The Innovator’s Manifesto: Deliberate Disruption for Transformational Growth
Deloitte Insights video
From automobiles to social media, for the aspiring innovator there are countless case studies to read. But The Innovator’s Manifesto goes beyond case studies. It tests the predictive power of a theory of innovation and explains disruption so business leaders can apply it quickly and effectively.
Tune into the latest episode of Deloitte Insights to learn more about The Innovator’s Manifesto straight from New York Times’ best-selling author Michael Raynor, director, Deloitte Consulting LLP.
Michael Raynor, Director, Deloitte Consulting LLP
Sean O’Grady: Hello and welcome to Insights. Today, we are joined by New York Times’ best-selling author Michael Raynor for a discussion on some of the topics in his new book ‘The Innovator's Manifesto: Deliberate Disruption for Transformational Growth.’ Michael is also a director within Deloitte Consulting LLP. So Michael, I would like to begin with something you are not supposed to do. I want to judge this book by its cover and it says ‘Innovator's Manifesto.’ Now manifesto means declaration. What made you choose that as the title?
Michael: My intent with the Innovators Manifesto is to say something as vigorously as if you will as the data would permit. I think about the book as a modest claim vigorously made. I wanted to bring a new way of thinking about innovation and what makes innovation work to the book-buying public. It seemed to me that most of what’s out there in the business of world is essentially based on a post-hoc explanation of the past. There had been few, if any, attempts as far as I know to try and test the predictive power of a theory and that’s what I have tried to do. Because I think it is something new and I think something powerful, I wanted to try and communicate that as quickly and as effectively as I could, so I tried to put it right there in the title.
Sean: Well let's go there, tell me a little bit about prediction.
Mike: Any theory, if it is going to be worth anything is a theory that actually helps us predict what’s going to happen next. History of course is an incredible academic discipline and lot of people concern themselves with trying to explain why the past turned out the way it did. Most practical minded business people, however, to the extent they are interested in the past, only to the extent that it helps them understand what the future could hold. So, we try and explain things in order that we might predict what is to come. Now if you want to test whether or not a theory actually helps you do this, well then you really have no other choice but to actually try and predict outcomes and see if your theory is actually better than the alternative approaches that are out there. And so, the first couple of chapters of the book are all about the kinds of experiments and the kinds of data that are required to make predictive claims of a particular way of looking at innovation
Sean: Now, on the first couple of chapters you talk about Disruption Theory and how it helps with prediction — can you explain that a little bit for me?
Mike: Well, Disruption Theory has been around for a while. It was discovered by Clayton Christensen who is a professor at the Harvard Business School. It was the topic of his doctoral dissertation, which he published in 1992. So this goes back a ways. His first book on this topic was the ‘Innovator’s Dilemma’, which came out in 1997. That was a runaway bestseller and really kind of introduced the term into the general ethos. So, people started talking about Disruptive Innovation. Clayton and I wrote the ‘Innovator’s Solution’ together in 2003 and it was the next step forward in terms of developing the theory and Disruption Theory since has continued to kind of gather momentum and currency among people who think about what it takes to innovate successfully.
Sean: So, your book states that this theory improves predictability. Can you tell me a little bit more about that?
Mike: Absolutely, so as I said, theories are only useful if they help you predict the future. Now, the bad news is Disruption Theory doesn’t give you a 100% accuracy, I don’t know if I have put it in the book and sell it for $14.95 on Amazon, but it does offer a material improvement. So to test that we collaborated with Intel Corporation, and Intel made available to us the business plans for 48 businesses — early stage ventures that they actually funded and launched. Right, so these were businesses that appealed for anywhere between $250,000 and let's say $2 million in early stage seed financing. Develop a prototype, do some market research, get something out there to see if the business in fact had legs. What we were able to do is actually look at those business plans without knowing the outcome. We didn’t know if those businesses had lived or died, succeeded or failed. And actually predict if you will, how those businesses would have done by the lights of Disruption Theory. So, you go through the 48 businesses and you say Disruption Theory says this one will live and this one will die, this one will live and this one will die. And then we go and we look back at the actual outcomes and see whether or not we actually improved the outcomes - did we build the portfolio that was more successful than the one that was actually funded? And so what we found is that when we replicated that experiment with over 500 MBA students at Harvard, MIT, and Ivey Business School in London, Canada, we found that as a population, second year MBA students went from essentially randomness, no material difference from the underlying population of firm’s whose businesses that had been funded – to a 5% point increase. So, they went from a 10% accuracy rate to a 15% accuracy rate. That is a 50% improvement. And my view of these things is that 15% is a long way from 100, but it is also a darn sight better than 10. And so until perfection is an option, improvement will have to do, and Disruption Theory as far as I can tell is the theory that has the best claim to actually improving predictive accuracy.
