5/21/2015Copyright Clayton M. Christensen1 Disruptive Innovation in Education Clayton Christensen Harvard Business School February, 2008

5/21/2015Copyright Clayton M. Christensen2 Disruptive Innovations create asymmetric competition Non-consumers or Non-consuming occasions Different measure Of Performance Time Disruptive Innovations: Competing against non-consumption Performance Time Sustaining innovations Incumbents nearly always win 60% on $500,000 45% on $250,000 40% on $2,000 20% Performance that customers can utilize or absorb Entrants nearly always win Pace of performance improvement

5/21/2015Copyright Clayton M. Christensen3 7% 4% Quality of minimill-produced steel 12% 8% 18% 22% % of tons Steel Quality Rebar Angle iron; bars & rods Structural Steel Sheet steel 25–30% 55% Beat Competitors with Asymmetry of Motivation Quality of integrated mills’ steel

5/21/2015Copyright Clayton M. Christensen4 Disruption in business models has been the dominant historical mechanism for making things more affordable and accessible. Today Toyota Wal-Mart Dell Southwest Airlines Fidelity Canon Microsoft Oracle Cingular Community colleges Yesterday Ford Dept. Stores Digital Eqpt. Delta Hamilton Xerox IBM Cullinet AT&T Land-grant universities. Tomorrow: Chery Internet retail RIM Blackberry Air taxis ETFs Zink Linux Salesforce.com Skype U. of Phoenix OnLine

5/21/2015Copyright Clayton M. Christensen5 What is a business model, and how is it built? THE VALUE PROPOSITION: A product that helps customers do more effectively, conveniently & affordably a job they’ve been trying to do RESOURCES: People, technology, products, facilities, equipment, brands, and cash that are required to deliver this value proposition to the targeted customers PROCESSES: Ways of working together to address recurrent tasks in a consistent way: training, development, manufacturing, budgeting, planning, etc. PROFIT FORMULA: Assets & fixed cost structure, and the margins & velocity required to cover them

5/21/2015Copyright Clayton M. Christensen6 Market Understanding that Mirrors how Customers Experience Life “The customer rarely buys what the company thinks it is selling him” - Peter Drucker

5/21/2015Copyright Clayton M. Christensen7 When companies segment their markets by job, they find –Their real competitors aren’t in their product category –The market is much larger, and their share is smaller –Growth potential is greater, because non- consumption is usually a major competitor –They understand what keeps more customers from hiring their product for the job(s). –They can create valuable brands inexpensively.

5/21/2015Copyright Clayton M. Christensen8 What is the fundamental job or problem the customer is facing? This includes its functional, emotional and social dimensions. –What are the experiences in purchase and use which, if all provided, would sum up to nailing the job perfectly? The “HIRING CRITERIA” – The factors that constitute the basis for choosing one “job candidate” over another. - What are the product attributes, technologies, features, etc. that are needed to provide these experiences? Three levels in the architecture of a job

5/21/2015Copyright Clayton M. Christensen9 Products and business models that focus on doing an important job seem able to sustain differentiation Ikea Blackberry Federal Express Milwaukee Sawzall OnStar Disney World Land Rover Palm Starbucks Ebay

5/21/2015Copyright Clayton M. Christensen10 Disruption of General-Purpose Products Typically Happens on a Job-by-Job basis Non-consumers or Non-consuming occasions Different measure Of Performance Time Disruptive Innovations: Competing against non-consumption Performance Time Sustaining innovations Pace of performance improvement Major Metropolitan Newspapers Help me: Unload the junk in my garage Find the right car Sell or buy a home Find the right job, or the right employees Kill commuting time productively Become well-informed Unwind at the end of the day Craig’s List AutoTrader.com Realtor.com Monster.com Metro; Blackberry CNN.com Unwind at the end of the day

5/21/2015Copyright Clayton M. Christensen11 The Harvard Business School is Being Disrupted Time 2-year MBA $150,000 !! Part-time MBA On-line Garbage Non-consumers or Non-consuming occasions Different measure Of Performance Corporate Universities: Competing against non-consumption Help me solve this problem Help me be an effective manager Give me the credential I need for my next job Help me switch careers Teach me how to analyze business problems Give me a prestigious brand and connections in an exclusive network

5/21/2015Copyright Clayton M. Christensen12 So what should the Harvard Business School Do?

5/21/2015Copyright Clayton M. Christensen13 The right product architecture depends upon the basis of competition Compete by improving speed, responsiveness and customization Performance Time Compete by improving functionality & reliability IBM Mainframes, Microsoft Windows Proprietary, interdependent architectures Dell PCs, Linux Modular open architectures

5/21/2015Copyright Clayton M. Christensen14 Modular Architectures Performance Time Interdependent Architectures Integrated companies with proprietary products typically commoditize their suppliers Commoditizer IBM Commoditizee Applied Magnetics General Motors Dana Corp. P&G Dow Corning

5/21/2015Copyright Clayton M. Christensen15 Performance Disruption is facilitated when historically valuable (and expensive) expertise becomes commoditized Experimentation & problem-solving Pattern Recognition Rules-Based

5/21/2015Copyright Clayton M. Christensen16 In B2B markets, the buyer’s job-to-be-done typically is not to enhance capability, but to reduce cost or improve ROA. This creates opportunities to disrupt from the bottom of the supply chain. Asus Dell Small boards Mother board Assembly Supply chain Design Brand Design Supply chain Assembly Mother board

5/21/2015Copyright Clayton M. Christensen17 The Commoditization of Expertise is Widespread. Commoditizer Commoditizee Business Professors Bloomberg Physicians Orthopedic SurgeonsImplant Makers Diagnostics Wall Street Analysts HBS Publishing

5/21/2015Copyright Clayton M. Christensen18 Insights from examining education through the lenses of this research 1.Education research has not shown the way forward 2.Conflicting mandates in the way we teach vs. the way we learn 3.Computers have failed to make a difference because we have crammed them into conventional classrooms They must initially be deployed against non-consumption 4.Individualized, computer-based instruction requires a disruptive distribution model 5.Chartered schools are heavyweight teams, not disruptive competitors 6.We have imposed disruption on our schools three times in recent history by moving the goalposts – the metrics of improvement.

