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Feb. 28, 2013, 2:30 p.m.
Business Models

Clay Christensen and David Skok: A not-quite-live blog of a conversation about disruption

When to trust a theory over hard data, why companies that try to do too much get picked apart by competitors, and why sometimes industries have to learn the same lessons over and over.


Editor’s note: Last night, the Nieman Foundation held an event with Harvard Business School professor Clay Christensen and former Nieman Fellow David Skok to talk about disruptive innovation in journalism. We’ve already posted audio of the event as part of the Press Publish podcast; below, we have video and — for those who’d rather read than watch or listen — a rough summary of the conversation.

When David Skok came to Harvard in fall of 2011 for his Nieman Fellowship, he sought out Clay Christensen. Christensen is known worldwide for his writing on disruptive innovation; Skok, head of digital for Canada’s Global News, wanted to apply those ideas to broadcast in specific and the news industry more broadly. Skok collaborated with Christensen and James Allworth on a research paper that eventually became “Breaking News,” which appeared in the Fall 2012 issue of Nieman Reports.

On Wednesday, Christensen and Skok were joined by Nieman Foundation curator Ann Marie Lipinski for a discussion on the causes of disruptive innovation and how the journalism business is being transformed today. Lipinski began by asking about the difference between sustaining and disruptive innovations. Christensen said the vast majority of innovations are sustaining — meaning they tend to make existing products better for existing customers, which is usually to the advantage of successful incumbent companies. Disruptive innovation is different. “I made a big mistake when I called it ‘disruptive,’ because it has so many different connotations,” Christensen said. “A lot of people think it’s just new and different, or radical.” Instead, disruptive innovation changes industries not because it is radical, but because it makes complicated and expensive processes simple and opens them up to a wider audience.

An example of a sustaining innovation would be the change in the telecommunications industry from analog to digital, which was controlled by leaders in the industry. That changed when cellphones became cheaper to make and spread around the world, Christensen said. That didn’t fit the business model of the larger telecommunication companies, Christensen said. Disruptive innovation takes place across industries, from telecommunications to automobiles — and even education.

“It’s happening to the Harvard Business School, and nobody at Harvard even thinks about it,” he said. To get a Harvard MBA, you’ve got to be the best of the best of the best just to get admitted, he said — and then you have to be able to afford the bill of Harvard Business School and forgo two years of salary. For graduates, their average starting salary is around $160,000. That sounds good, but as a result, business school graduates only get recruited by firms that can meet that salary — typically investment banks and consulting firms rather than General Motors, General Electric, or General Mills. Now those companies are disrupting business schools by creating their own corporate universities, which are cheaper to run, more accessible, and more closely attuned to the needs of the company.

In order for disruption to occur, there has to be a technology core — an approach that works in simple applications that can be improved to do more and more sophisticated things. He cited the example of Toyota’s growth being enabled by its use of unibody frames; at first they could only be used in subcompacts, but over time they (and Toyota) moved up to larger and more sophisticated automobiles. In the same way, the microprocessor enabled Dell to go from operating in PCs to more powerful servers. Christensen pointed to online education, where developments like massively open online courses can serve as a disruptor to established players in higher education.

Lipinski points out that industries sometimes have to learn these lessons repeatedly. Aggregation, for example, has been a key part of journalism for centuries; it was a key part of Time magazine’s model as early as 1923. But it still seemed to surprise incumbents in the Internet era.

Skok said news organizations often do study their history, but they don’t focus enough on what’s coming next. Looking at profit and loss statements every quarter emphasize a snapshot of the past; Clay’s work says no, don’t only trust that balance sheet — trust a theory to predict what will happen in the future. But the idea of running large companies based on theories over hard numbers is a tough sell, Skok said.

As disruption occurs, it commoditizes layers in the value stack — what used to be a high-value-added activity, one others couldn’t easily replicate, becomes cheap and easy. In journalism, the Internet, wireless technology, and other technologies have broadened the market for information. As a result, Christensen said, everyone has access to more information than they could possibly use. But that doesn’t mean that the whole indusry has become commoditzed and profitable: Commoditization opens up opportunities in adjacent layers in the value stack, he said. What you thought was a commodity becomes more profitable and proprietary — so even as one business dies, it opens up new opportunities. He cited the example of Forbes, whose previous core business — a print magazine — has been commoditized, but which has made interesting new moves online.

