By Todd Sattersten
In the March 4th, 2010 issue of Bloomberg BusinessWeek, Harvard Business School professor Clay Christensen wrote an op-ed about his views on the then-active debate over health care. The essay was written from his unique vantage point having studied companies and industries faced with the challenges of innovation. Christensen has authored or co-authored five books and countless articles on the subject of innovation and suggested the solution being offered in Washington was not going to lower health care costs.
In Christensen’s world, there are two kinds of innovation. The first is sustaining innovation, the kinds of incremental improvements that companies implement to serve existing customers (NEW! Big Brand laundry detergent, now with Stain Blocker!) The second is disruptive innovation, fundamentally new offerings that are cheaper and simpler than anything on the market that in turn create new markets that undermine incumbent firms.
In publishing, the emergence of Amazon at a time when only bricks-and-mortar stores existed would fit this disruptive profile perfectly with their business model of discounted prices, availability of every book in print and the single-click shopping experience.
Today, the emergence of digital publishing and e-books is, without a doubt, a form of innovation, but whether it proves to be merely incremental or truly disruptive will take some time to tell.
Prices Should Rise, Not Fall
In his editorial Christensen went on to explain that, as regards to innovation, “Economists are wrong in asserting that competition controls costs. Most often innovation and competition drive prices up, not down, because bringing better, higher-priced products to market is more profitable.” He has observed elsewhere that prices increase eight to nine percent per year in industries characterized by sustaining innovations.
Now, that might sound counterintuitive -– prices going up, not down — but Christensen points to history to make his case. For example, the break-up of AT&T in the 1980s was meant to create competition and, among the smaller Baby Bells, lead to lower prices, but it did not. Instead, we had to wait for innovations like Voice Over IP (VOIP) to usher in lower priced telecommunications. Likewise, higher quality, more affordable cars didn’t come from the Big Three automakers. It took the ascendency of their Japanese and now Korean counterparts to disrupt the market.
Finally, in the area of health care, Christensen notes that hospital systems competing against one another in a given market don’t lower prices to gain market share. Instead, they add more high-end services and expand the scope of their operations to become a one-stop destination for patients. These expanded facilities, with high tech diagnostic tools and blockbuster pharmaceuticals, drive up costs and, inevitably, prices.
To reverse the trend, Christensen says health care needs disruptive innovation.
He points to the low-end procedures, such as simple tests (say, for strep throat) and recommends those activities move from the high-cost hospitals, to outpatient clinics or even patients’ homes where they can be administered at low cost by nurses and physicians assistants. The Target Clinic, Take Care Clinics at Walgreens, and CVS’s One Minute Clinic, are all perfect examples of this model in action.
The near ubiquity of these retail locations and lower priced procedures fit perfectly with the definition of will likely come to be seen as disruptive innovation.
What’s all this have to do with publishing?
Christensen’s observations about sustaining innovation and disruptive innovation can just as easily be applied to the world of books. The retail channels have been in state of disruption since the 1980s, with the progression from mall store chains to big-box stores to finally Internet-based bookselling. The results are clear: the number of independent bookstores stands at one-third what of it was when these new business models were first introduced, only a handful of the 797 B. Dalton stores that Barnes & Noble originally bought still exist, and even Borders struggles to make the big box model work for bookselling.
The last decade brought digitization, which we’ve already acknowledged as a game changer: simpler and cheaper are the hallmarks of disruptive innovation and a digital book delivers on that in spades.
Take Amazon. From their one-click book purchasing to the Kindle’s advertising tagline, “Books in 60 seconds,” they have always touted simplicity. And the Internet giant has always emphasized the importance of driving prices lower. It was a main plank in their original strategy when they entered the market in 1995 and has remained so through their $9.99 pricing scheme for Kindle. They knew device adoption depended on cheap books.
Upstream v. Downstream
Certainly anyone who follows book publishing knows these stories. Disruption to this point has been in the last mile of the supply chain. Upstream, most of what has happened has been large-scale corporate consolidations, all with the stated goal of building economies of scale (much like what has happened with consolidation of regional hospitals).
So, what publishing activities could be disrupted, the equivalent of treating those ear infections at walk-in clinics?
Acquisitions: Publishers have long been the arbiters of taste, but finding relevant and compelling stories is going to get easier and easier as better filters are developed. Del.icio.us bookmarks, Digg recommendations, and Facebook “likes” are just the start.
Copy-editing: What happens when the Mechanical Turk (also a product from the folks in Seattle) becomes the de facto method of proofreading, with books broken down to sentences, and reviewers in Tallahassee or Tokyo copyedit while waiting in line at the post office? Book Oven is already letting authors upload their works on their site and volunteers check random passages for mistakes.
Public relations: What happens when a link shared on Twitter matters more than a review in the New York Times? For some books — let’s be honest, for many books — this is already the reality. Readers spreading the word about books that move and motivate them always mattered, but social media allows that word to spread further and faster. We can already see this disruption changing in-house job descriptions from, say, public relations to community relations.
Location: Any book that answers the question “Where?” and “Where to?” is under the threat of irrelevance in the world of GPS and user-generated reviews. Is there any reason to ever buy another stargazing guide, when my phone or tablet can be pointed at the sky and identify what constellations are visible that night? Do guidebooks matter when we can download apps for Yelp and Chowhound? Lonely Planet is navigating this with online communities like The Thorn Tree and applications that combine their expertise with real time information
The Very Idea of Books Themselves: The very nature of media is changing and rather than just consuming and sharing, readers also want to write as well. Look at the The Amanda Project (profiled here on PP) if you need a concrete version of what this looks like in book publishing.
So what’s left? Remember: what stays is just as important as what goes. At the core of this industry are words, and editors are the general practitioners of publishing, trained specialists that diagnose and improve the condition of a work. While sentences can be examined in pieces by the masses, narrative arcs require the thoughtful hand of an individual who can see the whole picture.
Just as a hospital is responsible for taking care of a community, so are publishers. Most don’t see this as their role. Instead, they tend to launch each book as an individual effort without the benefit of a receptive group.
For an example of a publisher that understands community, consider Tor. They had the courage to launch Tor.com and sell their books alongside every other sci-fi publisher. They know it’s not about each individual title, but a group of like-minded people wanting a place to share their love for a publishing genre.
One last word of caution from Professor Christensen: The biggest problem with disruptive innovation is that the incumbents don’t see it coming, ignore it, or underestimate its impact on their corner of the world. Incumbent organizations are built to serve existing customers and when new innovations don’t match the needs of those customers, they march on. This is another story you have heard as well…
The question now is: What role will you play?
DISCUSS: What is the Publishing Equivalent of Brain Surgery or a Heart Transplant?
Bibliography and Bonus:
Innovator’s Dilemma: When New Technologies Cause Great Firms To Fail – 1997
Innovator’s Solution: Creating and Sustaining Successful Growth – 2003
Seeing What’s Next : Using Theories of Innovation to Predict Industry Change – 2004
Disrupting Class: How Disruptive Innovation Will Change The Way The World Learns – 2008
The Innovator’s Prescription: A Disruptive Solution to Health Care – 2008