Category: Christensen, Clayton

Innovative Entrepreneurs Bring Prosperity to the Poor

(p. A17) As the economist Joseph Schumpeter observed: “The capitalist process, not by coincidence but by virtue of its mechanism, progressively raises the standard of life of the masses.”
For Schumpeter, entrepreneurs and the companies they found are the engines of wealth creation. This is what distinguishes capitalism from all previous forms of economic society and turned Marxism on its head, the parasitic capitalist becoming the innovative and beneficent entrepreneur. Since the 2008 crash, Schumpeter’s lessons have been overshadowed by Keynesian macroeconomics, in which the entrepreneurial function is reduced to a ghostly presence. As Schumpeter commented on John Maynard Keynes’s “General Theory” (1936), change–the outstanding feature of capitalism–was, in Keynes’s analysis, “assumed away.”
Progressive, ameliorative change is what poor people in poor countries need most of all. In “The Prosperity Paradox: How Innovation Can Lift Nations Out of Poverty,” Harvard Business School’s Clayton Christensen and co-authors Efosa Ojomo and Karen Dillon return the entrepreneur and innovation to the center stage of economic development and prosperity. The authors overturn the current foreign-aid development paradigm of externally imposed, predominantly government funded capital- and institution-building programs and replace it with a model of entrepreneur-led innovation. “It may sound counterintuitive,” the authors write, but “enduring prosperity for many countries will not come from fixing poverty. It will come from investing in innovations that create new markets within these countries.” This is the paradox of the book’s title.
. . .
One example that the authors cite is Tolaram Group, a Singapore-based conglomerate that created the instant-noodle market in Nigeria, pushing out 4.5 billion packets annually and generating revenue of almost $1 billion a year. Sourcing, manufacturing, distributing and selling its Indomie-branded noodles required that Tolaram invest in a broad and deep logistics and distribution chain; create a retail network; develop specialized training; acquire its own electricity generation; build a water and sewage-treatment plant; and construct a deep-water port in the city of Lekki. Had Tolaram waited for the Nigerian government to address these infrastructure and institutional challenges before investing in the country, the company would still be waiting. Other examples include British businessman Mo Ibrahim’s pan-African Celtel, which built a cellphone network across 13 African countries and gained 5.2 million customers in six years, and India’s Narayana Health, which has brought the cost of open-heart surgery down to $1,000.
. . .
Instead of a book of glib answers, they present something much more powerful–a work of creative destruction for today’s failed development-policy paradigm.

For the full review, see:
Rupert Darwall. “BOOKSHELF; A Better Way to Fight Poverty; The current foreign-development paradigm of government-funded programs should be replaced by an entrepreneurial model.” The Wall Street Journal (Thursday, January 31, 2019): A17.
(Note: ellipses added.)
(Note: the online version of the review has the date Jan. 30, 2019, and has the title “BOOKSHELF; ‘The Prosperity Paradox’ Review: A Better Way to Fight Poverty; The current foreign-development paradigm of government-funded programs should be replaced by an entrepreneurial model.”)

The book under review, is:
Christensen, Clayton M., Efosa Ojomo, and Karen Dillon. The Prosperity Paradox: How Innovation Can Lift Nations Out of Poverty. New York: HarperBusiness Press, 2019.

Mitch Daniels Attempts Disruptive Innovation in Higher Ed

(p. A17) Last month’s announcement that Indiana’s Purdue University would acquire the for-profit Kaplan University shocked the world of higher education. The Purdue faculty are up in arms. The merger faces a series of regulatory obstacles. And it’s unclear whether the “New U,” as the entity is temporarily named, can be operationally viable or financially successful.
But Purdue’s president, Mitch Daniels, is willing to give it a shot.
The venture is unexpected, unconventional and smart. The nature of the partnership–in which Kaplan will transfer its assets to Purdue, a public university–is unprecedented. It’s also a rare instance of attempted self-disruption.
There are lessons here from the business world. In the seminal 1997 book, “The Innovator’s Dilemma,” Harvard professor Clayton Christensen describes how leading companies can do everything “right” and still be thwarted by disruptive competitors. In an effort to appease stakeholders, leaders focus resources on activities that target current customers, promise higher profits, build prestige, and help them play in substantial markets. As Mr. Christensen observes, they play the game the way it’s supposed to be played. Meanwhile, a disruptive innovation is changing all the rules.
. . .
The higher-education industry, full of brilliant and competent leaders, is ripe for disruption. Despite mounting political pressure–not to mention the struggles of indebted alumni–most college presidents believe that their institutions are providing students with good value. By and large, they remain comfortable making small, marginal tweaks to their business models. In the meantime, college becomes ever more expensive.
In contrast, Mr. Daniels has a long history of bold, innovative moves.
. . .
Mr. Daniels is setting Purdue on the right course, for good reasons, and he deserves a great deal of credit. As the saying goes, a journey of a thousand miles begins with a single step. For Purdue, the next thousand miles will consist of navigating regulatory approvals, winning the support of stakeholders, and, not least, the hard work of building New U. We can be hopeful, on behalf of those left behind by today’s higher education system, that Purdue treads a path that others can follow.