Sean: And that was going to be my next question for you, is, on the scoreboard, 15% is clearly better than 10%. Do you think that this theory then should be implemented across the board as a way of predicting for VCs.
Mike: Well, it is about two things. I would not suggest that it should be ‘implemented across the board.’ Everybody just drops what they do and does this instead. I think of it as an advance from largely intuitive decision making, which is how a lot of people think about Innovation generally and we all have our own scar tissue, we have our own experiences, we look at different ventures, we evaluate the capabilities and the savvy and the adaptability of the management team. It’s kind of soup and everybody makes their own soup, and it’s highly intuitive. At the other end, things can get very predictive, very precise. When you think of test for a strep throat, nobody’s confused. We know exactly what to do, we know what the results mean, we know what to prescribe as a result. In that big middle, there is what I will call a probabilistic way of making decisions and a lot of medicine looks like that. Most people know someone who has been or is struggling with cancer, for example, certainly I do. And when it comes to treatments for cancer, it is very much probabilistic. We do not know exactly what is going to help someone with a particular manifestation of a particular disease, but we can say this looks like it’s got the best chance of helping you. And so, by way of analogy, my claim is that when it comes to pursuing successful Innovation, Disruption Theory offers that similar sort of hope. It says that we can’t predict with certainty that this is what is going to happen, but we can make some fairly informed claims based on these data and based on what we’ve been able to test empirically that is probably the best way forward. To try and put a bumper sticker on it, what I would say is that Disruption Theory allows us to make a much more informed and much more empirically grounded assessment of the risk-return profile of investment opportunities.
Sean: Do you think all successful Innovation has been Disruptive?
Mike: Absolutely not. Disruption is a particularly effective way in my view of breaking tradeoffs of innovating. Sustaining innovation is the lion’s share of what most organizations do and in my view that is entirely appropriate. So, the distinction between disruptive and sustaining is not an evaluative one – “disruptive/good” and “sustaining/bad” — not at all. They are both perfectly valuable ways of innovating. My claim is that what Disruption Theory does is it allows us to see the risk-reward profile of both sustaining and disruptive innovations in different markets, far more accurately than we have been able to do so far.
Sean: My final question for you Michael is about your hope for the Manifesto — what is your wish for this book in the marketplace?
Mike: Well, apart from the fact that everyone should of course buy at least several copies that will put that to on side. I suppose every author of any book hopes that it makes a difference in terms of how people think about an issue and I guess I have two hopes on that score when it comes to what’s in Manifesto. The first has to do with the substance of the discussion around Innovation. In fact, my hope is that we begin to speak of Disruption Theory as “the correct way” for now. When a new data comes along, if something better shows up, well as Keynes put it, “when new data are presented, I change my mind.” But my hope is that we will come to see Disruption as if you were on the right way to think about Innovation. The second hope I have, is that it perhaps changes the way we go about evaluating the merits of business books generally. That we get away from this unceasing reliance on post-hoc explanation of a select set of case studies and instead begin to apply as rigorously as we can the scientific method to the evaluation of business principles.
Sean: Well thank you very much for that Michael. Thanks for being with us today on Insights.
Mike: It has been my pleasure. Thank you.
Alright, we have been talking about the topics in the new book ‘The Innovator's Manifesto: Deliberate Disruption for Transformational Growth’ with author Michael Raynor, a Director within Deloitte Consulting. If you would like to learn more about Michael, his book, or any of the topics discussed on today’s broadcast, you could find that information on our website it's www.deloitte.com/insights/us. For all the good folks here at Insights, I am Sean O’Grady, we will see you next time.
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