Harvard professor Clayton M. Christensen says outstanding companies can do everything right and still lose their market leadership -- or worse, disappear completely. And he not only proves what he says, he tells others how to avoid a similar fate.
Focusing on "disruptive technology" -- the Honda Super Cub, Intel's 8088 processor, or the hydraulic excavator, for example -- Christensen shows why most companies miss "the next great wave." Whether in electronics or retailing, a successful company with established products will get pushed aside unless managers know when to abandon traditional business practices. Using the lessons of successes and failures from leading companies, "The Innovator's Dilemma" presents a set of rules for capitalizing on the phenomenon of disruptive innovation.
Clayton M. Christensen is the Robert and Jane Cizik Professor of Business Administration at the Harvard Business School, with a joint appointment in the Technology & Operations Management and General Management faculty groups. He is best known for his study of innovation in commercial enterprises. His first book, The Innovator's Dilemma, articulated his theory of disruptive technology.
Christensen was born in Salt Lake City, Utah, the second of eight children. He holds a B.A. with highest honors in economics at Brigham Young University (1975), an M.Phil. in applied econometrics and the economics of less-developed countries at Oxford University (1977, Rhodes Scholar), an MBA with High Distinction at the Harvard Business School (1979, George F. Baker Scholar), and a DBA at the Harvard Business School (1992).
Clay Christensen lives in Belmont, Massachusetts with his five children, wife Christine, and is a member of The Church of Jesus Christ of Latter-day Saints. He has served in several leadership positions in the Church. He served as an Area Seventy beginning in April 2002. Prior to that he served as a counselor in the Massachusetts Boston Mission Presidency. He has also served as a bishop. He speaks fluent Korean.
Christensen is currently battling follicular lymphoma.
For further details and an ordered list of the author's works, see the author's Wikipedia page.
Chances are, you’re reading this review on an example of disruptive technology. An iPhone or other smartphone. An iPad or a notebook computer. Or simply a laptop. Every one of these devices turned its industry upside down when it was introduced, driving established companies to the brink of insolvency, or even into oblivion, and paving the way for new actors to enter the landscape.
Today, almost instinctively, we understand the concept of disruptive technology. But it wasn’t until after the publication in 1995 of an article by Clayton Christensen in the Harvard Business Review entitled “Disruptive technologies: catching the wave” that the term entered the language. That seminal article was followed in 1997 by Christensen’s pathfinding book, The Innovator’s Dilemma – one of the most influential business books of all time.
Christensen, a long-time professor of business administration at the Harvard Business School, had found an answer to a question that had long mystified the business community: why had such iconic, well-managed firms as Digital Equipment Corporation, Xerox, and dozens of others that had long led their industries fallen by the wayside? The professor’s answer was not that they had simply gotten behind technologically but that they had done everything right — listening carefully to their best customers and catering to their needs by investing in sustaining technologies that offered customers added value. The problem was that the dictates of prudent business practice prevented them from investing in the sort of innovation that could turn their own industries upside down: disruptive technologies. In fact, Christensen wrote, “the only instances in which mainstream firms have successfully established a timely position in a disruptive technology were those in which the firms’ managers set up an autonomous organization charged with building a new and independent business around the disruptive technology . . . There is something about the way decisions get made in successful organizations that sows the seeds of eventual failure.”
A decade and a half ago this was a shattering insight and it explains the acclaim that Christensen’s work has received throughout the world of business. However, if you turn to his book, The Innovator’s Dilemma, in search of deeper understanding of these concepts, you may be disappointed. I was.
Sadly, this book is organized and written in a style that reeks of old-fashioned academia. Chapter One, an introduction of sorts, sums up the book as a whole — in 26 tedious pages, explaining in detail what the reader will find, chapter by chapter. First, Chapter One briefly outlines what the book will reveal, then proceeds to repeat each point in detail. Then, as though that isn’t enough, each chapter repeats the same points, adding considerably more detail. The final chapter repeats each of the major points — again. The repetition is maddening. And so is the overuse of the passive tense, which abounds throughout. Compounding the problem are the long-winded explanations of such things as how disk drives work and the distinction between thin-film technology and ferrite-oxide technology in disk drives’ read/write heads. All this material, no doubt necessary to “prove” Christensen’s thesis to his academic peers (some of whom are still not convinced), gives the book the charm and box-office appeal of a PhD dissertation about the influence of the Greek concept of the soul in 13th Century French literature.
If all you want is to get to the meat of this book and avoid slogging through endless detail about matters only an engineer could love, read the first chapter and the last one. Forget the rest. You’ll thank me.
This book was on my list of "Books I should read" for a long time. Maybe this is why it was so disappointing, or maybe I've just read too many modern case studies of business models to find this engaging. It was interesting to read about the origins of many terms that I take for granted (i.e. disruptive technology), but I couldn't really relate any of the examples or theory beyond anything that's already been mentioned by other more recent authors. And its hard for a 20-something to relate to the modernity of disc drives.
This is a great book on innovation and how start-up and entrepreneurs ought to fashion their company to go against entrenched incumbents.
The gist of the book is an interesting trend the author found when analyzing the industry. He found that certain innovations were "disruptive" -- meaning they changed the way a market worked, and some were "sustaining" -- meaning they were really just improvements on existing products.
