Clayton M. Christensen is the Robert and Jane Cizik Professor of Business Administration at Harvard Business School. His research and teaching interests center on managing innovation and creating new growth markets.
Christensen will be delivering the opening plenary address at The Philanthropy Roundtable’s Annual Meeting this year.
A seasoned entrepreneur, Christensen has founded three successful companies. The first, CPS Corporation, is an advanced materials manufacturing company. The second, Innosight, is a consulting and training company focused on problems of strategy, innovation and growth. Innosight Capital, the third firm, was launched in 2005. Christensen also worked with the Boston Consulting Group and was a White House Fellow, serving as assistant to U.S. Transportation Secretaries Drew Lewis and Elizabeth Dole.
Professor Christensen became a faculty member at the Harvard Business School in 1992. He is author or co-author of five books: The Innovator’s Dilemma (1997), which received the Global Business Book Award for the best business book published in 1997; The Innovator’s Solution (2003), also a New York Times bestseller; and Seeing What’s Next (2004). In addition, he has edited two case books on innovation: Innovation and the General Manager (1999) and Strategic Management of Technology and Innovation (2004, 4th edition).
He presently is completing two books that examine the problems of our healthcare and public education systems through the lenses of his theories. These volumes also will show how the problems in these industries can be resolved.
Professor Christensen holds a B.A. with highest honors in economics from Brigham Young University (1975), and an M.Phil. in applied econometrics and the economics of less-developed countries from Oxford University (1977), where he studied as a Rhodes Scholar. He received an MBA with High Distinction from Harvard Business School in 1979, graduating as a George F. Baker Scholar. He was awarded his DBA from Harvard Business School in 1992.
PHILANTHROPY: Could you please define “disruptive” and “sustaining” innovation?
MR. CHRISTENSEN: A sustaining innovation helps companies that are the leaders in an industry make better products that they can sell for better profits to their best customers. And whether it’s a radically different innovation or just an incline of year-to-year improvement doesn’t matter. They have the same effect in that they sustain the trajectory of performance improvement as it exists in the market that they serve.
A disruptive innovation is the kind that makes products affordable, simple and accessible that were complicated, expensive and inaccessible. And I use the word “disruptive” for those because they didn’t actually perform as well as the ones that the leaders sold, but because of their affordability and simplicity, they could take root in a simple application and then ultimately improve to the point that they could do the complicated things as well. And invariably the leaders in the industry are overtaken when a disruptive innovation emerges.
PHILANTHROPY: Please give an example of the manner in which such disruptive innovation has changed an industry.
MR. CHRISTENSEN: The early generations of computers were called mainframes, and then mini computers came along, which were really still quite complicated and expensive. If you wanted to use a computer in the early days, you had to take a stack of punched cards to the corporate computer center and give it to an expert who ran the job for you. It was just so inconvenient and expensive that we just didn’t compute very often.
Then the personal computer came out, and the personal computer was a disruptive innovation by making a product that in the past had been too complicated, expensive and inaccessible. It made it so simple and affordable that even unwise people like you and I could have one. At the beginning, all you could do on those early PCs was type and build a spreadsheet or two. In fact, Apple sold the Apple II as a toy for children. But then little by little, as they improved in these new applications, we came to be able to do on the personal computer platform the kinds of complicated programs that in the past had been done on the mainframes. Every one of the mainframe and mini computer companies was driven out of the business by these simple PCs.
PHILANTHROPY: Why is it that corporations are not intuitive enough to understand that technology can change their entire future? Why is it that no major player in a field has ever been the one to introduce a disruptive technology?
MR. CHRISTENSEN: Well, it’s precisely because they’re well-managed and sensible. It’s not a technological problem. The PC was infinitely simpler from a technological point of view than was the mini computer or mainframe. It’s a business model problem. The best customers of the leaders in an industry are never able to use the disruptive technology because it just isn’t good enough. In the computer industry, for example, the PC wasn’t good enough for the applications that existed. When the mainframe and mini computer companies listened to their customers, they got no signal that the PC mattered, because in fact it didn’t to them. Good managers always listen to their customers. They have to listen in order to keep the core business going, because it’s the core business that provides the resources required to survive.
The other problem is that good managers have to do what’s profitable. They invest in things that help them make more money in the way they’re structured to make money.
PHILANTHROPY: Could you give another example of an industry with which readers might be familiar?