For the full commentary, see:
Alana Dunagan. “The Innovator’s Dilemma Hits Higher Ed; Purdue’s acquisition of Kaplan University is risky, unconventional, unexpected–and smart.” The Wall Street Journal (Tues., May 16, 2017): A17.
(Note: ellipses added.)
(Note: the online version of the commentary has the date May 15, 2017.)

Christensen books relevant to the passages quoted above, are:
Christensen, Clayton M. The Innovator’s Dilemma: The Revolutionary Book That Will Change the Way You Do Business. New York: NY: Harper Books, 2000.
Christensen, Clayton M., and Henry J. Eyring. The Innovative University: Changing the DNA of Higher Education from the inside Out. San Francisco, CA: Jossey-Bass, 2011.
Christensen, Clayton M., and Michael E. Raynor. The Innovator’s Solution: Creating and Sustaining Successful Growth. Boston, MA: Harvard Business School Press, 2003.

Spreadsheets and Committees Are Enemies of Innovation

(p. B4) “As we became more sophisticated in quantifying things we became less and less willing to take risks,” says Horace Dediu, a technology analyst and fellow at the Clayton Christensen Institute for Disruptive Innovation, a think tank. “The spreadsheet is the weapon of mass destruction against creative power.”
The same could be said of university research, says Dr. Prabhakar. Research priorities are often decided by peer review, that is, a committee.
“It drives research to more incrementalism,” she says. “Committees are a great way to reduce risk, but not to take risk.”

For the full commentary, see:
CHRISTOPHER MIMS. “KEYWORDS; Engine of Innovation Loses Some Spark.” The Wall Street Journal (Mon., Nov. 21, 2016): B1 & B4.
(Note: the online version of the article has the date Nov. 20, 2016, and has the title “KEYWORDS; Is Engine of Innovation in Danger of Stalling?”)

Intuit Tries to Disrupt Itself

(p. B1) MOUNTAIN VIEW, Calif. — Three decades ago, at the dawn of the personal computer age, Intuit shook up the financial software world with its first product, Quicken. The program, which was centered on the simple notion of a virtual checkbook, suddenly made the PC a very useful tool for people to manage the chores of paying bills and tracking personal finances.
Last month, Intuit said goodbye to that heritage and sold Quicken, which still has loyal fans but weak growth prospects, to a private equity firm.
Intuit, a Silicon Valley company, is now focusing on its TurboTax software, which tens of millions of Americans use to file their tax returns, and on QuickBooks Online, an Internet-based version of the company’s flagship bookkeeping software for small businesses and their accounting firms.
Giving up Quicken was difficult, said Brad D. Smith, Intuit’s chief executive, during an interview at the company’s lush green campus here. The kitchen table where the founders designed the product in 1983 still sits in the cafeteria to inspire employees.
But Intuit decided to shed its PC roots and become a cloud software company. “We try to live up to being a 33-year-old start-up,” Mr. Smith said. So the company faced a hard choice: “Do we have this beautiful child that we’ve had for 33 years that we know we’re not going to feed, or do we find it a new home?”

For the full story, see:
VINDU GOEL. “Intuit Sheds PC Roots to Rise as Cloud Service.” The New York Times (Mon., APRIL 11, 2016): B1 & B5.
(Note: ellipses added.)
(Note: the online version of the story has the date APRIL 10, 2016, and has the title “Intuit Sheds Its PC Roots and Rises as a Cloud Software Company.”)