The author traces disruptive innovations through the steel industry, where it took $100M + to build an integrated steel mill. Someone one day discovered a way to make steel with a much cheaper furnace -- a "mini-mill". This mini-mill made steel that was ugly and weak, compared to the integrated steel mills -- but it was good enough for one type of steel: rebar. It could make rebar about 10x cheaper than the integrated steel mills, and it didn't matter that it was ugly.
The integrated mills could not compete with the mini-mill due to costs. But, more importantly, they did not *want* to compete. Rebar was the lowest quality of steel, the most commoditized, and the customers were the least loyal and most price-sensitive (read: difficult). They were happy to walk away from that business...they really made no money in that market anyway. So the mini-mills experienced almost no competition from the incumbant.
After a few years the mini-mills all experienced decreasing profits due to more mini-mills entering the market. Soon, someone discovered how to make the next level of steel -- I forget what it was, elbow joints or something. The same cycle happened...the integrated mills walked away from a fight and the mini-mills saw huge profits for a few years until they all caught up.
Slowly, innovation after innovation ended up eating away all of the business from the integrated mills -- who never once tried to compete for the business they were losing. Today there are no integrated mills in existence.
This is the gist of the book: if you are going to create a new company, you ought to learn from history and fashion a product that will have the existing leaders gladly walking away from the business you are fighting for.
Anyway, this is a long review. Great book, very thought provoking.
The subject of this classic is disruptive technology.
With the help of many examples from industry (disk-drives being his main workhorse) the author explains what technologies are likely to disrupt, who is likely to be disrupted, why they are likely to be disrupted and what the choices are that the established players have when presented with disruption.
The most important point is that disruption generally comes from the practice of repackaging and marketing already existing, straightforward technology at a lower price point to a new customer base that is not economically viable for the established players.
For example, QuickBooks was marketed to mom-and-pop stores who could not afford to pay an accountant and it was the el-cheapo version of Quicken. It is of no use to a proper corporation. JC Bamford got started with hydraulic backhoes that were good enough for small contractors looking to dig a small ditch but wholly inadequate for the purposes of a miner. 5.25 inch disk drives were marketed to the nascent market for personal computers and were of no use to minicomputer manufacturers.
Disruptive technology is cheaper per unit, but its price / performance ratio is much worse than that of the established technology. It’s not good enough for the clients of the established players. Ergo it must be sold on its (lower) price alone, meaning that its purveyors must seek new markets. Flash memory, for example, was first used in cameras, pacemakers etc. Not in computers!
There is a large number of reasons that established players will frown upon the new technology:
1. Good companies listen to their clients. Their clients will tell them they don’t want it. They will demand performance and they will pay for performance.
2. Profitability will be lower in the lower-margin disruptive technology. Profit margins will typically mirror cost structures and will thus be higher for the higher-end product. Established players will in the short term make more money if they allocate their resources toward not falling behind their immediate competition for the higher-end product. (i.e. “sustaining” their competitive edge in the higher margin / higher tech market)
3. The processes used by the established players to sell and support the established technology may not be the right ones for the new tech.
The main thing to realize is that the technology does not live by itself. It is embedded in a “value network.” A car serves a commuter, a digger serves a mine, a disk drive is screwed down somewhere in a computer etc.
The seeds of disruption lie in the fact that the technology itself and its value network may not necessarily be progressing at the same speed.
If the technology is improving much faster than the trajectory of improvement of the “value network” (for example, if the desktop PC users demand extra disk storage slower than the industry is capable of delivering extra disk storage), then
1. The point comes when the value network of the established technology does not need the incremental improvements on which the established players are competing with one another to deliver.
2. More importantly, a point comes when the performance of the disruptive technology becomes good enough to be embedded in the value network of the established technology. So 3.5 inch disks developed for laptops can do good enough a job for a desktop, for example, without taking up the space required for a 5.25 inch disk.
It gets worse: sure, disruptive technology is deficient in terms of features / performance, but the price sensitive customers who do not care so much about performance often care a lot about reliability. (A small contractor who buys a single backhoe digger cannot afford a maintenance team.) Similarly, the unsophisticated customers of the disruptive technology may care a lot about ease of use. (Mom and pop using Quickbooks have no idea what double-entry book-keeping is!) What this means is that when the performance of the disruptive technology has become good enough for it to be embedded into the value network of the established technology, it often brings with it an advantage in reliability and ease of use.
So at that point the disruptive technology is cheaper, more reliable and easier to use than the established technology, all while delivering adequate performance.
And that’s how purveyors of the established technology (who have been at war with one another to deliver on the ever-increasing performance their customers have been demanding) find themselves at a disadvantage versus the disruptors when it comes to reliability and ease of use right about when their customers tell them they won’t pay for extra performance or features any more.
The disadvantage of the lower-tech disruptor has created an advantage and it’s game, set and match!
What’s an established player to do? If I’m running a super successful company and I spot a new technology what am I to do?
