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Clay Christensen on Reinventing Your Business Model

Harvard Business School professor Clay Christensen, best know for developing the concept of disruptive innovation, provides an enlightening video interview on business model reinvention.

Disruptive innovation essentially teaches that established companies are vulnerable to upstarts because they are reluctant to depart from what has made them successful. Very few incumbent companies are capable of seeing in time the fundamental changes sweeping their markets -- the switchover from minicomputers to PCs for example, or how of the Internet would undermine the revenue model of newspapers.

And even if these changes are detected, established players are reluctant to do what Christensen says they must: swap out their proven business model for a new model that reflects the changes in the business environment.

So how does a company build a new business model? Christensen outlines four necessary steps starting with the value proposition, which is "the idea that helps customers do more affordably, effectively, and conveniently, a job that they've been trying to get done."

Subsequent steps identify how the value proposition can be delivered profitably, as well as the resources and processes required.

It's extremely hard work. Christensen notes that very few companies have been successful at reinventing themselves in such a fundamental way, IBM being among the small number of exemplars.

This interview, done with Harvard Business Review editor Sarah Cliffe, is engaging on a number of levels. First, Christensen provides a great explanation of how disruptive innovation works. He also underscores the fatal flaw that managers make when trying to reinvent their business in the face of a disruptive competitor. Their solution is often to leverage what the company already has in place at marginal cost rather build an entirely new business model with heavy investment.

"If you are trying to create a new business model because the world is changing, then you don' t want to leverage what is already in place. An entrant doesn't have anything to leverage, so just creates what needs to be created."