Finding the Next Growth Driver

by Directorship Editors

Directors can subtly encourage management teams to innovate to create top-line growth, says Clayton Christensen, professor at Harvard Business School and author of such books as The Innovator’s Dilemma (1997) and The Innovator’s Solution (2003). He serves on the boards of FranklinCovey and Tata Consultancy Services, which are public, and of underwriter W. R. Hambrecht and plastic manufacturer Nypro, both private. He talked to Directorship about the board’s role:

 

Should directors be involved in decisions that relate to new technology?

 

More often than not, directors come with perspectives that aren’t necessarily helpful to management. They’ve learned lessons from their own experience, but many times those lessons aren’t applicable to the situation the company is in. Generally, in a company, the directors are the least informed people. Their only access to information is what management gives them. It takes a lot of energy on the part of a board to dive in and understand these technologies in a way that they can contribute.

 

But many managements seem to develop a tunnel vision about their business. Couldn’t a good director be helpful in getting management to focus on broader trends?

 

That’s the role they should play. Generally, outside directors cannot add a lot of value to decisions about a specific technology or product investment, but they do need to be in a position of saying, “The company is growing okay, but in five years this core growth model is going to be maturing, and we’d better start the next business model now so that in five years it is big and growing rapidly.”

 

Can you name a company where the board actually does that?

 

I think historically Johnson & Johnson’s board has been really good at that. In their medical devices and diagnostic businesses, for example, almost all the growth in the past 10 years has come from business model innovations that they either initiated or acquired. The J&J board of directors seems to really have the vision to get these guys into new growth businesses even when the core is still quite healthy.

 

Intel’s board is at the other end of the spectrum. They have not really driven the company to create business model innovations. Instead, their investments have been to feed the core microprocessor business. Now that that business is very mature, the company is in trouble.

 

How does a board figure out where new growth can come from?

 

I’ll give you an example. I’m on the board of FranklinCovey in Salt Lake City. It is associated with Stephen R. Covey [author of The Seven Habits of Highly Effective People]. They do management training and have about $150 million in annual revenue. The company had been in a free fall, because the Franklin Planner had been disrupted by the Palm Pilot. The CEO, Bob Whitman, had staunched the losses and cut back expenses massively. Then Bob gave the directors a copy of my second book, The Innovator’s Solution, which is really a handbook for how senior executives can create new waves of growth. That gave the board a common language. Because we share a common framework for how growth is created, that board has been very effective in helping management see what’s next.

 

And what did the directors see?

 

Some of the board realized, “We’re training people to be highly effective, but they go to work in organizations that aren’t highly effective. So how could we use the same kind of thinking to ensure that three levels below the CEO, everyone is prioritizing the same things that the CEO knows to prioritize?” Typically, people below have no idea what the priorities are. Fixing that problem in organizations is a new growth business for FranklinCovey.

 

You’ve also been working on the U.S. medical system. What have you learned?

 

In many industries, the ability to provide the product or service far more cost-efficiently and far more conveniently has moved at a pace that really outstrips the progress the medical industry has made.

 

How much does the system cost the country?

 

Between 13 and 17 percent of the economy, depending on how you measure it.

 

But isn’t the increase due in large part to huge advancements in treatment?