One thing I should not do is listen to my underlings. The dealers who sell my cars will not want a customer who just walked into the dealership to buy a V8 to drive out in a small electric car. The salespeople will keep asking me for the most expensive product because they will be paid a commission on their margin and will keep pushing me “north-east” on the price / performance chart. Resistance to disruptive technology often comes from the rank-and-file.
I also should not listen to my shareholders. Small markets (and all disruptive technology starts small) do not solve the growth problems of large companies.
First and foremost, I must understand that the challenge I face is a MARKETING challenge. The tech I’ve got covered. The resources too.
If my company’s processes and my company’s values (defined as “the standards by which employees make choices involving prioritization”) are aligned with the marketing challenge, I’m in luck: chances are that for my company this new technology will eventually become a “sustaining” technology.
I can get my wallet out and buy EARLY a couple of the new entrants. Early enough that my money is not buying process or values or culture, but merely assets/resources and ideally walking and talking resources (the founders) who will adopt the processes and values of my organization.
Alternatively, I can carve out some great people from my organization and: 1. Give them responsibility for the new technology and assign to them the task of identifying the customers for this new technology 2. Match the size of this new subdivision to the current size of the market. 3. Allow them to “discover” the size of the opportunity, rather than burden them with having to forecast it: “the ultimate uses or applications for disruptive technologies are unknowable in advance” 4. Let them fail small, as many times as necessary That’s what IBM did when they ran their PC business out of Florida and what HP did when they realized ink jets would one day compete with laser printers!
If, on the other hand, my company’s processes or my company’s values are not aligned with the marketing challenge, then I need to buy a leader in the new technology, and have a finger in every pie. And I need to protect my acquired company from my organization. This is, obviously, a bigger challenge (and one my shareholders may not embrace, as their dollars are as good as mine, but the author stays away from this discussion!) As the succession in technologies plays out, I will then eliminate large parts of my current organization. The author cites an occasion on which this is exactly how things played out.
And there you have it! I think that’s the author’s answer to “The Innovator’s Dilemma”
Obviously, that’s a very quick sketch. You’ll have to buy the book to see the complete story (and to be convinced, I suppose). Be warned that in the interest of keeping the various chapters self-consistent you may find some repetition, but overall this is a very quick read.
I’m aware of people who really dislike Clayton Christensen. I’ve even come across a Twitter account that’s dedicated to trashing him. But I, for one, was convinced that he’s describing a valid concept with many applications.
Also, as a guy who established a disruptive business within an established player I totally experienced both the dismay of my superiors when they realized that “small markets don’t solve the problems of large organizations” and the discomfort of trying to shoehorn my project into the rather baroque established processes.
So I have lived through many of the steps the book describes and I reckon they are rendered very accurately. The research shows!
This is one of the best books on innovation in the last 20 years. I read it in 2000 and still refer to it. Christensen’s core insight/argument is that businesses fight shy of developing innovations that will 1: produce limited profits initially; 2: cannibalise core, high cashflow/profit lines. But that what look like niche technologies – Winchester drives, hydraulic backhoes, etc – improve in capability, reliability and reduce in price to the point that they entirely cannibalise the existing market, leaving the established players high and dry, with no new product lines. (In a way he is reposing the falling rate of profit thesis.) He suggests some rather less convincing solutions in the book, and expounded further in The Innovator's Solution: Creating and Sustaining Successful Growth. I would argue that Apple presents an interesting solution to this challenge, with its creation of new product lines that complement and build on – but, largely, don’t cannibalise – its existing product lines.
This business classic resonated with my long career in high tech. There were no major conclusions that I took issue with. I nodded my head often while reading.
So in a few words — Christenson really knows his material.
At twenty plus years the examples are dated and presented in an academic manner. Disk drives compose the largest of the industry analyses, so some boring examples in many cases.
The charts and graphs are poorly done and it makes one actually appreciate power point slides.
3.5 stars. This read might be most beneficial for someone entering the work force or going through a radical company transformation in high tech or corporate America who has not experienced these dilemmas yet.
This is one of those books that becomes an instant classic. Everyone talks about it until you think you know most of what it has to say without reading it shortly after it comes out. You can barely carry on a conversation about technology without someone using the term "disruptive." It deserves that reception and as with most cases, there is much more to gain by reading the book than just the popular representation.
The book defined disruptive technologies vs. sustaining technologies and addresses why good, established companies usually dominate and prosper with new sustaining technologies and often fail or are even displaced because of disruptive technologies. It shows how such companies can cope with the challenge to maximize their chances even though there are systemic biases against it given how an established company must approach resource allocation.
In my own career, I'm generally in the place of the smaller companies that effectively utilize disruptive technologies rather than with large, established firms with that problem. It is equally valuable from that perspective because it sheds light on some of the advantages that are felt but perhaps not fully identified and guidance on how you might better exploit them.
This book ought to be read by most people interested in business and certainly everyone occupied with computer technology.
A good book, but a bit disappointing because totally centred upon business managing. I would like to see the discussion occurring at a lower level, the creative moment, before management decisions. Leave here the five principles stated by Clayton in the book. I generally agree with all of them, being the fifth one the most subjective.