MR. CHRISTENSEN: Sure. Toyota disrupted General Motors and Ford. They didn’t come in with Lexuses; they came in with Corollas in the 1960s. General Motors and Ford would say, “You know, we ought to compete against those guys.” And so they’d send down a Chevette or a Pinto. But when GM and Ford would compare the profitability of a Chevette or a Pinto with the profitability of a Cadillac or Lincoln, it simply made no sense. And of course now it makes sense, but the game’s almost over, especially for Ford.
So then Toyota moves to the high end, and the Koreans come in at the bottom of the market, and the Koreans have stolen a little wind from Toyota. And it’s not because Toyota is no good; it’s because they are good. Why would they invest to defend the sub-compact business against the lower-cost Koreans when they have the privilege of focusing investment to gain a share of the luxury market against Mercedes?
Then the Koreans look at the bottom of the market, and here comes a car from China. And behind the Chinese there is a car from Tata Motors in India, which they call a one-lakh car, which will sell for about $3,000.
PHILANTHROPY: How would you apply the disruptive model to subjects of interest to philanthropists—to higher education, for example?
MR. CHRISTENSEN: There are two major disruptions that are happening in higher education. The first one is the cost of community colleges at the expense of four-year colleges. They just have a very different economic model, that is, they don’t fund faculty research. Community colleges are growing at a much faster rate, though, and many of them that started as two-year colleges have moved up-market into the third and fourth years. Those that have now become four-year colleges are pretty respectable. Though not as good as the older four-year colleges, they are getting better all the time and are very affordable.
I had a conversation with the president of the University of Michigan, who pointed out that the laws of the state of Michigan mandate that if you go to a community college just to take general education courses, then those credits transfer to the University of Michigan. He said that about 80 percent of the four-year graduates at the University of Michigan had taken some or all of their general education requirements from a community college at a much lower cost. That was five years ago. And so one sees the reaction of the four-year colleges, in a very subtle and incremental way. Rarely has this disruption happened as a discrete event; it just happens case by case, sales call by sales call, course by course. In general, the reaction of four-year schools has been to de-emphasize the first year and focus on where the community colleges do not compete.
The other disruption is schools like the University of Phoenix that started out by contracting with employers to provide training programs and have now become fairly significant actors in the higher-education market.
PHILANTHROPY: Are certain innovations such as the internet likely to be the basis of positive or negative change in the university system?
MR. CHRISTENSEN: When you think of internet-based or computer-based learning, it’s very hard for a four-year college that employs faculty members to do all of the teaching to announce to the students—who are paying a very high price for access to the best faculty money can buy—that “we’re not going to have a faculty member teach a course. We just want you to log on, but keep paying a high tuition.” That just doesn’t work.
And so computer-based learning is incremented in the four-year schools in a way that supports and sustains and improves the performance of the existing instructional model. But for the disruptive, higher-end companies—this would be the University of Phoenix and community colleges—computer-based learning allows them to charge even lower prices. In many cases, the option is “I’d rather work at home because I’m a working parent than have to come in at night to take these courses. It’s too difficult. I’m quite happy to learn on my computer.” Their market position and their customer position give them much more flexibility to adopt the new technologies.
PHILANTHROPY: At least one university supplements its large campus learning program with a distance learning program for 13,000 students. And they provide those students with a great deal of faculty contact, albeit at a distance. Where would a model like that fit in between the University of Phoenix and a traditional four-year college?
MR. CHRISTENSEN: I think most institutions find that when you try to support—thoroughly support—distance learners with faculty, it doesn’t save much money at all. In fact, it doesn’t necessarily give you a better product than what you get in the classroom. One of the reasons is, in the classroom if you have 50 students and you have 20 hands up in the air, people understand that not everyone is going to be called on. But when you’re doing it by computer and you have an instructor on the other side who is trying to respond to students’ inquiries, the students expect an answer to every email. And so there’s not a lot of leverage when you try to implement computer-based learning using the mainstream business model.
PHILANTHROPY: Let’s take a look at K-12 education. How do innovations such as charter schools and school choice fit into the K-12 marketplace?