Lipinski asked about the concept of “jobs to be done,” the idea that asks companies to focus on their demographics and identify what they can provide to their customers. Christensen says companies should resist seeing their customers through the lens of demographics and instead think about the jobs they would hire their products to do. The customer is the wrong unit of analysis; it’s the job you need to understand if you want to survive disruption. An example: Think of the job of delivering messages across distances. Western Union did that well — but they framed their business through their technology, the telegraph. As technology advanced, Western Union was left behind — even though the job of delivering messages across distances remained.

Lipinski asked about the Newspaper Next project, which was designed to apply the theories of disruptive innovation to the newspaper world. But the project didn’t have much impact. Why not — did companies not see the cliff? Christensen said companies can be paralyzed by data, and that the lack of data can lead to inaction. For newspapers, even if you were warned a cliff was coming, you couldn’t see it until you were upon it, he said.

Lipinski asks Skok what it was like to take the theories and ideas of disruptive innovation and apply them in the real world. Skok said he is lucky to be working in a broadcast company, which hasn’t yet faced the sharp revenue declines that print has, leaving the luxury to experiment. But changing the culture of news organizations is difficult, he said; ultimately, none of this works in a newsroom without getting priorities, processes, and resources aligned around the goal of disruption.

Skok said his department is a standalone unit with its own budget that is trying to be revenue neutral or better within the company; it is “patient for growth but impatient for profit.” Every decision we make, Skok said, is based on whether a new initiative will allow us to scale in a way that lets us grow but also maintain profitability. Skok said you have to change the day-to-day tasks within an organization to make effective change.

A question from the audience: Given that newspapers’ disruption by Internet technologies has been happening for some time now, are there good examples of incumbent companies recovering from a disruption late in the process? Christensen cited Apple’s famed comeback under Steve Jobs as an example. A shift to jobs-to-be-done saved the company from being an “afterthought in the history of computing” to its leader, Christensen said. He also cited an Indian appliance company that, after being disrupted by the Korean corporation LG on the low end, went even lower, building a simpler cooling unit that cost only $39 and disrupted LG.

Skok spoke about Apple through the lens of Christensen’s theories about integrated vs. modular structures. Either approach could be strong under certain market and technological circumstances. Traditionally, journalism organizations have been deeply integrated and closed, from news gathering to distribution. That’s becoming more modular, Skok said. Now media companies are seeing more revenue from businesses other than the news gathering-to-distribution chain, such as events. The trick, he said, is to look at newsrooms not as a continuous line, but as a series of pockets that can be leveraged to create new lines of business.

Question from the audience: What are the jobs to be done in journalism? Christensen said one consideration is that large companies are often undercut by competition that focuses on specific jobs rather than one-size-fits-all solutions. He cited the example of Craigslist, which focused squarely on classified ads in a way that newspapers had a difficult time responding to. When you offer everything for everybody, you can’t focus on doing every job well, he said — you get picked off one job at a time. The challenge, he said, is finding jobs where a viable competitor has not yet emerged.

Skok suggested news companies examine how their own business can be disrupted — because if they can see it, their competitors probably can too. A problem for news organizations, like many companies, is that it’s difficult to get people to change their tasks or incubate when what they currently do is still effective, he said. Skok said his company’s primary output is broadcast news, something it does well, but that doesn’t leave many hours to disrupt their business.

In response to another question, Skok talked about the disruptive potential of news on mobile devices. Companies spend a lot of time developing mobile strategies, but then follow up with questions like “Where is the mobile advertising?” But advertising might not end up being the line of revenue to support mobile. Companies will need to adjust their thinking on why they invest in mobile and what kind of return they will see.

Skok also suggested keeping an eye on one current experiment, Andrew Sullivan’s newly launched paywall site. If Sullivan pulls it off, he said, it could be a good lesson for the industry, making the value proposition of news product more clear — for some, Sullivan’s take is essential daily reading. Journalists need to be more accountable for what we put on the page or what we put on the air, Skok said — it’s not longer good enough to be a mile wide and an inch deep.

POSTED     Feb. 28, 2013, 2:30 p.m.
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