"Principle #1: Companies Depend on Customers and Investors for Resources
Principle #2: Small Markets Don’t Solve the Growth Needs of Large Companies
Principle #3: Markets that Don’t Exist Can’t Be Analyzed
Principle #4: An Organization’s Capabilities Define Its Disabilities
Principle #5: Technology Supply May Not Equal Market Demand"
Clayton M. Christensen writes clearly and analytically, with lot's of examples and research, pleasure to read. Thoughts so logical you wonder how the managers/CXO's he talks about didn't figure this out by themselves already yesterday. A thought provoking read no doubt, even for those not in executive positions.
It's not a 100%, but gets some future predictions right - fun to discover them 18 years later. And it's also interesting to use the frameworks described to think about new technologies that constantly keep surfacing on this Information Age we live in.
"It is unclear how long the marketers at Microsoft, Intel, and Seagate can succeed in creating demand for whatever functionality their technologists can supply. Microsoft's Excel spreadsheet software, for example, required 1.2 MB of disk storage capacity in its version 1.2, released in 1987. Its version 5.0, released in 1995, required 32 MB of disk storage capacity. Some industry observers believe that if a team of developerswere to watch typical users, they would find that functionality has substantially overshot mainstream market demands. If true, this could create an opportunity for a disruptive technology - applets picked off the internet and used in simple internet appliances rather than in full-function computers, for example - to invade this market from below."
So essentially Christensen predicted Google Docs, Zoho Docs and similar products in the year 1997. Or if we stretch a bit, cloud services not present on our own devices, but on far away server rooms.
Tenth chapter of this book is basically the manual for approaching electric vechicles as a disruptive technology - a manual for Elon Musk to build Tesla. :)
Although the conclusion the author arrives is not Tesla Model S (a premium product), but rather a cheap and low range Mitsubishi iMiev or Nissan Leaf. Well, that's why you don't predict, but explore and try.
"To measure market needs, I would watch carefully what customers do, not simply listen to what they say. Watching how customers actually use a product provides much more reliable information than can be gleaned from a verbal interview or a focus group. Thus, observations indicate that auto users today require a minimum cruising range (that is, the distance that can be driven without refueling) of about 125 to 150 miles; most electric vehicles only offer a minimum cruising range of 50 to 80 miles. Similarly, drivers seem to require cars that accelerate from 0 to 60 miles per hour in less than 10 seconds (necessary primarily to merge safely into highspeed traffic from freeway entrance ramps); most electric vehicles take nearly 20 seconds to get there. And, finally, buyers in the mainstream market demand a wide array of options, but it would be impossible for electric vehicle manufacturers to offer a similar variety within the small initial unit volumes that will characterize that business. According to almost any definition of functionality used for the vertical axis of our proposed chart, the electric vehicle will be deficient compared to a gasolinepowered car. This information is not sufficient to characterize electric vehicles as disruptive, however. They will only be disruptive if we find that they are also on a trajectory of improvement that might someday make them competitive in parts of the mainstream market. The trajectories of performance improvement demanded in the market—whether measured in terms of required acceleration, cruising range, or top cruising speed—are relatively flat. This is because traffic laws impose a limit on the usefulness of ever-more-powerful cars, and demographic, economic, and geographic considerations limit the increase in commuting miles for the average driver to less than 1 percent per year. At the same time, the performance of electric vehicles is improving at a faster rate—between 2 and 4 percent per year—suggesting that sustaining technological advances might indeed carry electric vehicles from their position today, where they cannot compete in mainstream markets, to a position in the future where they might."
... "If present rates of improvement continue, however, we would expect the cruising range of electric cars, for example, to intersect with the average range demanded in the mainstream market by 2015, and electric vechicle acceleration to intersect with mainstream demands by 2020."
To which one living in 2015 can chuckle - Tesla Model S came out in 2012 and it definitely beats any average acceleration and range demands. Actually any electric vehicle in production accelerates like a mad horse.
And a last piece for my memo: the parameters by which customers compare the products on the market (from left to right) FUNCTIONALITY - RELIABILITY - CONVENIENCE - PRICE. In a young market, functionality is almost the same for all products, then they will start looking at reliability to differentiate the product. If that becomes the same, they will look at convenience. And if the products have become all three, the last thing basically will be a price war.
Notes from Clayton Christenson, The Innovator’s Dilemma
It pays to be a leader in a disruptive innovation • Leadership in sustaining innovations gives little advantage • Leadership in disruptive innovation creates enormous value
But established companies typically fail in the face of disruptive change • Companies get organized to satisfy current customer’s needs and to facilitate design and production of current products. This organization can then prevent the organization most conducive to developing a disruptive product (Henderson and Clark). • Competencies developed for improving the current product may not be applicable for developing a disruptive product (Clark) • Above two theories don’t adequately describe what happened in disk drive and excavator industries. Value Networks explanation: Companies tend to invest in innovations that fit the needs of their “value network,” which defines the hierarchy of importance of characteristics for current customers. Current customers reinforce this by not needing the innovation. (Christenson) • New entrants find markets with different value networks for innovations • Companies are more likely to seek additional markets upward rather than downward because up-markets are defined and promise larger margins and the investment the companies have gotten used to making for product improvements demand higher margins. Also existing customers move up-market and take their suppliers with them. This leaves a vacuum below, e.g., flash memory instead of disk drives. [Basecamp instead of MS Project:] • New entrants also move up-market which brings them into competition with established companies. New entrants tend to improve faster than established companies and so they will eventually disrupt. • Middle managers avoid career risk of backing innovations for which no market or a down-market is identified. They screen out these opportunities so senior managers don’t even see them as an option. Even if a senior manager decides to pursue a potentially disruptive innovation, there will be resistance if not outright thwarting at the middle management layer (most likely passively through reluctance to allocate resources [see HBS case on Kodak).