Startup Entry and Scaling Are Easier and Faster Due to Internet

(p. B1) The world might be a mess, but look on the bright side: Men’s shaving products are much better than they used to be.
. . .
The same forces that drove Dollar Shave’s rise are altering a wide variety of consumer product categories. Together, they add up to something huge — a new slate of companies that are exploring novel ways of making and marketing some of the most lucrative (p. B7) products we buy today. These firms have become so common that they have acquired a jargony label: the digitally native vertical brand.
These kinds of online brands aren’t new. Dollar Shave is five years old, and Warby Parker, the online eyewear company, began selling glasses over the web in 2010. But over the last few years there’s been a proliferation of such companies — into underwear, children’s clothing, cosmetics and more — and the Dollar Shave deal suggests their growing importance. These firms could become an emerging problem for consumer products conglomerates like Procter & Gamble, and they might also spell trouble for television, which relies heavily on brand advertising for its revenue.
. . .
“We think it’s a unique moment in history where you can create brands that can be scaled quickly thanks to technology, but you can still maintain a one-to-one connection that delivers an elevated level of customer experience,” said Philip Krim, chief executive of Casper, which sells mattresses online.
Mr. Krim and four friends started Casper two years ago after studying the traditional mattress industry. They discovered it was plagued by inefficiencies and annoying gimmicks. Customers had to trudge to a mattress store and awkwardly prostrate themselves on numerous surfaces before choosing one to use for a decade. There were too many choices and brands, and mattresses were expensive.
With Casper, you simply buy the mattress online and it’s shipped to you in a comically small box (the compressed foam expands into a full-sized mattress, like a magic trick). You have three months to try it out, and if you don’t like it, the company will come pick it up free.
Casper’s business model offers a break from the annoyance of offline mattress shopping. It also works out for the company. Casper advertises on social networks, on Google, podcasts and a variety of other places online; the ads are creative, convincing, targeted and cheap. By selling directly rather than through retail middlemen, the company also creates a connection with customers that allows it to test and develop new products — it now sells sheets and pillows, too.
After two years in business, Casper is on track to book $200 million in sales over the next year, but its success isn’t ensured. Precisely because the internet has lowered barriers to entry, Casper is facing a surge of new mattress start-ups like Helix Sleep, Tuft & Needle and Leesa, among others.

For the full commentary, see:
Manjoo, Farhad. “STATE OF THE ART; How Companies Like Dollar Shave Club Are Reshaping the Retail.” The New York Times (Thurs., JULY 28, 2016): B1 & B7.
(Note: ellipses added.)
(Note: the online version of the commentary has the date JULY 27, 2016, and has the title “STATE OF THE ART; How Companies Like Dollar Shave Club Are Reshaping the Retail.”)

Innovations Make It Easier to Form and Run Smaller Firms

(p. B3) Unilever is paying $1 billion for Dollar Shave Club, a five-year-old start-up that sells razors and other personal products for men. Every other company should be afraid, very afraid.
The deal anecdotally shows that no company is safe from the creative destruction brought by technological change. The very nature of a company is fundamentally changing, becoming smaller and leaner with far fewer employees.
. . .
Now it is possible to leverage technology and transportation systems that never existed before. Dollar Shave Club used Amazon Web Services, a cloud computing service started by the online retailing giant in 2006 that encouraged a proliferation of e-commerce companies. Manufacturing now is just as much a line item as is a distribution apparatus. This is the business strategy of many other disruptive companies, including the home-sharing site Airbnb, which upends the idea of needing a hotel. The ride-hailing start-up Uber could never have been possible without a number of inventions including the internet, the smartphone and, most important, location tracking technology, enabling anyone to be a driver.

For the full commentary, see:
STEVEN DAVIDOFF SOLOMON. “Deal Professor; In Comfort of a Close Shave, a Distressing Disruption.” The New York Times (Weds., JULY 27, 2016): B3.
(Note: ellipsis added.)
(Note: the online version of the commentary has the date JULY 26, 2016, and has the title “Deal Professor; $1 Billion for Dollar Shave Club: Why Every Company Should Worry.”)

German Car Makers in No Rush to Catch Up to Tesla

(p. A7) When Elon Musk rolled out the new Tesla Model X at the end of September [2015], some grumbled that the Silicon Valley car maker’s all-electric luxury crossover was coming to market two years too late. It depends on who you ask. The Big Three German auto makers only wish they could catch the tail of Mr. Musk’s rocket.
I’m not talking about units sold, though Tesla’s target of 50,000 cars in 2015 is a respectable chunk of the global luxury-sedan market. But Tesla has taken more hide off German prestige and sense of technical primacy. I mean, the Model X was just rubbing their noses in it with those “falcon” doors, right? In executive interviews at the Frankfurt Auto Show any praise of Tesla was guaranteed to land on the table like a paternity suit.
. . .
I wonder if any traditional auto maker whose existence does not hang in the balance can ever have enough belly for the EV long game?
Even if the Germans had market-bound EVs in mass quantities, there is the concurrent problem of charging. As the estimable John Voelcker of Green Car Reports notes, the luxury incumbents have no plans to challenge Tesla on charging availability. Tesla has hundreds of charging stations in the U.S. and Europe and plans for hundreds more–all free to owners.
. . .
I am struck by the lag time. This isn’t about profit and loss but industry leadership. The Germans are headed where Tesla already is and, taking Frankfurt as the measure, they are in no great hurry to get there.

