Focusing on the Long View and Jobs-to-be-Done

I just watched two excellent YouTube videos of lectures given by Clayton Christensen in June, 2013 at Oxford University. One of the lectures addresses key management issues/problems and one addresses the need for companies to continue investing in disruptive innovations instead of just efficiency innovations. Below are the key points from these two lectures:

  1. Disruptive innovations are the real long term drivers of growth and employment, but often look unattractive in the short term due to uncertain returns and the CapEx and new fixed assets they require, which can hurt short term profitability measures like gross margin %, return on net assets, return on capital employed, and IRR. The problem is that disruptive innovations may take five to ten years to start providing attractive returns, while management is being judged on the next quarter or the next year. For this reason management tends to favor investments in efficiency innovations, which can quickly improve short term profitability measures but which do little for the prosperity of a company going five to ten years out. Continued, repeated investment in efficiency innovations, without sufficient investment in disruptive innovations, leads to declining growth and employment, sometimes at both a company level and a country-wide level (a la Japan).
  2. The cause of the Innovator's Dilemma, whereby incumbents flee upmarket and eventually get driven out of business by new entrants, is the pursuit of profit (often reflected by the short term pursuit of a higher/target gross margin %). Christensen suggests companies give additional weight to net profit margin %, since high volumes of lower end products can be attractive on a net margin basis if they help absorb fixed overhead costs. 
  3. Management tends to game profitability measures like financial ratios. For this reason "the key is to measure profitability in ways that cause people to do good things." Businesses need to search for profitability measures that cause them to do good things
  4. Market segmentation is often done through an arbitrary classification like product category or customer demographic or geographic region. These classifications then have an outsized, damaging impact on every decision the company makes, whether it's determining who to compete against, what products and market opportunities to pursue, or how the company measures success. Arbitrary market segmentation can have a large, negative impact on what the company chooses to focus on. 
  5. The alternative way for a company to segment the market and focus its efforts is to analyze the job-to-be-done. To understand what causes a purchase decision, you have to understand what job the customer is trying to get done. Don't focus on the customer or the product category in segmenting or analyzing the market -- focus on the job-to-be-done.
  6. Once you understand the job-to-be-done performed by a product, then it becomes very clear how to improve the product (which helps prevent meaningless improvements that overserve). 
  7. A company first has to understand the job-to-be-done (including the job's functional, emotional, and social elements). It then has to determine what experiences must be delivered to satisfy this job, and what services, processes, and systems should be integrated to make these experiences happen.
  8. Companies that focus, organize, and integrate around a job-to-be-done historically have no competitors -- other companies may sell the same products or services, but they typically can't compete with an integrated, end-to-end user experience that solves a job perfectly
  9. Companies must make a conscious decision about what to focus on, ideally based around the job-to-be-done. 
  10. The job itself typically doesn't change much over time, while the means of accomplishing the job may change dramatically. Over the centuries, one such job has been fast and certain delivery of a package from point A to point B. At first the hired solution for this job was delivery by horseback, followed by train delivery, followed by airplane delivery, followed by FedEx. The job stayed the same but the hired solution changed dramatically.   
  11. Because the job-to-be-done tends to stay stable over time, companies that focus on the job are in a good position to see what's coming next and be ready for the next better solution. Companies that focus on an irrelevant, arbitrary unit of market analysis -- like the product category or the customer -- have difficulty seeing what new, better job solutions are coming and are more likely to be surprised/disrupted.
  12. Business models and businesses converge when people need different products/services at the same point in time and space. People need gasoline at the same time they need a snack or junk food, so convenience marts have merged with gas stations. 
  13. Conversely, one business model or business will diverge into two when people need the offered products/services at different points in time and space. Wal-Mart electronics merchandise is also sold by a specialized retailer like Best Buy, while Wal-Mart hardware merchandise is also sold by a specialized retailer like Home Depot. Best Buy does the most business on holidays and birthdays, which is its unique point in time and space, while Home Depot does the most business on weekends, which is its unique point in time and space.