Tag: Clay Christensen

The Dreamliner — Innovation and Outsourcing

James Surowiecki writing in the New Yorker:

In the past, the F.A.A. was remarkably hesitant to take planes out of service. The problems with the DC-10 were well known to regulators for years before a 1979 crash forced them to ground the plane. But, again, those standards no longer apply. In the nineteen-seventies, after all, airplane crashes occurred with disturbing regularity. Today, they are extraordinarily rare; there hasn’t been a fatal airliner crash in the United States in almost four years. The safer we get, the safer we expect to be, so the performance bar keeps rising. And this, ultimately, is why the decision to give other companies responsibility for the Dreamliner now looks misguided. Boeing is in a business where the margin of error is small. It shouldn’t have chosen a business model where the chance of making a serious mistake was so large.

Some incomplete thoughts:

Michael Mauboussin reminds us that Clay Christensen, author of The Innovator’s Dilemma, believes that outsourcing only makes sense when components are modular.

But, of course, there is a ‘cost’ to being modular too.

“They still think they are in charge,” says Christensen commenting in general on outsourcing, “but they aren’t. They have outsourced their brains without realizing it.”

Christensen believes outsourcing is driven by ratios and returns.

Americans measure profitability by a ratio. There’s a problem with that. No banks accept deposits denominated in ratios. The way we measure profitability is in ‘tons of money’. You use the return on assets ratio if cash is scarce. But if there is actually a lot of cash, then that is causing you to economize on something that is abundant. …Modular disruptors should carry their low-cost business models up-market as fast as possible, to keep competing at the margin against higher-cost markers of proprietary products

This, however, can lead to disaster.

If you study the root causes of business disasters and management missteps, you’ll often find a predisposition toward endeavors that offer immediate gratification. Many companies’ decision-making systems are designed to steer investments to initiatives that offer the most tangible returns, so companies often favor these and short-change investments in initiatives that are crucial to their long-term strategies.

Will anyone be able to “snap” together a plane in the future?

…if it’s becoming commoditized and modular, you cannot make money at that level in the stack. But the whole industry doesn’t become unprofitable, rather its activities above and below that original [product or service], that’s where the money is made. And that has to be happening in the pharmaceutical industry, but I can’t see what it is yet. By example, the auto industry is becoming commoditized; cars are being assembled by sub-assemblies from tier-one suppliers. Anybody can get these modules and snap together a car. So it’s really hard to differentiate your car from anybody else’s car, so where the money is being made is in the subsystems that define the performance of the car, and by activities that sit on top of that, like OnStar. That’s where the money is made.

And these thoughts:

Before long, modularity rules, and commoditization sets in. When the relevant dimensions of your product’s performance are determined not by you but by the subsystems, it becomes difficult to earn anything more than sustenance returns. When your world becomes modular, you’ll need to look elsewhere in the value chain to make any serious money.

I’ll end with some more thoughts from Christensen

But even in a modular architecture, successful companies still are integrated—just in a different place. Consider the computer industry in the 1990s. The computer’s basic performance was more than good enough. What did customers want instead? They wanted lower prices and a computer customized for their needs. Because the product’s functionality was more than good enough, companies like Dell could outsource the subsystems from which its machines were assembled. What was not good enough? The interface with the customer. By directly interacting with customers, Dell could ensure it delivered what customers wanted—convenience and customization. Value flowed to Dell and to the manufacturers of important subsystems that themselves were not good enough, like Microsoft and Intel.

In short, companies must be integrated across whatever interface drives performance along the dimension that customers value. In an industry’s early days, integration typically needs to occur across interfaces that drive raw performance—for example, design and assembly. Once a product’s basic performance is more than good enough, competition forces firms to compete on convenience or customization. In these situations, specialist firms emerge and the necessary locus of integration typically shifts to the interface with the customer.

The real takeaway is knowing what industry you’re in, the complexity of your products, and the second and third order effects of outsourcing. It may seem easier now, but if it’s part of your core business, it’s probably not a wise idea.

“They have outsourced their brains without realizing it.”

— Clayton Christensen

If you do outsource, pay attention to what you’re giving up in terms of information and complexity — what starts as “raw labor” easily moves up the value chain.

Pay attention to the reasons for your outsourcing: are they all driven by financial ratios? If so, that’s a red flag. Try to think a decade ahead. I know this all sounds very ambiguous and difficult but if it were easy everyone would know the answer.

Why Can’t Someone Be Taught Until They’re Ready To Learn?

Clay Christensen is best known as the author of The Innovator’s Dilemma. He’s also the author of a new book, How Will You Measure Your Life?, which has some wonderful insights (see excerpts here and here).

The founder of 37Signals, Jason Fried, recently spent some time with Christensen and gained a key insight into why we can’t be taught until we’re ready to learn. Simply put, if you stop asking questions, you’ll stop learning.