For the full commentary, see:
Dan Neil. “RUMBLE SEAT; How Tesla Leaves its Rivals Playing Catch Up.” The Wall Street Journal (Sat., Oct. 10, 2015): D11.
(Note: ellipses, and bracketed year, added.)
(Note: the online version of the commentary has the date Oct. 8, 2015.)

Innovators Need Time for Tedious Tasks

(p. 3) Innovation isn’t all about eureka moments. In fact, the road to creative breakthroughs is paved with mundane, workaday tasks. That’s the message of a recent study that might as well be titled “In Praise of Tedium.”
In the study, researchers sought to examine how extended periods of free time affect innovation. To do this, they analyzed activity on Kickstarter, the crowdfunding website, in nearly 6,000 American cities.
. . .
Over a period of about nine months, the researchers found a sharp increase in the number of new projects posted during the first few days of school break periods. The spike, they suggest, is tied to people having more time to perform the administrative aspects of Kickstarter projects — working on a manufacturing plan, say, or setting up a rewards schedule. While people may be using some stretches of free time to nurture those much lauded light bulb moments, the process of innovation also appears to require time to carry out execution-oriented tasks that are not particularly creative but still necessary to transform an idea into a product, the study indicates.

For the full story, see:
PHYLLIS KORKKI. “Applied Science; Good Ideas Need Time for Tedious Legwork.” The New York Times, SundayBusiness Section (Sun., AUG. 16, 2015): 3.
(Note: ellipsis added.)
(Note: the online version of the story has the date AUG. 15, 2015, and has the title “Applied Science; Looking for a Breakthrough? Study Says to Make Time for Tedium.”)

The academic paper summarized in the passages quoted above, is:
Agrawal, Ajay, Christian Catalini, and Avi Goldfarb. “Slack Time and Innovation.” Rotman School of Management Working Paper #2599004, April 25, 2015.

Only a Founder Has the Moral Authority to Shake Up a Company

(p. B1) SAN FRANCISCO — Shortly after Twitter’s board of directors began its search for a new chief executive in June [2015], it said it would only accept someone willing to commit to the job full time. It was a not-so-subtle message to Twitter’s co-founder and interim boss, Jack Dorsey, that he would have to give up his job running Square, a mobile payments start-up, if he wanted to run Twitter on a permanent basis.
On Monday [Oct. 5, 2015], the eight-member board reversed itself, announcing that it had decided to allow Mr. Dorsey, its chairman, to head both companies after all.
. . .
(p. B8) This is Mr. Dorsey’s second go-round as Twitter’s chief executive.
Evan Williams, a board member and co-founder of Twitter who was instrumental in firing him in 2008, noted that the board considered many candidates before settling on Mr. Dorsey.
“I honestly didn’t think we’d land on Jack when we started unless he could step away from Square,” Mr. Williams wrote in a post on Medium, the social media site he now runs. “But ultimately, we decided it was worth it.”
In the end, Mr. Dorsey made a compelling case that he had matured and grown as a leader and that only a founder would have the moral authority to truly shake up a company that has been struggling to attract new users and compete for advertising dollars.

For the full story, see:
VINDU GOEL and MIKE ISAAC. “Delegating, Dorsey Will Lead Twitter and Square.” The New York Times (Tues., OCT. 6, 2015): B1 & B8.
(Note: ellipsis, and bracketed dates, added.)
(Note: the online version of the story has the date OCT. 5, 2015, and has the title “Delegating, Jack Dorsey Will Lead Twitter and Square.”)

Process Innovations from “an Uber of Trucking” Can Increase Transport Efficiency

(p. B1) Investors are pouring millions of dollars into startups hoping to disrupt the $700 billion trucking industry, the latest example of Silicon Valley’s efforts to upend the traditional economy.
A series of startups are vying to become an “Uber of trucking,” leveraging truck drivers’ smartphones to quickly connect them with nearby companies looking to ship goods. The upstarts aim to reinvent a fragmented U.S. trucking industry that has long relied on third-party brokers, essentially travel agents for trucking who connect truckers with customers.
Silicon Valley’s interest in trucking has accelerated in recent months. San Francisco-based Trucker Path Inc. says it is aiming to reach a $1 billion valuation next year. The latest entrant, Seattle-based Convoy, said Tuesday it had raised $2.5 million in seed funding from investors including Amazon.com Inc. founder Jeff Bezos, Salesforce.com Inc. founder Marc Benioff, eBay Inc. founder Pierre Omidyar and Uber Technologies Inc. co-founder Garrett Camp.

For the full story, see:
JACK NICAS and LAURA STEVENS. “Startups Accelerate Efforts to Reinvent Trucking Industry.” The Wall Street Journal (Tues., Oct. 27, 2015): B1 & B6.