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The world’s foremost authority on disruptive innovation

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shares some ideas from his latest book.

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Thought Le ader I nterview:

Clayton Christensen yo
by Cli˜ord Maxwell and Karen Christensen
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In your research on the path to prosperity, you and your col-

leagues found that most innovations target the ‘consumption were close to one billion mobile phones. That indicates the po-
economy’, ignoring the signifcant opportunities that exist in tential in the non-consumption economy.
the ‘non-consumption economy’. Please explain. Focusing on non-consumption provides what we believe to
No

The consumption economy is made up of customers who have the be the best opportunity to ignite new growth engines for compa-
income, time and expertise to purchase and use existing prod- nies. In turn, these new growth engines help communities pro-
ucts or services in a market. Most businesses, therefore, invest vide jobs and income, both of which ultimately help people make
in innovations that target these consumers. As a result, the mar- progress in their lives.

already know who your customers are, it’s relatively easy to see
potential for growth.
Non-consumers, as their name implies, consist of individu-
als who, for some reason, are not able to purchase and use a prod-
Do
Two schools of thought have dominated the theory of eco-
nomic growth over the past half-century, but you are propos-
ing a third. Please explain.
Paul

uct or service, and who may not even be able to tell you exactly
what they need. In almost every economy, non-consumption
outweighs consumption — so innovation that targets non-con-
sumption holds immense promise for growth.
For example, in the late 1980s, AT&T commissioned a
number of mobile phone users there would be at the turn of the
Romer, co-recipient of the 2019 Nobel Prize in Economics, and
others — holds that ideas drive economic growth. Because ideas,
once produced, can be copied and shared with minimal cost (so
the story goes), they can fuel sustained economic growth in ways
that are not possible for other factors of production.
The second school of thought acknowledges that ideas may
be the seeds of growth but points out that such seeds cannot,

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 Someone, somewhere, is going without because they either don’t have
the money, time, access or skill to use a current solution.
and will not, grow in poor soil. The most fertile soil for growth
is quality institutions — the lack of which is the ultimate limiting
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factor in most places. This refers to a nation’s ‘soft’ infrastruc-
ture and includes entities that make up the fnancial, judicial,
legal, political and even some social systems. Institutions can be
formal (nation-states, schools, hospitals) or informal (structures
of authority that derive from custom and culture rather than
laws and policies). This line of argument has been so persua-
sive that some international organizations, such as the United
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Nations and the World Bank, collectively spend billions of
dollars trying to help people in poor countries develop new insti-
tutions or fx existing ones.
Both of these perspectives have evident merit — indeed,
they are historically linked. Economies expanded at a snail’s pace
globally until the 18th-century Age of Enlightenment, when the
simultaneous emergence of scientifc methods and procedures
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of modern democracy propelled humanity into an era of learning
and discovery far beyond any previously known.
So, which is it: Do ideas or institutions fundamentally drive
long-term economic growth? My colleagues and I propose that
the most accurate and useful answer to this question is, in fact,
neither. We propose a third driver: market-creating innovation.
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How do you defne ‘market-creating innovation’ ?
A market-creating innovation does what its name implies: it cre-
ates a new market. But not just any new market — a new market
for people for whom existing products were neither afordable
nor accessible for a variety of reasons. These innovations trans-
form complicated and expensive products into ones that are so
much more afordable and accessible that many more people
are able to buy and use them. For example, computers are ubiq-
uitous today — most of us have them in our pockets. But that
wasn’t the case 60 years ago in the age of mainframe computers.
Do
The personal computer was a market-creating innovation that
made computing simple and afordable. It reduced the cost of
owning a computer from two million dollars to two thousand.
Armed with the understanding that there is vast opportunity
in creating businesses that target non-consumption, innovators
can spot a struggle and conceive of a future that is diferent from
the past. This is how the seeds of prosperity get planted.
14 / Rotman Management Fall 2019
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With market-creating innovations, the market for the product
or service does not yet exist. How can an organization know if
there actually is a market?
The key to identifying the potential for a new market is to look for
non-consumption. And to identify non-consumption, it’s helpful
to examine barriers to consumption. Someone, somewhere, is
going without because they either don’t have the money, time,
access or skill to use a current solution. Once you have on the
right lens to see non-consumption, you then need to pair it with
a deeper understanding of the ‘jobs to be done’ and the struggles
people face to make progress in their life. Until you understand
the job that potential customers are trying to get done, in all its
rich complexity and nuance, you can never be certain that your
innovation will be successful or that you’ll be creating a vibrant
new market.
Describe the diference between ‘push’ and ‘pull’ strategies—
and why pushing doesn’t always work in developing countries.
Poverty is painful, and almost always shows itself as a lack of
necessities — food, sanitation, safe water, education, infrastruc-
ture and public services. As such, it is reasonable to understand
that, for decades, many in the development community have
executed a push strategy, which is to provide the essential re-
sources that countries lack in order to solve particular prob-
lems. While well intentioned, push strategies don’t often take
root within an economy or a community. A pull strategy, on the
other hand, is based on the notion that when there is a strong
and growing market within a region, that market will ‘pull in’
the resources it needs to survive and thrive. And in many devel-
oping markets, this ends up including things like roads, educa-
tion, sanitation and other infrastructure. Once those things are
successfully pulled into a community, they have a much higher
likelihood of serving as a sustainable foundation for prosperity
because the surrounding market demands them.
What is one of your favourite examples of how market-creat-
ing innovation can transform an economy?
Tolaram, the Nigerian company that started making a 20-cent
pack of instant noodles, is a powerful example. Indomie noodles
can be cooked in less than three minutes and, when combined

