Clay Christensen on Reinventing Your Business Model

Last Updated Jan 7, 2009 9:56 AM EST

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."
  • Sean Silverthorne

    Sean Silverthorne is the editor of HBS Working Knowledge, which provides a first look at the research and ideas of Harvard Business School faculty. Working Knowledge, which won a Webby award in 2007, currently records 4 million unique visitors a year. He has been with HBS since 2001.

    Silverthorne has 28 years experience in print and online journalism. Before arriving at HBS, he was a senior editor at CNET and executive editor of ZDNET News. While at At Ziff-Davis, Silverthorne also worked on the daily technology TV show The Site, and was a senior editor at PC Week Inside, which chronicled the business of the technology industry. He has held several reporting and editing roles on a variety of newspapers, and was Investor Business Daily's first journalist based in Silicon Valley.