When Clayton Christensen’s book The Innovator’s Dilemma came out in 1997, it disrupted the business world and became an instant classic, named by the Economist as one of the six most important business books ever written. Since then, the Harvard Business School professor has written nearly a dozen books and more than a hundred articles, applying his theory of disruptive innovation to a range of industries and institutions and, most recently, to global development.
At the Computer History Museum on November 13, Christensen, voted “the World’s Most Influential Business Management Thinker,” shared a preview of his upcoming book, Prosperity Paradox, followed by a discussion with Intuit cofounder and chair Scott Cook.
Christensen began the program with an overview of theories that help explain the process by which some nations become prosperous while others remain mired in poverty. He has found that not all innovation creates economic growth. Most innovations are “sustaining”; they improve on existing products. “Efficiency” innovations aim to make existing products cheaper, increasing free cash flow. Neither of these types of innovation create jobs or drive growth. However, “market-creating” innovations that make a product affordable and accessible to the larger population do both and can lead a country to prosperity.
Through wide-ranging examples from Tesla and Ford cars and Singer sewing machines made in America; to Godrej in India, which sells small refrigerators; to Samsung’s early electric fans and Kia’s cars in Korea, Christensen vividly described how developing products that are affordable and accessible for the vast bottom of the market rather than the wealthy few, and creating the supply chain to produce and distribute them results in jobs, growth, and prosperity. Conversely, oil-rich countries like Venezuela and Nigeria remain poor because innovations in that sector are sustaining rather than market-creating. And, although Mexico has attracted automobile factories in the last few decades, this efficiency innovation results in manufacturers pulling up stakes when another country can make cars less expensively.
Noodles Spur Growth in Nigeria
Christensen also described why “push” investments to help developing countries may not be effective. Efforts to improve education fade away if there are no jobs waiting for students after they graduate. However, “pull” investments, like those that result from market-creating innovation, do have the potential to lead to prosperity. The inspiring example of Indomie noodles, developed by Indonesian entrepreneurs, led to this kind of growth in Nigeria. Creating an effective supply chain to sell the noodles led to a $150 million investment in 15 years, along with 13 new factories, thousands of jobs, and new roads, bridges and other infrastructure.
Helping the World Grow
For the second half of the program, Scott Cook joined Christensen in a discussion about global prosperity challenges. He led by asking how a prosperous nation like the United States can be right next door to a struggling country like Mexico and whether NAFTA (the North American Free Trade Agreement) was a good idea or not. Christensen explained that Mexico’s investments, in oil for example, are not intended to promote growth but efficiency, which does not lead to growth. Nor was NAFTA money used to promote market-creating innovations. He believes the country should go deeply into developing affordable, accessible electric cars designed for Mexicans by Mexicans. Aiming for this huge market would result in “pull” investments in factories, distribution centers, dealerships, and infrastructure, creating jobs and leading to prosperity.
It is not clear whether these theories apply to all developing countries, and Christensen frankly admitted that he doesn’t know if some nations are impervious to change or not; although he believes that where dishonesty and corruption are prevalent the challenge is difficult. Many global institutions, countries, and philanthropists have pursued policies to help developing nations and Cook asked Christensen to weigh in on how effective they’ve been with an entertaining “thumbs up or thumbs down” assessment.
The Current Tech Dilema
Pulling back from international to more local concerns, Christensen discussed how tech companies in the last 10–15 years have not followed the rules laid out in his books The Innovator’s Dilemma and The Innovator’s Solution_. Rather than combating disruption and upstart competitors by creating new organizations outside of the core business and funding them so they can innovate and help the company survive, tech CEOs have shut down innovative products and cut off capital.
”Push and Pull” to Aid Refugees
Cook fielded a variety of provocative questions from the audience on topics ranging from artificial intelligence to investments in public transportation and how companies can continue to innovate and grow. Cook and Christensen also considered the question of how to solve the current refugee crisis in the framework of his “push/pull” investment theory.
The evening closed with a heartfelt discussion of Christensen’s most recent, and most personal book, How Do We Measure Our Lives. He shared how as a young man he joined legendary firm Boston Consulting Group (BCG), but chose to invest his time in his family rather than in enriching the partners by working on weekends. This principled commitment to caring for those closest to him frustrated his manager, but Christensen may have prevailed in the long-term: he recently saw a new hire brochure from BCG that urged people not to work on Sunday and to find another day to be free as well. That his theories on how to create prosperity may have equal influence in global development efforts around the world offers a reason to hope for the future.
Watch the Full Conversation
About the Exponential Center
The Exponential Center at the Computer History Museum captures the legacy—and advances the future—of entrepreneurship and innovation in Silicon Valley and around the world. The center explores the people, companies, and communities that are transforming the human experience through technology innovation, economic value creation, and social impact. Our mission: to inform, influence, and inspire the next generation of innovators, entrepreneurs, and leaders changing the world.