5/21/2015Copyright Clayton M. Christensen19 We all learn differently Linguistic Logical- mathematical Spatial Bodily- kinesthetic Musical Interpersonal Intrapersonal Naturalist Learning Styles Multiple Intelligences Visual Written Aural Playful Deliberate Paces of Learning Fast Medium Slow

5/21/2015Copyright Clayton M. Christensen20 Conflicting mandates in the way we must teach, vs. the way students must learn Need for customization for differences in how we learn Standardization !! Learning Styles Paces of Learning Multiple Intelligences Interdependencies in the teaching infrastructure Temporal Lateral Physical Hierarchical Customization !!

5/21/2015Copyright Clayton M. Christensen21 Non-consumers or Non-consuming occasions Different measure Of Performance Time Performance Time Pocket radios Portable TVs Hearing aids Tabletop Radios, Floor-standing TVs Path taken by vacuum tube manufacturers Technology can only be deployed in existing businesses in ways that sustain (and add cost to) the current model. Disruption best competes against non-consumption at the outset.

5/21/2015Copyright Clayton M. Christensen22 Historically, most schools have “crammed” computer-based learning into the blue space Non-consumers or Non-consuming occasions Different measure Of Performance Time Performance Time Core curriculum Path taken by most schools, foundations and education software companies

5/21/2015Copyright Clayton M. Christensen23 School boards have been moving “Up-Market” to focus limited resources in the “new” trajectory of improvement Time Importance of program Time German Statistics Psychology Economics Math Science English language & literature

5/21/2015Copyright Clayton M. Christensen24 This is a perfect opportunity to implement computer- based learning disruptively Non-consumers or Non-consuming occasions Time Computer-based learning: Compete against non- consumption Political importance of program Time German Statistics Psychology Economics English language & literature Science Math

5/21/2015Copyright Clayton M. Christensen25 The substitution of one thing substitutes for another always follows an S-curve pattern % new % new % old % 50% 1315

5/21/2015Copyright Clayton M. Christensen26 Proper team structure is crucial in every project Business model in which product is used Product architecture: What are the components, and which ones interface with others? Change the specifications for how components must fit together Improve performance of each component Business model in which process is used Process architecture: What are the steps in the process, and what is their sequence? How must the steps in the process interface in time and space? Improve individual steps in the process ProductProcess Team Type Level of change VP Autonomous VP Heavyweight VP Lightweight VP Functional

5/21/2015Copyright Clayton M. Christensen27 Disruption enables less-skilled people to do more sophisticated things Disruptive innovations enable a larger population of less-skilled, less-wealthy people to do things in a more convenient, lower-cost setting, which historically could only be done by specialists in less convenient settings. Disruption has been one of the fundamental causal mechanisms through which our lives have improved. Computers Xerography Angioplasty Almost always, disruptive innovations such as these have been ignored or opposed by the leading institutions in their industries for perfectly rational reasons.

5/21/2015Copyright Clayton M. Christensen28 Changes in integrality/modularity have profoundly changed the structure of the computer industry Equipment Materials Components Product design Assembly Operating system Applications software Sales & distribution Field service Intel, Micron, Quantum, Komag, etc. Compaq, Dell, Gateway, Packard Bell Compaq Microsoft Word Perfect, Lotus, Borland, etc. CompUSA Independent contractors Microsoft Contract assemblers Present Dell IBM Control DataDigital Equipment Monsanto, Sumitomo Metals, Shipley, etc. Teradyne, Nikon, Canon, Applied Materials, Millipore, etc. Apple Computer Micro- Center

5/21/2015Copyright Clayton M. Christensen29 Modular Architectures Performance Time Interdependent Architectures When an industry’s value chain dis-integrates, assemblers of modular products must begin outsourcing. Their suppliers then can commoditize their customers Commoditizer Commoditizee Implant Makers Orthopedic Surgeons Bloomberg Wall Street Analysts DiagnosticsPhysicians HBS PublishingProfessors

5/21/2015Copyright Clayton M. Christensen30 Anomaly Confirm Predict The process of building bodies of understanding Observe, describe & measure the phenomena Categorization by the attributes of the phenomena Preliminary statements of correlation Deductive process Inductive process

5/21/2015Copyright Clayton M. Christensen31 Anomaly Confirm Inductive process The predictive power of theory improves markedly when careful researchers move beyond statements of correlation to statements of causality. Anomaly Confirm Predict Categorization by the attributes of the phenomena Preliminary statements of correlation Deductive process Inductive process Observe, describe & measure the phenomena Predict Deductive process Observe, describe & measure the phenomena Categorization of the circumstances in which we might find ourselves Descriptive theory Normative theory Statement of causality