay Christensen at Harvard Business School is like going to office hours with your favorite college professor. There are papers covering the desk, family photos and published articles displayed on the walls, and a window looking out at brownstone buildings and trees with leaves just starting to change colors.

But this prof has been one of the best-known business theorists since publishing “The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail” in 1997, as the web began to touch every industry. As a busy public speaker and co-founder of Innosight, a nonprofit called The Christensen Institute, and the Rose Park Advisors investing firm — his day is planned with the rigor of a military operation.

You don’t just drop by. You schedule time with his assistant for a Friday in October, wait in the hall, and at precisely noon, the door swings open as Christensen invites you in.

There are lots of things you could discuss when spending an hour with Christensen. For this conversation, we turned to the InnoLead community to pose questions that they wanted to ask Christensen. We received more than 100 submissions, including questions from executives at Pearson, Pfizer, Chobani, and Bose. The interview was conducted by InnoLead’s editor, Scott Kirsner.

Scott Kirsner: …[Amazon is] looking for a second headquarters city. Brian Christian of Inovo asks, “What do you make of Jeff Bezos and Amazon? Are they showing the way for any big company to serially create transformational new businesses, or are they a one-off exception to the rule that cannot be emulated?”

Christensen: …That’s a great question. I have a more complicated answer than you’re asking for, but there’s a piece that we are in the midst of writing, called “The Capitalist’s Dilemma.” One of the ideas in it is that historically…we’re taught in finance that we should husband the use of things that are costly and expensive.

[Something like] platinum — you’re very careful about how you use it. Things that are abundant and cheap, you don’t have to worry about husbanding its use. Like sand, you just waste it, if you want. Historically, we always viewed capital as expensive and scarce…After we have put our money in, we want to get it out as quickly as possible, because we can then maximize the return on something that’s scarce and costly… Capital is abundant and cheap, yet we continue to behave as if it’s costly and scarce.

…The idea that capital has become abundant and cheap allows Amazon to do what under the old regime of capital — that you have to husband the use of capital — that actually doesn’t apply anymore. Not just in Amazon’s world, but in the market as a whole. We behave as if we can’t use capital abundantly.

Kirsner: Is it abundant if you’re an Amazon competitor like Target or Walmart?

Clay Christensen: Scott, that’s a great question. There’s an article in the last version of the Harvard Business Review, written by a former student of mine named Max Wessel … The essence of the article is, “[it is] actually a lot harder to respond to disruption than it was when Clay developed the model.” He said, “Because there is so much capital…”

 He describes Ford as an example. Ford can take its money, and put behind these new startups in the future of automobiles. The value that that gets is just unbelievable.

If they put that very same money on the very same idea, and follow every element of Clay’s description of how you need to deal with disruption —

Kirsner: — putting the money into internal Ford product development, they get less return than they would funding a new electrical vehicle startup that [someone is] going to start.

Christensen: …I think that’s a real problem. Max, at the end of this article, says he doesn’t know the answer. Nor do I.

When Disruption Gets Disrupted

Kirsner: Dan Seewald of Pfizer asks about the word disruption. He says, “The term disruption is being used pervasively by corporate innovators and large companies. Has the term lost its intended meaning? How do you reclaim the intention behind the concept of disruption?”

Christensen: …We’re fighting [this battle] every time I give a talk, every time. I offer my course online. A key idea, right in the first session is, “What is disruption?” Yet it gets hijacked millions of times.

Sketch drawn during the interview by Clay Christensen

…We are writing a new book about where prosperity comes from. …Every market has a set of concentric circles around it that represent larger populations of people who have progressively less money and less skill.

A disruptive innovation is not an innovation that makes good products better, but rather it makes [something] so much more affordable and accessible that much larger populations of people have access to it.

By using that language, I think it’s helped the problem — that [disruptive innovation] makes [things] affordable and accessible, so that a whole new population of people have access to it.

How Do You Identify Game-Changers in Your Company

Kirsner:  One of our friends in Belgium at BNP Paribas has a people-related question. She wants to know, what are the characteristics of people inside the company that could be identified as game-changers?

The second part of her question is, how do you convince executive committees in a company that they’re going to be disrupted, and create that sense of urgency at the top, that you can’t just do efficiency and incremental [innovation], and hope to survive in this environment?

Christensen: They’re big questions, aren’t they? Again, I don’t have answers, but one element of getting this done well is, you know, we don’t have metrics that [tell us that] five years down the road, we’re going to get killed. If I’m at Moody’s or S&P, and I give you a B minus average…

Kirsner:  There’s no corporate lifespan estimation, right?

Christensen: That’s right. They only look at this year, and maybe next year. There’s not a commonly-accepted measure of, are we investing for the long-term? The system will not allow the development of that. The only way to develop it is if managers themselves would get together, and hammer out a metric that measures this.

Kirsner:  This is not a question that somebody gave me, but you’re not supposed to feel fear as a leader. You’re not supposed to communicate it to people in the company. It’s an important emotion in humans, and people feel anxiety, probably, as they’re having to lay people off, close stores, and close facilities.

But how do you communicate that urgency of, “We may not be here in five years,” in a way that’s going to be constructive? It’s a huge leadership challenge, so that you don’t turn into the person who’s cracking the whip, harping on things all the time, or seen as negative.

Christensen: You’re exactly right. I also think that I, you, and most people are trying to be thoughtful about it. 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.

Everybody needs to get more responsibility, and achieve more. If you don’t have that anymore, then your people…I ran into a guy who heard me give a talk, from Qatar. He wanted me to come there to give a talk about disruption. He needed me at a time when I was here teaching. Here came here to talk about why their nation needs to grow. He said that there are two different types of governments.

One type of government is to have as a focus to help their citizens be more successful in their lives. There are other governments whose purpose is to — what’s the word he used? — put down their [citizens], and use them for the government’s purposes, rather than use the government to help them to be more successful in all they’re trying to do.

He points out that there are a few nations where the essence of their governments is to help their citizens to be better, to give them better education, better healthcare. When you look at those — and those include the USA, Canada, Australia — you don’t see terrorism emerging from those nations.

He said the European governments, by and large, their posture [toward immigrants] is, “We don’t want you in our nations. If you’re here, you got here because we didn’t want you, and you found some way in. In the southern suburbs of Manchester, England, I’m sure you can find a place there, but…we’re not going to invest in you.”

Those guys, that’s where they cultivate terrorism, because the government doesn’t want them to be there. Spain, around 35 percent of the young people —

Kirsner:  — they’re unemployed.

Christensen: That’s right. What do you expect them to do?

Kirsner:  I think the point you make about [the importance of] growing companies — it’s not just satisfy the investors and the Street, but it’s to satisfy the people that work for you.

Christensen: That’s exactly right.

Kirsner:  It’s huge. I think a lot of the Fortune 500, if you looked at them, they’re not attracting the same talent that Google, Amazon, Facebook, Netflix-type companies are, because those are perceived as [the companies] where the growth is. That’s where in two years, I’m going to be a director, in three years, I’m going to be a VP, and in four years, I might be running the place.

Christensen:  That’s right.

If I were [Jeff] Bezos, the biggest concern would be, after we get that big, we can’t keep growing, unless we cut [the company] in half. Your people need to be able to have opportunities to grow.