What established companies need to do • Be able to recognize and enter different value networks • Align disruptive innovation with the “right” customers by embedding the innovative project in a part of the organization (new if necessary) that serves the customers for the innovation and doesn’t have to meet same revenue/margin demands as incremental/sustaining innovation • Be prepared to go through an iterative process that is failure tolerant because forecasting the market is impossible. This process should be a learning process that goes beyond focus groups to actual observation of new customers and new applications. • Use the resources of the big organization but not its culture and processes • Don’t try to push the growth of an emerging market (Apple Newton) and don’t wait until the market is large enough to be interesting. Instead match the organization size to the growing market so that its goals are satisfied by the organically growing market and so it’s cycles match the rhythm of the market. Acquisition may be the solution. • Assess the capabilities of your organization and set up a structure (existing organization, lightweight teams, or heavyweight teams) that makes up for the deficiencies in the existing situation.
[Note: these “recommendations are repeated by Govindarajan in 10 Rules for Strategic Innovators]
Well, this is a mixed bag, this interesting little book. The observations are prescient but the presentation is abominable. I'm sure for those who demand an exhaustive regurgitation of every step in an analysis, it is useful, but I felt that most of the book could have been the research appendices. On the other hand, the conclusions drawn were incisive and incredibly useful. It would have worked well if it had been presented as a research paper with a 10-page abstract. As a practitioner, I could be pretty hard on it because it's missing application, but I get that it was meant to be more academic in its approach, and I'm big enough to draw my own conclusions about implementation. Very dry read. Very good analysis.
This is such a well articulated and well organized book. The book can pretty much be divided into two parts: the problems that arise with disruptive tech and how to deal with them; they are further dissected into eleven chapters for better comprehension of the topic. Sure, you could grasp the crux of the book by reading the summary provided at the end. But the cases provided to complement the author's points turn out to be pretty great and help the readers gain greater insights into disruptive tech.
A pretty convincing argument for why large, established companies struggle to keep up with disruptive innovations. It turns out that the very things that make those companies dominant in an existing market work against them when considering new markets. As the pace of disruption accelerates, the lessons in this book become more and more important.
Less convincing are the solutions the book proposes and, at an even more basic level, how to distinguish between what the book calls "sustaining innovations" and "disruptive innovations". It seems that the definitions rely on hindsight (ie, a disruptive innovation is one that turns out to, uh, disrupt the leaders) and are not particularly predictive. And since the solutions the book proposes only work for the disruptive ones, this is a rather big weakness.
Still, the book is worth reading for building your awareness and vocabulary around these issues. The writing is a bit dry and academic-sounding, but there are plenty of good examples that, if you've ever worked at a large company, will feel all-too-familiar.
Some good quotes from the book:
First, disruptive products are simpler and cheaper; they generally promise lower margins, not greater profits. Second, disruptive technologies typically are first commercialized in emerging or insignificant markets. And third, leading firms’ most profitable customers generally don’t want, and indeed initially can’t use, products based on disruptive technologies. By and large, a disruptive technology is initially embraced by the least profitable customers in a market. Hence, most companies with a practiced discipline of listening to their best customers and identifying new products that promise greater profitability and growth are rarely able to build a case for investing in disruptive technologies until it is too late.
While managers may think they control the flow of resources in their firms, in the end it is really customers and investors who dictate how money will be spent because companies with investment patterns that don’t satisfy their customers and investors don’t survive. The highest-performing companies, in fact, are those that are the best at this, that is, they have well-developed systems for killing ideas that their customers don’t want. As a result, these companies find it very difficult to invest adequate resources in disruptive technologies—lower-margin opportunities that their customers don’t want—until their customers want them. And by then it is too late.
With few exceptions, the only instances in which mainstream firms have successfully established a timely position in a disruptive technology were those in which the firms’ managers set up an autonomous organization charged with building a new and independent business around the disruptive technology. Such organizations, free of the power of the customers of the mainstream company, ensconce themselves among a different set of customers—those who want the products of the disruptive technology.
In dealing with disruptive technologies leading to new markets, however, market researchers and business planners have consistently dismal records. In fact, based upon the evidence from the disk drive, motorcycle, and microprocessor industries, reviewed in chapter 7, the only thing we may know for sure when we read experts’ forecasts about how large emerging markets will become is that they are wrong.
Simply put, when the best firms succeeded, they did so because they listened responsively to their customers and invested aggressively in the technology, products, and manufacturing capabilities that satisfied their customers’ next-generation needs. But, paradoxically, when the best firms subsequently failed, it was for the same reasons—they listened responsively to their customers and invested aggressively in the technology, products, and manufacturing capabilities that satisfied their customers’ next-generation needs. This is one of the innovator’s dilemmas: Blindly following the maxim that good managers should keep close to their customers can sometimes be a fatal mistake.