MR. CHRISTENSEN: Well, there isn’t much of a disruption issue in the K-12 arena. Charter schools, for example, aren’t disruptive relative to public schools. The architecture of our public schools is interdependent. And the economics of interdependence mandates standardization. You can’t study this in ninth grade if you didn’t cover that in seventh grade. And there are all sorts of other interdependences between the physical school, the administration and the choices available to teachers. You change one thing, and many other things have to change. Because of that, the economics of interdependence are just propelling our schools to standardize in the way they teach and the way they test. The experience of having to customize for special-needs students is so expensive that it has exhausted well over half the increases in funding in our schools over the last 20 years.
The problem one runs into with our public schools is that that drive towards standardization in the way we teach and test runs counter to the findings that our brains are wired to learn differently. Howard Gardner at Harvard Education School reports that there are multiple types of intelligence, and calling anyone smart or dumb can be misleading because most of us are geniuses in one or two types of intelligence, and generally pretty clueless in a bunch of others.
I look back at when I was in 12th-grade physics in West Plains, Suffolk City, and Mr. Steed would write this equation on the board. My best friend, Rob Graves, who sat next to me, could look at Mr. Steed’s equation, and he just got it. And I’d look at that equation, and I would freeze and began praying that somehow I would be able to memorize the formula long enough to do well on the exam. Now I look back on it, and I realize that Rob’s no smarter than I am. But his brain was wired differently, and that kind of mathematical symbolic mode of teaching just sung to him. The problem was that Mr. Steed’s brain was also wired in a mathematical symbolic mode, so Mr. Steed would occasionally look at me and say, “I don’t understand why he doesn’t get it; it’s so simple.”
So the fact that our brains mandate customized utility requires that learning be architected in a modular way. To visualize that, just get online and go to dell.com to order yourself a PC. You can tell them how fast a microprocessor you want, whether you want one or two microprocessor cores, how many gigabytes of disk drive you want, how much RAM, and so on. And the fact that a Dell computer is modular in its architecture enables Dell to mix and match the types of components to give every customer exactly what they need.
The nice thing about computer-based learning is that it is inherently more capable of modularity and customized ability. Although the industry has not done this effectively yet, you can actually teach Clay Christensen physics in a way that’s consistent with the way his type of intelligence learns. Computers have to be implemented in the classrooms in a disruptive way, though, not in a sustaining way.
Just like we were talking about the application of computers in colleges, millions have been spent putting computers into public school classrooms, but all of it has been to sustain the current interdependent instructional mode that already characterized the teacher-centric mode. Never has a teacher told the students, “Kids, this is such a great day because we have computers in the classroom, so now you don’t need me.” The computers are deployed in a way that supports the existing model, not in a way that delivers customized learning.
PHILANTHROPY: Is there a term for that type of innovation?
MR. CHRISTENSEN: The term we use is “cramming.” Putting the computer into the classroom crams it into head-on competition against the teacher. In most instances, computer-based learning isn’t as good as the best of our teachers, and so they can only deploy it in a way that augments or sustains the current approach.
But where you see computer-based learning taking off, and what schools and philanthropists really need to focus on, is deploying computers against non-consumption. For example, in my town, Belmont, which is right on the northwest corner of Cambridge, the schools are always in a budget crisis, so in the middle schools and high schools, they rank the courses. On top are the subjects on which standardized exams are administered, and then the courses below that are subjects like German, and statistics, and economics, and so on. Every year the school board ranks enrollment in these nice-to-have courses, and then they fire whatever teachers they need to fire in order to provide resources at the high end.
Just two years ago, the school district told us that it didn’t have enough money to teach German anymore. Instead of saying it’s not available anymore, what the Belmont schools need to begin doing is say, “You know what? We just can’t afford to have a live German teacher, but if you want to take German, go to the library that period or go to this lab that period, and log on to this website, and you can take it online.” And because it is so much more affordable than the alternative, which is having an expensive teacher, the school board is actually quite delighted to swap in at the margin where non-consumption is the only alternative.
Little by little, computer-based learning is becoming better understood and better configured to teach in the way students’ brains are variously wired to learn. Ten or 15 years from now, the technology may be so good that it may even be competitive with the good teachers. But you don’t get to where you have very good technology that’s competitive with the best of the conventional instruction by attacking it head-on. You compete against non-consumption, perfect the technology where people are provided with something that’s better than nothing, and then the applications get taken up in an instructor-centric model into computer-based learning, where it’s customizable so that students will actually learn more.
PHILANTHROPY: Could you talk about disruptive innovation in the healthcare field?
