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Foundations for Growth: How To Identify and Build Disruptive New Businesses

By Clayton M. Christensen, Mark Johnson

Many companies proudly think of themselves as innovative. The great majority of them, however, are adept at producing only sustaining innovations—products or services that meet the demands of existing customers in established markets. Few companies have introduced genuinely disruptive innovations, the kind that result in the creation of entirely new markets and business models. And yet the motivation to pursue such innovations should be urgent. In almost any industry you care to examine, the most dramatic stories of growth and success were launched from a platform of disruptive innovation.

Most managers understand that significant, new, sustainable growth comes from creating new markets and ways of competing. But few of them make such investments. Why? Because when times are good and core businesses are growing robustly, starting new generations of growth ventures seems unnecessary; when times are bad and mature businesses are under attack, investments to create new growth businesses can’t send enough profit to the bottom line quickly enough to satisfy investor pressure for a fast turnaround.

The second problem is virtually insurmountable, so senior managers must rethink their reluctance to start new ventures in good times. After all, business units that are growing robustly today will become mature, and thus vulnerable, in the future. The only way a corporation can maintain its growth is by launching new growth businesses when the core units are strong. Our research indicates that if senior managers pursue this path—and if the growth businesses they start or acquire are truly disruptive—companies will find it less difficult and risky than many have supposed to create wave after wave of new growth.

For more than a decade, we have studied innovative successes and failures at large and small companies. (To have a truer sense of whether a disruptive strategy may work in the future, it’s at least as important to understand what hasn’t worked as what has.) We studied some ventures through the lens of history while tracking other initiatives in real time. As a result, we have devised two sets of litmus tests that senior managers can use to shape business plans to improve their chances of success. Our research suggests that any proposal must pass at least one set of tests if project investments are to have a chance of paying off.

Article availabe for purchase at MIT Sloan Management Review

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I think Clay Christensen's disruptive innovation concept is the single most powerful investment strategy that I've ever seen.

William Hambrecht
CEO, W.R. Hambrecht

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