My findings consistently showed that established firms confronted with disruptive technology change did not have trouble developing the requisite technology [...] Rather, disruptive projects stalled when it came to allocating scarce resources among competing product and technology development proposals [...] Sustaining projects addressing the needs of the firms’ most powerful customers [...] almost always preempted resources from disruptive technologies with small markets and poorly defined customer needs.
Successful companies want their resources to be focused on activities that address customers’ needs, that promise higher profits, that are technologically feasible, and that help them play in substantial markets. Yet, to expect the processes that accomplish these things also to do something like nurturing disruptive technologies—to focus resources on proposals that customers reject, that offer lower profit, that underperform existing technologies and can only be sold in insignificant markets—is akin to flapping one’s arms with wings strapped to them in an attempt to fly. Such expectations involve fighting some fundamental tendencies about the way successful organizations work and about how their performance is evaluated.
One of the dilemmas of management is that, by their very nature, processes are established so that employees perform recurrent tasks in a consistent way, time after time. To ensure consistency, they are meant not to change—or if they must change, to change through tightly controlled procedures. This means that the very mechanisms through which organizations create value are intrinsically inimical to change.
In order for a $40 million company to grow 25 percent, it needs to find $10 million in new business the next year. For a $40 billion company to grow 25 percent, it needs to find $10 billion in new business the next year. The size of market opportunity that will solve each of these companies’ needs for growth is very different. As noted in chapter 6, an opportunity that excites a small organization isn’t big enough to be interesting to a very large one. One of the bittersweet rewards of success is, in fact, that as companies become large, they literally lose the capability to enter small emerging markets.
Disruptive technology should be framed as a marketing challenge, not a technological one.
There are two kinds of innovations: sustaining and disruptive. Sustaining ones are about improving the product along some dimensions, without making it worse along any others: a new iteration of iPhones is an example, or the latest M1 MacBooks. Disruptive ones make the product noticeably worse, except for some dimension that is irrelevant to the users of the current generation. If you are actively using a Nokia smartphone or Windows mobile in 2006, the new iPhone looks like a toy: no copy-paste? No multi-tasking? $500? No keyboard? In my ultimate productivity&communication machine? Are you kidding me?
Or you are making 8-inch hard drives in the 80s, most of your customers are producing minicomputers, your engineers come to you with the prototype of a 5.25-inch hard drive. You bring it to your most valuable customers, they say: —Looks cool, how many bytes does it fit in? —Less than 5.25^2/8^2 = 0.43 times (in fact it seems closer to 0.2-0.3 from the data in the book) what the hard drives we are selling to you right now fit in. —LOL. —But look how small it is! —Have you seen a minicomputer? "Mini" is in comparison to a mainframe.
—Ok I think I get your point.
Back at the office you tell the engineers "it is nifty but no one wants it, plus the margins are thinner than on the 8-inch drives", and give them a different project to work on. A year later some upstart is selling 5.25-inch drives to the makers of personal computers: they need a smaller drive (because they want a small computer, plus smaller drives vibrate less and thus are more reliable, which is less relevant for minicomputers which mostly stay in one place bolted to the floor), and don't need as much disk space as the minicomputers do. Your planning division estimates the personal computer market to maybe get to 10k computers tops, so you brush it off.
Couple of years later the PC market is overtaking the minicomputers market, but your business is doing well. That upstart shows the latest 5.25" drive, which is still lagging behind your latest 8" drives capacity by 2-3x, those noobs just can't keep up with you. But some of your customers, the ones that used to buy your cheapest drives, switch to the upstart (maybe reliability matters a bit more for them). Well, that's even better for you: the margins are larger on the more expensive models, so you just discontinue the cheapest line. A year later you discontinue another line, improve your margins even more, two years later 5.25" drives have enough capacity for all minicomputer manufacturers, you say "oh shit" and go bankrupt.
What happened? The 5.25" drive was a disruptive technology: it was worse along the axis important to the current customers, but the upstart found an emerging market that had a use for it, even though the performance was worse. Your company was large enough to ignore that emerging market (develop a new product, with worse margins, for a market that is about a couple percent of the one you are in, and sell it to the customers you don't have existing relationships with — why would you do that?). Plus, since the 5.25" drive has smaller margins, you'd need to find new suppliers, change the processes at your company to make the smaller margins culturally acceptable (if your boss is used to having 40% margins, are you going to bring them a proposal for a new project with 30% or even 20% margins?). You'd need to establish the relationship with new customers. And all of that — given that it is far from certain that those fancy PCs will ever be more than a dust speck on the total computer market share graph.
That is the basic gist of the innovator's dilemma: if you are dealing with a disruptive technology, it needs a new market. Your current customers, your suppliers, the sellers of your product, even your company culture will all be against a new product with the worse margins, worse performance along the axis that seems relevant, and a much smaller market. The CEO may not even hear about a proposal to develop a project further because someone below "of course the CEO is going to reject this and demote me for wasting their time on this obviously bad proposal". And so much for the "listen to your customers" wisdom.