MR. CHRISTENSEN: Our hospitals have become extraordinarily good at dealing with very difficult, complicated, intractable kinds of problems. The consequence of all their technology and the associated costs and overhead is that they’ve shot way beyond the amount of care that most people with more straightforward disorders can utilize when they get admitted to the hospital, but they still have to pay for all of it.
Rather than expecting the general hospitals to become cheap, what we have to do is disrupt them by bringing the ability to do progressively more sophisticated things to the lower-cost venues of care technology. We need regulation that allows focused hospitals, like heart health, amino health, or orthopedic health, to begin delivering standardized care in a much more cost-effective way and let the general hospitals deal with the complicated problems they’re structured to deal with.
Then you get affordability by enabling lower-cost venues of care to become more capable, not by expecting some heavy, expensive ones to become cheap because they’re inefficient. In a similar way, we don’t get affordable health care by having expensive physicians take pay cuts, but rather by bringing technology to nurses so they can do what previously required a physician, and technology to patients so that they can do what previously required nurses.
That’s where molecular medicine plays a role in diagnostics. It turns out that the body has a very limited vocabulary it can draw upon to express that something is wrong. For example, for years we thought that high blood pressure was a disease, and what you’d find is a doctor would treat a patient with high blood pressure. He’d respond to that medication, and then the doctor would apply the very same medication to another patient, but he wouldn’t respond. Now we understand that the reason is not that medication was variable, but that high blood pressure isn’t a disease. It’s a chronic symptom that is shared by several different diseases. Because the body has a limited symptomatic vocabulary it can draw upon when something is wrong, these multiple diseases all manifest themselves in hypertension. And in that world you couldn’t have a standardized therapy. You had to leave the care in the hands of physicians who are experienced, intuitive and highly educated so they could, just through their own judgment, decipher the symptoms.
We also thought breast cancer was a disease, and so an oncologist would treat one patient who was diagnosed, and she’d respond. Then he’d treat another breast cancer patient with the very same therapy, and she wouldn’t respond. It’s not that the drugs are variable, but we now realize there are many different types of tumors that have a propensity to occur in the breast. You see those same tumors in many other places in the body as well. As we come to be able to diagnose the disease not by geographic location, but by type of tumor, and then ultimately by the cause of each of those types of tumors, then when you can diagnose the specific underlying causal mechanism, then and only then can you have standardized therapies.
As the ability to do that falls into place, then medicine moves by beginning with the simplest applications and moving towards more intractable ones, out of the realm of intuitive medicine into a realm of what we call precision, or molecular, medicine where in fact you can diagnose unambiguously by the cause. Then you can have a therapy that is predictably effective for the precisely diagnosed cause. That’s the effect molecular medicine is having in health care, and nearly every month you see movement in the direction away from intuitive medicine towards precision medicine. One of the challenges you have then is when you move into a realm of precision medicine, you actually don’t need an M.D. any more, and a nurse or a nurse practitioner or a physician’s assistant will actually then be able to provide better care than a physician could today.
PHILANTHROPY: Where is the most logical point of investment for a philanthropist interested in improving healthcare in his or her community?
MR. CHRISTENSEN: Well, it’s easiest to say what I would not do if I were a philanthropist and really wanted to deploy my money in a way that made a difference. So much of what is invested through philanthropy is invested to prop up and prolong the life of the established order. Philanthropists will support the good general hospitals in their communities by helping them buy even more esoteric and complicated equipment or build another wing. Those are good things, but they won’t make healthcare affordable and accessible in a way that transforms the industry.
Investments that will enable scientists to bring more diseases out of the realm of intuitive medicine into the realm of precision medicine are very important, as well as investments in devices that enable nurses or general physicians to do things which in the past required much more skill and intuition. And a philanthropist should not restrict himself to nonprofits, but be willing to look at for-profit ventures as well.
It’s been the movement to enable lower-cost caregivers to do more sophisticated things that is making a difference. For example, Minneapolis set up this retail clinic concept called the Minute Clinic. And if a philanthropist is worried about the insured core or making health care accessible, progress will not come from subsidizing the care provided by the existing institutions, but by disrupting them through clinics where you can just walk in and in 15 minutes get a precise diagnosis. That’s how you get care out of the expensive emergency rooms in the hospital and do that in a way that makes care more accessible and affordable.