Personal Vision and Creative Destruction

Transcript:

Disruption is always the mechanism by which real economic growth is generated.

I am Clayton Christensen -- a professor at the Harvard Business School. I had spent my academic career studying the problems of innovation, and in particular: What is it that makes success so difficult to sustain? The economist, Joseph Schumpeter called it, "creative destruction."

The economy and innovation kept going; but, the mechanism by which it kept going was, it destroyed the old, as it created the new. And, I think my contribution is a model called, "disruptive innovation" -- that is, the causal mechanism, by which creative destruction occurs.

The advent of sophisticated communications technology really has facilitated disruption, so that it happens at a faster rate.

So, prior to about 1990, if I needed to call you, the electrons actually travelled on a physical circuit, to the telephone company's switching gear. And then, it switched, and went on a physical circuit to your phone. And so, when we talked to each other, the electrons actually travelled on a single physical line.

And, Cisco came up with this concept, called a router. And, what a router did was, it took the data -- whether it was voice, or information -- and, it packetized it, in these virtual envelopes; wrote the address on each virtual pocket; and then fanned it out over the Internet.

At the beginning, the router -- with its packet switched technology -- could get information from here to there, with about a four second latency delay.

And, that meant, if I wanted to do voice with you, over a packet switch network, it was just very frustrating. You had to be a desperately poor graduate student to do voiceover IP. So, Cisco and the network of companies that worked with it, didn't try to address voice -- they went after data, because packet switching, with a four second latency delay, was infinitely faster than first class mail.

Lucent and Nortel, that made circuit switched equipment, looked down at the router; and, they couldn't see value in it, because it couldn't be used for voice. And so, they kept investing in bigger and better circuit switching equipment, to make the quality of voice conversations better and better. But then, coming at the bottom, Cisco just kept improving the safety, and the speed, and the accuracy of its packet switching technology, until today -- you really can't tell the quality difference between a packet switch call, and a circuit switch call.

And, voiceover IP just pervades the world. Nortel is gone; because they listened to their customers; and, their customers needed faster and better voice. They didn't need data transport. So, the fact that we can shift data, in such extraordinary ways, in terms of volume and speed, is really attributable to the fact that, Cisco disrupted circuit switching.

CEOs ought not stop listening to customers, at least not categorically. But they also ought to know when not to listen to them. No CEO can be like a Steve Jobs or Henry Ford, and think he or she can just eschew market research. But Jobs and Ford have important lessons to learn: Some CEOs may have those moments when they need to see their own personal vision and listen to their own inner voice. 

That vision and voice can alert the CEO that a creative destruction may be, or is, underway and it affects the business, industry or market in some way.  So it's a call for him or her to act accordingly.