Seeing Whats Next: Using the theories of Innovation to predict industry change: Introduction

Seeing what’s next has been one of the most interesting and informative books I have read in a while. Right away Clayton M Christensen begins to explain his underlying drivers in market forces. He explains what market forces and conditions lead to innovations that change industries. He suggests that using theory we can predict which innovations will grow into new opportunities and which will be short lived.

In the introduction Christensen suggests that there are three types of innovation that the reader should be aware of. The first is the disruptive innovation theory. This states that firms are in constant competition depending on their life cycle and niche in the market. Incoming businesses can use simple and cheap methods to beat out existing and complacent firms. Existing firms in contrast have the advantage of sustainability as they will have already generated enough capital to win prolonged competition with new entries. The key to beating an existing firm therefore is to enter with a disruptive innovation that is simple, cheap and revolutionary. There are two types of disruptive innovations given by Christensen. These include low end and new market innovations. Low end innovations are when product quality is too good and is being sold at a price that the customer cannot pay. This leaves the existing firm open to disruptors that can provide the same products at a lower price. New market disruption is when characteristic of a product limits the number of potential customers or forced consumption to take place in inconvenient centralized settings. The key then is to create new growth by allowing people to access things that historically required high expertise or wealth.

The next theory was the resource, process and values theory. As the name indicates this theory is based around what the firm has, how the firm works and what the firm wants to do. These factors will collectively describe the firm’s strengths, weaknesses and blind spots. This theory also places a clear emphasis on growth margins as a major indicator of a new entrant’s potential in each market. From the information provided it seems that the firm’s values can be the most restricting in terms of its ability to adapt. Firms set on sticking to competitive advantages or solely on lucrative options may miss new opportunities or key shifts in the industry.

            The third theory provided by Christensen was the value chain evolution theory. This theory states that firms have 2 choices when building their product chain. The first option is to integrate the process into their company’s business model. This would mean that the company personally oversees the creation of the element but can also be costly if done incorrectly. The second option the firm has is to specialize in a specific aspect of the product creation and outsource the remaining parts of the process to other companies. This can drastically reduce operation costs but gives some expertise and quality control away. Christensen states that generally companies should control all aspects along the factors that matter most to customers. This integration allows companies to run experiments and continue to innovate overtime. They should then outsource any aspect or factor that is more than good enough on the product.

            With these three theories we can begin to view industries in a different light. The goal is to use the past trends and missteps to develop a reliable way to tell the difference between signals and noise within an industry. Companies must be willing to let go of strategies that may be effective in the short term and be willing to shift emphasis to adaption rather than remaining on existing advantages. New entrepreneurs in contrast must be able to identify opportunities and attack existing firms. I look forward to using these theories and other information provided to navigate the variety of industries provided within the book.