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Clayton Christensen of Harvard Business School




Clayton Christensen, Harvard Business School professor and author of The Innovator’s Dilemma, says Tesla, Apple, VCs and universities all face big disruptive threats.

Cromwell Schubarth - Senior Technology Reporter- Silicon Valley Business Journal

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Harvard business professor Clayton Christensen literally wrote the book on technology disruption, and he thinks Apple, Tesla Motors, venture capitalists and most of the nations colleges and universities should be afraid.

The author of The Innovators Dilemma said Wednesday that all of them could be killed by less advanced competitors in the same way that many once dominant technology companies have been in the past.

Christensen shared his theories about how innovative giants are felled and replaced by relatively less sophisticated rivals, speaking to an attentive crowd of young entrepreneurs and funders at the Startup Grind conference in Mountain View on Wednesday.

Basically, his theory of disruption centers around how dominant industry leaders will react to a newcomer: It allows you to predict whether you will kill the incumbents or whether the incumbents will kill you.

If a newcomer thinks it can win by competing at the high end, the incumbents will always kill you.

If they come in at the bottom of the market and offer something that at first is not as good, the legacy companies wont feel threatened until too late, after the newcomers have gained a foothold in the market.

He offered as an example the introduction of cheap transistor radios. High fidelity, vacuum-tube powered incumbents felt no threat from the poor quality audio the transistors produced and missed the technological shift that eventually killed many of them.

Here is what Christensen said threatens Apple, Tesla, VCs and academia.

Apple too good for its own good?

Apple could be on path for a classic disruption in Christensen’s view.

Successful innovative products like the iPhone are usually based on proprietary technology because that is how the dominant business carves out, protects and builds its top market position.

But at some point as they get better and better, they start to exceed what people actually need or are willing to pay extra for.

When that happens the people who have the proprietary architecture are pushed to the ceiling and the volume goes to the open players. So in smartphones the Android operating system has consummate modularity that now allows hundreds of people in Vietnam and China to assemble these things.

Just like I pray for Harvard Business School, I pray for Apple.

They always have won with their proprietary architecture and because of their advantage. If you ask them what is the core of the company, they will say it is design and the interaction with the customer. Manufacturing really is not our core competence.

So you just give that to the Chinese. But then what happens to them? As the dominant architecture becomes open and modular, the value of their proprietary design becomes commoditized itself. It may not be as good, but almost good enough is often good enough.

The real value in making the iPhone, Christensen argues, is in the sophisticated manufacturing that is being done on it overseas, something that can no longer be done competitively in the U.S.


Tesla goes down the wrong road

Instead of coming in at the low end of the market with a cheap electric vehicle, Tesla Motors competes with premium offerings from legacy automakers.

Who knows whether they will be successful or not, he said. They have come up with cars that in fact compete reasonably well and they cost $100,000 and god bless them.

But if you really want to make a big product market instead of a niche product market, the kind of question you want to ask for electric vehicles is, I wonder if there is a market out there for customers who would just love to have a product that wont go very far or go very fast. The answer is obvious.

The parents of teenagers would love to have a car that wont go very far or go very fast. They could just cruise around the neighborhood, drive it to school, see their friends, plug it in overnight.

Because that kind of electric car offers something that doesnt threaten incumbents and provides a low-end solution, Christensen says that has a greater chance of surviving and ultimately upending the auto market than Teslas flashy Roadsters and sedans.

VCs aiming too high


He offered as an example his friend, former Massachusetts Gov. Mitt Romney. Before teaching, Christensen ran a small company in Massachusetts at the same time Romney started Bain Capital, and the firm invested $1 million in Staples when it was just starting out.

Romney actually took the time to call and to ask him to buy his supplies from Staples, even though he was just a small business. But when Christensen some years later sent another friend who was raising $1 million for a good idea, Romney told the man that Bain didnt make those kinds of investments any more. They only wanted to invest $10 million or more.

Venture capital is always wanting to go up market. Its like the Rime of the Ancient Mariner. ‘Water, water everywhere and not a drop to drink.’ People in private equity complain that they have so much capital and so few places to invest. But you have lots of entrepreneurs trying to raise money at the low end and find that they cant get funding because of this mismatch. I think that there is an opportunity there.

A new course for academia

Christensen wrote his first opinions on why Harvard Business School and other higher-ed institutions were in line to be disrupted back in 1999. Much of what he predicted then is coming true, and the disruption is accelerating.

For 300 years, higher education was not disruptable because there was no technological core. If San Jose State wants to become a globally known research institution, they have to emulate UC Berkeley and Cal Tech. They cant disrupt, he said on Wednesday.

But now online learning brings to higher education this technological core, and people who are very complacent are in deep trouble. The fact that everybody was trying to move upmarket and make their university better and better and better drove prices of education up to where they are today.

Right now, Harvard Business School is investing millions of dollars in online learning, but it is being developed to be used in our existing business model, and well sell it to other universities to use in their existing business models.

But there is a different business model that is disrupting this in addition to online learning. Its on-the-job education. This model of learning is you come in for a week and well teach you about strategy and you go off and develop a strategy. Come back later for two weeks on product development. You learn it and you use it. These are very different business models and thats whats killing us.


In the end, I am excited to see that happen.

Cromwell Schubarth is the Senior Technology Reporter at the Business Journal.

His phone number is 408.299.1823.