Spending time with Clay leads to lots of interesting insights, but for me, there was one that stood out among all the others.

You’ve probably heard it said that someone can’t be taught until they’re ready to learn. I’ve heard it said that way too. It makes sense, and my experience tells me it’s mostly true. Why though? Why can’t someone be taught until they’re ready to learn?

Clay explained it in a way that I’ve never heard before and I’ll never forget again. Paraphrased slightly, he said: “Questions are places in your mind where answers fit. If you haven’t asked the question, the answer has nowhere to go. It hits your mind and bounces right off. You have to ask the question – you have to want to know – in order to open up the space for the answer to fit.”

What an insight.

Your Strategy Is Not What You Say It Is — Clayton Christensen

If you study the root causes of business disasters and management missteps, you’ll often find a predisposition toward endeavors that offer immediate gratification. Many companies’ decision-making systems are designed to steer investments to initiatives that offer the most tangible returns, so companies often favor these and short-change investments in initiatives that are crucial to their long-term strategies.

In the words of Andy Grove, former chairman and chief executive officer of Intel: “To understand a company’s strategy, look at what they actually do rather than what they say they will do.” Real strategy—in companies and in our lives—is created through hundreds of everyday decisions about where we spend our resources. But as you’re living your life from day to day, how do you make sure you’re heading in the right direction?

Here is a way to frame the investments we make in the strategy that becomes our lives: We have resources—which include personal time, energy, talent, and wealth—and we are using them to try to expand several “businesses” in our personal lives. These include having a rewarding relationship with our spouse or significant other; succeeding in our careers; and so on. Unfortunately, our resources are limited, and these “businesses” are competing for them.

It’s exactly the same problem that a corporation has. Your resources are not decided and deployed in a single meeting; instead, the process is continuous, and you have, in your brain, a filter for making choices about what to prioritize.

Clayton Christensen, How Will You Measure Your Life

But it’s also a messy process. People ask for your time and energy every day and even if you are focused on what’s important to you, it’s still difficult to know which are the right choices. If you have an extra ounce of energy or a spare 30 minutes, a lot of people will push you to spend them here rather than there. With so many people and projects wanting your time and attention, you can feel like you are not in charge of your own destiny.

The danger for high-achieving people is that they’ll unconsciously allocate their resources to activities that yield the most immediate, tangible accomplishments. This is often in their careers, as this domain of their lives provides the most concrete evidence that they are moving forward. They ship a product, finish a design, help an employee, close a sale, teach a class, win a case, publish a paper, get paid, get promoted. They prioritize tasks that give them immediate returns—such as a promotion, a raise, or a bonus—rather than those that require long-term work.

Although they may believe their family is deeply important to them, they actually allocate fewer and fewer resources to the things they would say matter most.

Few people set out to do this. The decisions that cause it to happen often seem tactical, just small decisions they think won’t have any larger impact. But as they keep allocating resources in this way—and although they often won’t realize it—they’re implementing a strategy vastly different from what they intend.

Bottom line: If the decisions you make about where you invest your blood, sweat, and tears are not consistent with the person you aspire to be, you’ll never become that person. As you continue on your life’s journey, allocate your resources wisely—at work and home.

Still curious? Read How Will You Measure Your Life.

Source: Adapted from How Will You Measure Your Life? by Clayton M. Christensen, James Allworth, and Karen Dillon.

How To Find Work You Love

It’s possible to love your job and hate it at the same time:

On one side of the equation, there are the elements of work that, if not done right, will cause us to be dissatisfied. These are the hygiene factors: status, compensation, job security, work conditions, company policies, and supervisory practices. It matters, for example, that you don’t have a manager who manipulates you for his own purposes–or who doesn’t hold you accountable for things over which you don’t have responsibility. Bad hygiene causes dissatisfaction.

But even if you instantly improve the hygiene factors of your job, you’re not going to suddenly love it. At best, you just won’t hate it anymore. The opposite of job dissatisfaction isn’t job satisfaction, but rather an absence of job dissatisfaction. They’re not the same thing at all.

So, what are the factors that will cause us to love our jobs? Motivators.

Motivation factors include challenging work, recognition, responsibility, and personal growth. Motivation is much less about external prodding or stimulation, and much more about what’s inside of you and inside of your work.

Is money the answer?

The point isn’t that money is the root cause of professional unhappiness. It’s not. The problems start occurring when it becomes the priority over all else, when you’ve satisfied the hygiene factors but the quest remains only to make more money. Herzberg’s theory of motivation suggests you need to ask yourself a different set of questions: Is this work meaningful to me? Will I have an opportunity for recognition and achievement? Am I going to learn new things?

Once you get this right, the more measureable aspects of your job will fade in importance. As the saying goes; find a job you love and you’ll never work a day in your life.

Excerpted from How Will You Measure Your Life? by Clayton M. Christensen, James Allworth, and Karen Dillon.