with an egg, can be a nutritious, low-cost meal. This product
created a very vibrant market for millions of Nigerians who
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struggled to aford a decent meal, and forced Tolaram to make
long-term investments in the country in order to see that market
grow. Since 1988, Tolaram has invested more than $350 million
to create tens of thousands of jobs, developed a logistics com-
pany, and built infrastructure including electricity, sewage and
water treatment facilities. Tolaram has built educational institu-
tions, funded community organization programs, and has taken
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a lead role in developing a $1.5 billion public-private partnership
to build and operate the new Lekki deep-water port in the state
of Lagos, Nigeria’s commercial capital. This company has shown
that out of very little, the birth of a market can create benefts
that lead to sustainable development.
The second type of innovation you write about is ‘sustaining
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innovation’. What does that look like?
Sustaining innovations make good products better. Most innova-
tion you see today is sustaining in nature, and consist of products
that are sold for more money and at higher margins. Sustaining
innovations are important for companies and countries to re-
main competitive, but they have a very diferent impact on an
economy than market-creating innovations. When you decide
to sustain your current business in a mature market, you rarely
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need to build new sales, distribution, marketing and manufac-
turing engines. As a result, when compared with market-creating
innovations, sustaining innovations don’t generally have as sig-
nifcant impact on job creation, proft generation or changing the
culture of a region.
The third type of innovation you discuss in the book is ‘ef-
ciency innovations’. What do these entail, and why are they so
attractive to companies?
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Efciency innovations enable companies to do more with fewer
resources. In other words, as companies squeeze as much as
possible from existing and newly acquired resources, their un-
derlying business model and the customers they are targeting
with their products remain the same. These innovations are
crucial for the viability of companies as industries become more
crowded and competitive, and they generate free cash fow
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infringement of copyright. Permissions@hbsp.harvard.edu or 617.783.7860
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which is essential for investing in a company’s future. Efciency
innovations, while good for the productivity of an organization,
are not always good for existing employees. Think of all the plants
that have shut down or have been relocated due to outsourcing.
By themselves, efciency innovations tend not to create jobs or
lead to sustainable growth.
What will it take to encourage more market-creating innova-
tion?
Companies need to be patient for growth when investing in
market-creating innovations. Because they are targeted at non-
consumption and often require new value networks and business
models, these innovations need both time and capital in order
to grow. But as we’ve seen in countries around the world, these
innovations are growth engines not just for a company or an en-
trepreneur, but for an entire region.
What is your advice for readers who would like to pursue mar-
ket-creating innovation?
The key is to stay relentlessly focused on making products and
services so afordable and accessible that millions of people can
access what was previously inaccessible to them. Already we
have seen innovators ofering heart surgery for less than $2,000,
life insurance targeted at the world’s most at-risk populations
and transportation options for a fraction of the cost of main-
stream vehicles. If you stay focused on serving non-consumers
with afordable solutions, opportunity will be vast. Market-
creating innovations can begin to solve many of our world’s big-
gest problems, and in the process they can ignite the economic
engine of many countries struggling to prosper.
Clayton Christensen is the Kim B. Clark Professor of Business Administra-
tion at Harvard Business School. His most recent book is The Prosperity
Paradox: How Innovation Can Lift Nations Out of Poverty (HarperBusiness
2019), co-authored with Efosa Ojomo and Karen Dillon. He has been
named the world’s most infuential management thinker by the UK-based
Thinkers50.
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