The Process of Theory Building - (based on "Seeing What's Next")

In the book "Seeing What's Next" (SWN) a number of theories are presented. One of the areas which I found quite powerful is understanding the processes in building a theory. One of the interesting presentations I heard in which Clayton Christensen presented was his explaination of a theory. He articulated it in the audio presentation which can be found at IT conversations. In this podcast he discusses that theories have got a bad rap and that because they are referred to as theories that this must mean they are theoretical. In SWN in the appendix it is outlined basically in two pages how a theory is built.

There initial statement is "A theory is a contingent statement of what causes what and why". People when building a theory usually take three steps, they being:

1. Carefully observe, describe and measure the phenomena.
2. Group observations into categories, then
3. Develop a theory that explains the attributes and how they lead to the results

Working with theories is an iterative process in which the person keeps testing. The theory is used to predict the expected result in various situations and typically they will encounter anomalies. It is these anomalies which their theory did not predict and do happen that are used to temper the theory. It is in the discovery of these anomalies that is pivotal in the process of building and improving the theory. As the research is carried out and the categorisation is tuned with any anomalies the theory starts to stablise.

The important part is the distinction between anomalies that a theory cannot account for and exceptions that a theory can account for. a theory with a good circumstance-based categorisation scheme and a causal underpinning explains the actions a practitioner can take to change the circumstances or to account for the forces that act upon them.

Further information can be found in "The Innovator's Solution, chapter 1"

Understanding "Seeing what's Next" by Clayton Christensen

In the book "Seeing What's Next" which was written by Clayton Christensen, Scott Anthony and Erik Roth it discusses and analysis the use of a number of theoretical frameworks. It looks at how companies are using innovation and how businesses can use these theories to predict industry change. To do this they use three iterative steps:

1. Looking for signals of change and seeing if the non-consumers and both under and overshot customers are being addressed
2. Looking at the actions in the competitive market and seeing if companies are effectively using the sword and shield approach of Asymmetries, and
3. Watching firms and their strategic choices. Seeing how those choices increase or decrease its chances of successfully managing the process of disruption.

Important lessons learn't with "Seeing What's Next" naturally relate to disruptive innovations and understanding that it is a process not an event. In many respect disruptive innovation is perspective as some find it disruptive others are able to sustain the innovation. Understanding that different or radical technology does not equal disruptive. Finally disruptive innovation does not limit itself to high-tech markets. Christensen discusses a number of examples in "The Innovators Dilemma" which are more based on addressing the non-customers and those customers who are not so demanding.

The book "Seeing What's Next" discuss the process involved in theory building and then reviews the following concepts:

• Disruptive innovation theory
  
• Resources, processes, and value (RPV) theory
  
• Jobs-to-be-done theory
  
• Value chain evolution (VCE) theory (with corollary sustaining innovation classification scheme)
  
• Schools of experience theory
  
• Emergent strategy theory (with supporting discovery-driven planning tool)
  
• Motivation/ability framework
  

Each of these theories are explained and notes provide references to other source materials. This is a book that will be something you come back to, time and time again. I am working through this book for the second time and can see that I will be doing it again. The more you read the more you find and its the clarification and application which shows the power.

In Understanding the Dilemma we can find a Solution

"Knowing the how, of the competitions disruption provides a solutions"

"The theory holds that existing companies have a high probability of beating entrant attackers when the contest is about sustaining innovations. But established companies almost always lose to attackers armed with disruptive innovations."
(Christensen 2004 - Seeing What's Next)

Established businesses most of the time aim to provide the resources needed to provide for their best customers in the way of products and services. The problem is that it can provide a blind spot to new products and services that are initially targeted at the small seemingly unprofitable customer. As this type of approach is not feasible to the established business they forgo this business feeling that it frees them up to work in the higher end of the market. The real dilemma is the new businesses evolve and sometime at a more rapid pass than expected, in turn taking over the marketplace. The mark of disruptive innovation is usually, simple, cheap and revolutionary.

The Innovator's Solution reveals a powerful set of theories that assist in the challenges and explains how to go about creating a new growth business which is being challenged by disruptive innovation. The first part is to recognise the signs of disruptive innovation and having a strategy and model to counter.



From my understanding the low-end disruptor comes under the radar and targets the overshot customers with a lower cost business model. That is not the issue at first this market is usually unprofitable to the established business. These businesses tend to falls into a comfort zone, until the low-end disruptor starts to evolve. As the disruptor starts to sustain and improve this change can and does catch the established businesses off guard. The new business starts to focus can and has done in the past removed the incumbent.

What is needed is for the incumbent to earn their disruptive black belt. This is usually done with the company setting up their own disruptive counterattack and developing internal capabilities in disruptive growth. Many companies try this and usually need to create a spin out organisation to drive the disruption, as the current model and culture is usually not the best structure to build such an organisation. The book outlines a four pronged approach which is covered in more detail in chapter 10.

1. Start before it needs to
2. Appoint a senior executive to shepherd ideas into the appropriate shaping and resource-allocation process
3. Create a team and process for shaping ideas
4. train the troops to identify disruptive ideas

As I get further into these books I will update these postings

The Innovators Dilemma, Solution and Seeing What's Next

"My learning of the theories of Clayton M Christensen's. This is a work in progress and I will be adding to it as I progress through the books and my understanding."

I have been reading the latest in the line of books written by Clayton Christensen. These books I came across via a podcast that I listen to when I was studing for my Master of Management. This was a presentation he gave at the Open Source Business Conference in 2004. His other books are The Innovator's Solution: Creating and Sustaining Successful Growth and Seeing What's Next: Using Theories of Innovation to Predict Industry Change

In this presentation he delivered his theory in an easy and understandable manner. From this presentation I then went and purchased the first of his books The Innovator's Dilemma This book was all about the dilemma's faced by existing companies and how they are almost always lose to attacks from businesses which introduce disruptive innovation. The issue faced by businesses when confronted by disruptive innovation is the lack of understanding that it is a threat to their business. Initial the disruptive innovation usually come about with going for the non-customer or the least profitable customer.

The incumbent business in many respects sees this as a blessing and is more than often willing to for go that client and business. It usually is the high maintenance, low margin which detracts the business from the higher margin clients. Where there is a higher margin client the incumbent will move up feeling that they can address the higher end and leave the small fish. The problem starts when the disruptive innovator starts to then move up the tree. Again the incumbent sees higher margins up the tree and for goes the next level. After a while each step up the tree becomes faster and the incumbent has no where to go.

Initially the disruptive innovator's product appeals to the less discerning customer who is willing to pass on the more expensive options. As the new business starts to build on their innovation their quality and standard improve and they start to move up the food chain. If they stay in the lower end of the market while they are establishing then this market space will stay open. When the incumbent has reach the top of the food tree then it is at that point that the new entrant needs to have established sustainable innovation and improvement.

The dilemma face by incumbent businesses is to compete with the disruptive innovator it usually requires a different business model. As most incumbent businesses would have reached a point of sustainable innovation, for them to address the lower end of the market would need investment for lower or little return. As put forward by Clayton does the business invest in customers who return a high profit or in the customer with low return. While there is profits at the top end of the market businesses usually will keep going up, it a logical decision. But in understanding this theory it raises the dilemma.