by Elizabeth M. Ferrarini

How can one know whether a particular technology will change the way we live or work? What signs do you look for to tell if an emerging company is going to survive? These are just some of the questions that Enterpriseleadership.org put to Clayton M. Christensen, a technology management professor at the Harvard Business School.

In his groundbreaking bestseller, The Innovator's Dilemma, Christensen exposed the crushing paradox behind the failures of many key industry leaders -- (mis)judgments like pleasing the most profitable customers and ignoring disruptive technologies, such as Linux and network-attached storage devices. His book, The Innovator's Solution, makes the case that  innovation and profitability are more predictable than managers have come to  believe. Seeing What's Next, his latest book, provides a model for those of us without any proprietary information on how to forecast how innovations will affect companies and industries, and how to make the right decisions (while there's still time).

EL: How can a CEO monitor the pulse of his company's marketplace to  determine whether the company will succeed or fail?

CC: By looking at data in the present through a lens of good theories, a CEO can forecast whether the company is on track to become more prosperous or to fail. Data about the distant past always exists. If the CEO is using data to understand whether the company will be more successful or not, then the CEO will always be driving into the future, while glancing in the rear view mirror.

For example, if the innovations will help the company sell better products to existing customers, then these sustaining innovations will not necessarily result in future growth, even if it appears that you are innovating and that your profits are improving. If you look at it through the lens of my research, it would cause you to be worried. On the other hand, if your innovations are disruptive -- ones that create new growth markets -- even through they improve current financial results, you could say you are laying the foundation for an exciting future.

EL: What are the indicators that a business or an industry is ready for disruption? You talked about companies that produce products that no one buys and/or product improvements that no one will pay for. What are some of the other signs to look for?

CC: There are two types of disruptions: low-end and new  market. A low-end disruption might occur only if two conditions are met:

• customers at the low-end of a market don't value, and won't pay for, further  product improvements.
• someone has figured out a lower-cost business model that can be attractively profitable at the discount prices required to win the business of those customers at the low end.

The first condition identifies an entirely new market sector. If there is a specific population that doesn't have the skills to satisfactorily accomplish specific tasks, nor the money to buy the needed products, then they'll have to rely on the expensive and inconvenient help of experts. If that population exists, the second scenario occurs when someone else develops a technology that provides that specific population with an affordable and easy alternative for accomplishing their tasks.

EL: Given what you just said, where are the innovative opportunities for a major company, such as General Motors? How are they going to stay ahead of their competitors?

CC: If GM is trying to be innovative by making either better or larger sport utility vehicles, then I would really be worried. Seeing GM make innovations to its OnStar systems translates to a really exciting new growth business -- one that's disruptive. If GM tries to sell Buicks in Japan or China, then I would remark that it might yield profits -- but not create a lot of exciting new growth. On the other hand, if GM were to sell cars in China at a $4,000 price point, I would say the opposite.

By looking at innovations through the lens of good theory, you can tell whether today's innovations will produce tomorrow's results.

EL: How can a CIO encourage the company's use of innovative or  disruptive technologies?

CC: It's not the realm of a CIO to do this. The most exciting markets are the ones whose size can't be quantified. If the CIO finds himself or herself generating reports that innovating managers rely upon to assess the potential of the innovation, the CIO will be misleading people almost every time. To decide whether an innovation has potential, executives need to watch what people are doing, and then decide if the product they're proposing will help people do a better job of what they're already trying to do.

EL: In what industries is a lot of disruptive innovation going  on?

CC: Salesforce.com is a disruptive innovator to a sustaining technology company like Oracle. Linux has an operating system in Web-based computing that has become the OS of choice for handheld devices. It's really an exciting, disruptive innovation. Regional airlines are an exciting disruptive innovation that are just killing the major airlines, and SANdisk, which makes flash memory, is a disruptive innovation that is killing the disk drive industry. Wireless 802.11 and WiMax are pretty exciting innovations in telecom.

EL: Right now, another disruptive technology, the Blackberry wireless network, is embroiled in a patent lawsuit. Can a force like this hinder a disruption?

CC: It happens on occasion to sustaining innovations. Intellectual property protection impacts innovation in both positive and negative ways. A lot of times, patent issue thickets arise that make it difficult for anyone on the sustaining tier to create a meaningful innovation. For disruptive ones, the intellectual property issues almost never matter.

EL: About six years, StorageNetworks built an IT infrastructure from commercially available hardware, raised more than $200 million, and offered organizations a third-party source for immediate storage, likened to that of a public service utility. EMC validated the concept. But StorageNetworks couldn't make a go of that business and offered backup stores and eventually started licensing its software. Then, StorageNetworks went Chapter 11 and couldn't even find a buyer. What went wrong here?

CC: I haven't really studied this company in depth. With the caveat that I haven't crawled inside, I'll tell you some of the things I worry about as I watch emerging companies. First, when you start a business, you may think you know, but you don't really know if you have the right strategy. Likewise, you don't really know who are the right customers, and what job they are trying to get done. You start out with a deliberate strategy, and you think, this is the right thing, when in fact, you almost have to know for sure that, initially, you're going to be wrong. Therefore, you have to get in the market quick with a little of that conviction, then figure out what will work later.

One of my books cities a colleague's study of 400 Harvard Business School graduates who started new companies. Half have been successful; half haven't been. The graduates who founded about 90 percent of the companies that succeeded said they didn't entirely trust the strategy they used when they raised money. They ended up selecting another strategy that enabled them to succeed. The difference between the successes and the failures wasn't that the successful ones got it right the first time. They just had money left over after they got it wrong.

They learned from their mistakes in time to shift gears.

EL: What do you mean by "good investment money" and "bad investment  money"?

CC: Bad money flows into something with the willingness to accept big losses. You've got the expectation that the more you spend, the more you'll earn later. You spend the money expecting your strategy is right.

There probably was a good business opportunity somewhere for StorageNetworks. However, it's accurate to say that StorageNetworks didn't have the right initial strategy, and spent a lot of time pursuing it. Or you can say that StorageNetworks employed a deliberate strategy aggressively from the beginning, and spent to get big fast.

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Elizabeth M.  Ferrarini is an IT consultant from Boston, Massachusetts.