What's the solution? Spin out a separate company for the project or acquire a startup. Christensen gives a great Resources, Processes, Values framework (basically, resources (i.e. people, patents, factories) are easier to change than the processes which are easier to change than the company values, and a disruptive technology probably needs different processes and values) for deciding how integrated the spun out company (and whether it needs to be a separate company at all) should be with the rest of the organization. If the project is treated as just another project, you won't find a product-market fit, or will ignore it even if you do because the market is not large enough. In a sense, a disruptive technology needs both a new market and a new company.
The book gives a lot of examples: the hard drives industry is the most frequent source because of all the parameters of all hard drives ever manufactured and sold are known, but it also features a very exciting (no sarcasm) tale of the steam shovels vs hydraulic backhoes, Apple Newton as the example of a large company trying to get into an emerging market with a disruptive product (spoiler: it doesn't work out well, don't bet hundreds of millions on your current idea of what the emerging market wants after doing "market research" instead of testing products with the users until you find an actual emerging market for your product), and the battle of integrated steel mills and so-called steel minimills (no less exciting than the excavators tale), and some others. Excellent book, I highly recommend it if you want to understand why large companies stop innovating.
... And can you guess what the fun part is? About the same year that your company goes bankrupt, the new 3.5" drives start appearing. You enjoy reading about that ex-upstart that has now taken your company's place: laptops? Who the hell cares about laptops?
A (relatively) old but thorough book with strong evidence which resonates strongly to this day.
Professor Christensen writes this book as a prescriptive guide on how good managers can fend off disruptive technologies which take over the market and overthrow established firms.
However, entrepreneurs seeking to transform existing markets will also find this book's broad exploration of the topic highly insightful.
What's missing from Professor Christensen's work is an exploration of modern case studies and a more thorough examination of the scenarios which (perhaps seemingly) violate the laws outlined in this book.
For instance, the book summarises its findings with the final case study of the electric vehicle industry and an examination of its future (from the early 2000s perspective). Elon Musk's Tesla, which is arguably the most prominent electric vehicle firm today, is headed for a strong path to success in spite of seemingly violating the fundamental laws which make this book shine.
Nevertheless, the evidence outlined in the book is highly convincing and is certainly applicable to many business scenarios to this day, and likely onwards into the future.
This is not a book about innovation -- it is a book about managing innovation
** Mild spoilers for the movie Glass Onion follow **
I read The Innovator's Dilemma when I was in biz school, so around 2000. We studied Christensen's ideas in one of my classes, Marketing, I think. We were not assigned his book to read, but, being a reader, I got it and read it, anyway. It's an OK book and has some valuable ideas in it, but it is not, in my opinion, the groundbreaking work it is usually presented as. One of the most useful things I learned in biz school is that business management is a field that is frequently riven by new management fads. These fads spread like infections, with consulting firms as some of the main vectors. Most of these ideas are stupid blizzards of almost meaningless buzzwords backed up by very little evidence.
Christensen rode the fashion tornado. His ideas about disruptive innovations were all the rage for a short time. They are actually among the better of management fads, in that Christensen has some valuable ideas, and he actually based them on hard data. Perhaps as a consequence "disruptive innovation" is a thing people are still talking about. (Almost all the talk is nonsense and bears no relationship to Christensen's actual ideas.)
I was reminded of this by the movie Glass Onion, which I saw yesterday. One of the central characters in Glass Onion is billionaire Miles Bron. Early in the film Benoit Blanc asks him what he means by "disruptor". Bron responds with an impressive-sounding but mind-bogglingly stupid description of what disruption means. This is our first clue that Miles Bron is a clueless windbag. Later in the film we get a glimpse of his repudiated business partner Andi Brand's apartment, and there, among her books, we see a copy of The Innovator's Dilemma, hinting that Andi was the brains of the business partnership.
The most important thing to realize about The Innovator's Dilemma is that it is not about innovation, per se -- it is about why established businesses are bad at managing innovation. The reasons are straightforward -- a disruptive innovation breaks the business model by which an established business became successful (that is, more or less, the definition of "disruptive innovation"), so all their old rules and structures don't work.
Disruptive innovations are not typically technologically brilliant. Indeed, they may barely be innovations at all. The main example Christensen relies on is computer disk drives. Over the course of several years 5.25 in drives were replaced by 3.5 in drives. If you know how to make a 5.25 in drive, you pretty much know how to make a 3.5 in drive -- you make the same thing, but smaller. Obviously I am simplifying, but not enormously. This is not a super-difficult engineering challenge. (It is interesting that disk drives are indeed scientifically and technically sophisticated devices. Most modern drive heads are based on something called the quantum Hall effect, a scientific idea truly based in quantum mechanics, that required a new fabrication technique to put into practice. Christensen knows this, but he is careful to point out that this was NOT the disruptive innovation. The disruptive innovation was the easy one of making the drives smaller.) Christensen explains to us why drive manufacturers failed to foresee and skillfully manage this size change.
I didn't find The Innovator's Dilemma very interesting, because it is not really about innovation or innovators -- the title is misleading. It takes innovation as given -- something that happens to your industry, and which you need to somehow deal with.
