Coevolving Innovations

… in Business Organizations and Information Technologies

Disruptive innovation in services

Everyone seems to get the idea about disruptive innovation in product development.  Clayton Christensen‘s original research that led to The Innovator’s Dilemma was based on the challenge of 3.5″ disk drives and 5.25″ disk drives.  The ideas on disruptive innovation in services wasn’t so obvious to me, until I heard Christensen’s lecture on how business schools such as Harvard and Stanford seem to be overshooting the marketplace.

I was listening to an audio recording from IT Conversations, with Clayton Christensen speaking at the Open Source Business Conference 2004.  I’ve read Christensen’s writing some time ago, and was impressed by his style of presenting.  He speaks slowly and clearly, and his students must love him.  I’d heard most of the content before, but was impressed by an anecdote that is actually written up in The Innovator’s Solution (in Chapter 9):

[Clayton Christensen] … had written a paper that worried that the leading business schools’ traditional two-year MBA programs are being threatened by two disruptions. The most proximate wave, a low-end disruption, is executive evening-and-weekend MBA programs that enable working managers to earn MBA degrees in as little as a year. The most significant wave is a new-market disruption: on-the-job management training that ranges from corporate educational institutions such as Motorola University and GE’s Crotonville to training seminars in Holiday Inns.

Christensen asked for a student vote at the beginning of class:  After reading the paper, how many of you think that the leading MBA programs are being disrupted?  Three of the 102 students raised their hands. The other 99 took the position that these developments weren’t relevant to the venerable institutions’ fortunes.

Christensen then asked one of the three who was worried to explain why.  “There’s a real pattern here”,  he responded, and he listed six elements of the pattern. These included MBA salaries overshooting what operating companies can afford; the disruptors competing against nonconsumption; people hiring on-the-job education to get a very different job done; a shift in the basis of competition to speed, convenience, and customization; and interdependent versus modular curricula. He concluded that the pattern fit: All of the things that had happened to other companies as they were disrupted were indeed under way in management education. “That’s why I’d take this seriously,” he concluded.1

The story goes on, with a question about whether it’s a “game over” situation.  In a footnote a potential future is described:

Instead of simply selling cases and articles, a better strategy for [business schools] would be to create value-added curriculum modules that would enable tens of thousands of corporate training people to quickly slap together compelling content that helps employees learn exactly what they need to learn, when and where they need to learn it. It would also be critical to enable these trainers to teach these materials in such compelling and interesting ways that none of these on-the-job students has any desire ever to sit through a business school professor’s class again. If history were any guide, if the publishing divisions of the business schools did this, they would ultimately have a far broader impact, and be far more profitable, than their existing on-campus teaching organizations.2

This might make the publishing divisions happy, but not the traditional university administration.

For an organization, this type of change could be seen as a reconfiguration of work, as described in service system evolution.  The reason that business schools are a good example is that they provide a well-established service, but they’ve been moving farther and further upscale.  In the recorded talk, Christensen mentioned the distance learning programs of University of Phoenix as a direct competitor.  In addition, The Economist reported:

For the past 50 years America has effortlessly dominated the market for international students, who have brought both direct and indirect benefits. Not only are they contributing some $13 billion a year to America’s GDP, they are also supplying brainpower for its research machine and energy for its entrepreneurial economy. But now America’s leadership is under challenge. The Institute of International Education reports that the number of foreign students on American campuses declined by 2.4% in 2003-04, the first time the number has gone down in 30 years. Foreign applications to American graduate schools fell by 28% last year, and actual enrolment dropped by 6%.3

I wonder if I’m a part of a trend. Here’s my personal academic affiliations:

I’m affiliating less and less with American universities, and more with other international players. My son can spend a year in China, all costs included, for the tuition fee of a single year at Northwestern University.  (The Kellogg School fees are nearly three times, that).  University education in Finland is still free for foreign students.

U.S. business schools feel like a service industry under disruptive innovation.


1Clayton M. Christensen and Michael E. Raynor, The Innovator’s Solution: Creating and Sustaining Successful Growth, Harvard Business School Press, 2003, pp. 244-245.2Christensen & Raynor (2003), chapter 9 footnote 11, p. 262.

3“Wandering Scholars, The Economist, September 8, 2005, accessed at http://www.economist.com/displaystory.cfm?story_id=4340017 .

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