The Importance of Categorization

Clayton Christenson's book Innovators' Solution  embarks on the analysis of how managers at companies can come up with the winning strategy required to grow at a pace market wants them to grow emphasizing the importance of characterization to understand the mechanics of what leads to growth.

He starts with an interesting example of doctors randomly giving a tablet to a patient just because it cured the previous 2 patients. I would say that approach won't be totally wrong. After all that is how many of the traditional medicine systems worked. Thing that fundamentally improve the health of all humans can improve health of everyone - you know vitamin tablets and stuff. But for a targeted approach to cure a specific disease one needs to understand the patient's specific characteristics. This can again go to the other extreme of every individual is unique and evolving an unique treatment for every individual. This would take the whole process of medication away from the realm of science into the realm of magic. For it would be impossible to come up with an unique remedy for every patients' unique condition. That is where we have to adopt a compromise which is what our scientific approach does. Logically categorize into groups and have set of solutions for each group. So the doctor's skill is in putting the patient into the right group and administering the corresponding medicine.

When grouping, one must be careful the same categorization may not work for every purpose.  For instance, a person may fall in a certain group when it comes to treating a medical condition, a different group when being identified for employment in a certain profession and a third group when being targeted as a consumer. That is what the so called stereotyping does wrong. The mistake is not in the categorization of people but in using a categorization done for a different purpose in a scenario where such categorization is not applicable. For example saying all African Americans would make great sportsmen. Now typically African American have great build. And people with good builds make great sportsman. So if you look at it statistically this assertion may even seem to make sense. But if one were to consider a not so well build African American, they may not be a great sportsperson. And an extremely well built person of a different race may make a great sportsperson. Same is the case with companies.

Hence while studying cause and effect and understanding what makes a company grow successfully, one must categorize companies correctly failing which one might come to completely wrong conclusions and make suggestion that will destroy value rather than add value. And often like how with humans, the easiest categorizations such as race, nationality, religion may not be the right categorization, for companies, categorizations such as industry, industry group, geography, revenue may not be the best to determine what kind of investments will result in maximum growth.

With this, Professor Christenson dives into analysis of 9 key questions a company must ask as they go about formulating their strategy.