The Brett Chulu
CLAYTON Christensen’s passing away in Boston on January 23 has robbed us of one of the finest thinkers on economics and management the world has seen.Today we relive some of the grounded research ideas he has gifted the world with. In paying tribute to his incredibly brilliant work, we should, as a country, appropriate his wisdom for the good of our economy and personal private lives.
In studying every company that ever produced a computer disk drive in the United States, from the inception of that industry through the early 1990s, Christensen discerned a pattern in the evolution of that industry. He named that pattern disruptive technology.
What he found out sent chills down the spines of almost every executive of established industry — newly established technological start-ups could decimate or significantly hurt established tech businesses without the established businesses ever suspecting until it was too late to respond, and if they did respond, they would do so in totally inappropriate ways that only served to seal their demise. The demise happened for counter-intuitive reasons – incumbents were being destroyed for the very reason that they served their best customers well — that is totally ironic. The incumbents could not see their destruction coming centred on two reasons.
First, the newcomers focussed on non-consumers by simplifying their offerings and making them affordable and accessible to non-consumers and to the established firms’ worst customers. The incumbents’ best customers did not want the simplified products as they heavily under-performed on the metrics they valued. The internal marketing teams confirmed this. The finance and economics teams, using traditional marginal economic analysis, concluded that it did not make economic sense to introduce the low-performing products. For the newcomers, the economic returns of the products made a lot economic sense, as the margin was from zero to something.
Second, as the newcomers found a way to improve the performance of their initial products, they met the performance standards of the incumbents’ least profitable customer segments — the financial advice the incumbents got was that if they let go of their least profitable segments, the overall return on assets would actually improve —they took the advice. The newcomers, saw the remaining segments as more profitable, which, ironically, were deemed the least profitable by the incumbents and were willing to let go in pursuit of a better return on assets metric.
In the most extreme cases, incumbents found themselves with no more customer segments to flee, hence annihilation. As Christensen looked at other industries, he saw that the same pattern was happening — this spawned a transition from disruptive technology to disruptive innovation. The final transition that occurred in the last four years has been replacing disruptive innovation with empowering innovation — Christensen wanted to emphasise that the phenomenon he had discovered in the early 1990s was about products and services that innovators deliberately came up with in order to fight non-consumption of the majority of people owing to existing offerings being either too sophisticated to use or too expensive to obtain for the majority of people.
Christensen’s final work was in macro-economics where in collaboration with a former Nigerian student of his and another author uncovered what they called the prosperity paradox — the idea that throwing money at poverty or addressing the felt needs of the poor strengthened poverty, instead of eradicating it. Christensen, based on a careful classification of types of innovation, distinguished among three types of innovation: empowering, sustaining and efficiency. His grounded argument is that these three types of innovations have a role to play in the macro-economy, but result in different outcomes for economic growth and job-creation. Sustaining innovations make good products better for existing consumers — this does not add much to economic growth and job-creation. If a country’s economy is dominated by sustaining innovations, economic growth and job-creation will be minimal.
Efficiency innovations make existing products cost less to produce. These innovations cause companies to use less cash, creating excess and idle capital as a result of cost-savings. An economy where efficiency innovations dominate will experience loss of jobs and a fall in economic growth. Empowering innovations, by bringing in non-consumers into consumption by their millions and billions, create new industries and spawn new economic support ecosystems, causing the economy to grow and jobs to grow.
Christensen, through these three insights solved the puzzle which a former Harvard Business School student of his who became a top civil servant in Japan had asked him to solve. Christensen, after much research, simply explained that Japan’s once sustained economic growth that once catapulted it to the status of being the world’s second largest economy was because Japanese enterprises had been churning out empowering innovation after empowering innovation that cured global non-consumption in countless products, the most famous being sub-compact vehicles, where it produced small cars for small (financially) people, most of whom never dreamed of ever owning a car.
Then the Japanese manufacturers, in pursuit of higher margins, shifted to sustaining innovations until they were no more up-market segments to invade. To fight to keep their big customers happy and at the same time trying to defend their profit margins, Japanese firms ramped up efficiency innovations and used the capital released to invest in more sustaining innovations, instead of empowering innovations. That is how Japanese economic occurred.
Now to the Africa rising hype.
Western countries were charmed by the McKinsey’s Africa rising narrative of a burgeoning middle class and the promise of Africa’s demographic dividend — they rushed into Africa to get a foothold and first-mover advantages. Christensen explained the root of Africa’s rising disappointment; companies that brought in empowering innovations were making it in Africa as they focussed on Africa’s non-consumers — the companies that failed brought in sustaining innovations they had been offering their Western customers. African nations can lift themselves out of poverty by focussing on developing empowering innovations to cure Africa’s massive non-consumption — that is how every modern prosperous nation has done it. This has direct relevance to Zimbabwe. Cartels are poverty engineers as they are the antithesis of empowering innovation thinking — through price gouging and extractive rent-seeking mentality, cartels turn consumption into non-consumption.
Perhaps, a timely insight from Christensen that speaks to the core of the Zimbabwean economic behaviour is on corruption. His very last work on macro-economics explored the link between corruption and economic development. Christensen showed that when empowering innovations are the basis of sustained economic growth, corruption levels have been known to fall because the empowering innovations spawn opportunities that reach the majority of people. Christensen argues that endemic corruption becomes widespread in a society as people are forced to cut corners and bend the law in order to meet their pressing socio-economic obligations (job-to-be done). Christensen brilliantly suggested that entrepreneurs should observe and study carefully socio-economic behaviours(jobs-to-be done) where consumers cut corners and/or improvise — that is a sign of huge non-consumption — an opportunity to come up with innovations that will turn that non-consumption into consumption.
Christensen died empty; he gave the world his best thoughts. Though he is dead, he still speaks. As he put it in his book How Will You Measure Your Life that we will not be remembered for what we accomplished in life, but we will be remembered for the difference we made in the lives of others. This is how I choose to remember him.
Chulu is a management consultant and a classic grounded theory researcher who has published research in an academic peer-reviewed international journal. — firstname.lastname@example.org.