Clayton M. Christensen in The Innovator’s Dilemma argues a distinction between two types of technology change, each with different effects on the industry’s leaders: technologies (either incremental or radical) that sustain the industry’s rate of improvement in product performance, a typical prerogative of dominant firms, and on the other side, disruptive innovations which redefine performance trajectories and result in the failure of the industry’s leading firms.
«Компанії зазнають невдачі тому, що ті самі методи управління, які були і зробили їх лідерами у своїх галузях, суттєво заважають їм розвивати підривні технології, що зрештою витісняють їх з ринку»
Важная книга доя любого менеджера. В наше время новые технологии и тенденции увеличиваются в геометрической прогрессии, поэтому важно иметь гибкость подстраиваться под них и не дать своей компании потерять влияние на рынке
I've written before I'm not a big fan of many business books because many authors "intentionally or unintentionally, [attempt] to make [their] book some kind of new scriptural canon, demanding of our attention year after year." The Innovator's Dilemma is a different book altogether; it's MBA territory and not meant for readers who enjoy a quick but mostly superficial exploration at self-help techniques. Clayton Christensen's The Innovator's Dilemma is a challenging and enlightening book, which purports to break new ground in the understanding of business and technology but also explores existing principles beneficial to all and not only the entrepreneur or senior manager.
My awareness of The Innovator's Dilemma came while reading the excellent biography Steve Jobs by Walter Isaacson. Isaacson wrote: ". . . Christensen was one of the world's most insightful business analysts, and Jobs was deeply influenced by his book The Innovator's Dilemma." I figured I should pay attention to this book so highly regarded by one of the most influential business leaders in recent memory. Christensen's book attempts to document and explain how disruptive technology differs from sustaining technologies within industries—all detailed and defined, of course—and how entire industries have been significantly changed and how seemingly successful companies have folded or been greatly reduced in capability and reach due to disruptive changes. That all sounds a bit esoteric, and in some ways it is without modest knowledge of businesses and organizations, but I found the information very interesting and useful.
Amazingly, I didn't find The Innovator's Dilemma to be redundant, as many business books are. It seemed that any time the book started to become too repetitious it would pivot to a new theory or model to continue explaining the phenomenon of disruptive technologies. Although I was able to follow with a modicum of confidence the main ideas and principles, I certainly had to slow down a few times, re-read a few sentences, and ponder over a few graphs for a bit longer than usual to truly understand what was being presented and discussed. In some cases, I'm still pondering. As mentioned previously, this is not an easy read. It will push you to dig deeper into seemingly straightforward business cases and consistently use your critical thinking skills.
Clayton Christensen offers something truly valuable and insightful with his book The Innovator's Dilemma. I don't expect to create any disruptive technologies or necessarily be in a senior management situation having to make organizational decisions to deal with one, but I feel much more educated regarding business, organizations, and the constant change that is pervasive through most industries.
On a side note, Clayton Christensen's TED talk, How Will You Measure Your Life?, is well worth listening to and provides an impetus to reflect and examine your life and ambitions.
A short piece on how disruptive innovation fails to bloom in gigantic organizations, and how innovators might act around the "force of nature" of large corporations whose inertia is towards incremental increases on existing customers. The book describes managerial practices, minimum profit margins, and existing data handicapping larger corporations on making investments on risky ideas whose customers do not yet exist. At the same time, dislocation of small self-sufficient teams, cultivating of sub-companies with majority shares, and exemptions of some requirements for "innovation units" can drive disruptive innovation within large companies.
Clayton Christensen is to the study of innovation what Thomas S. Kuhn is to science. Kuhn's "normal science" is analogous to Christensen's "sustaining innovation", and "scientific revolutions" is like "disruptive innovations". Kuhn sees progress in science not as the discovery of new phenomena, but as fitting existing "anomalies" into a new "paradigm". Christensen too sees disruptive innovation as finding new markets for existing technologies. I'm sure the analogy can be taken further, but in short, both will change the way you think about how innovation progresses.
Just as with Kuhn's book The Structure of Scientific Revolutions, I felt that Christiensen belabours his point a little too much, yet each chapter adds a few good points - like the Resource/Process/Values framework, or watching your customers rather than listening to them, and many others I cannot recall.
If you like business books, this one is a classic. It does feel outdated at times until you think about how its lessons are still applicable today yet so frequently neglected.
The most elegant, and the most scary part of Disruption Theory presented by Prof. Christensen in this book is the ease of application. Any theory is just a theory, but the contrarian, almost oversimplified approach disruption presents to the question of success of an enterprise is bound to give many managers, and most consultants in the technology world some sleepless nights. The author's presentation of his case on how one-time underdogs can beat industry leaders, and how industry leaders are powerless to stop them is eye-opening.
The author's makes powerful use of culture and values of a company as the mechanism of his theory, and this is an argument that is very difficult to dispute. I read this book directly before I read "In search of Excellence", and many of the ideas resounded strongly. The product-champion approach of "In search of Excellence" is probably the only approach that leaders can take to save themselves from disruption.
A must read for any MBA who thinks sound management is the key to the kingdom :)
It’s been over a year since I got really passionate about learning more about the disruptive innovation after dealing with it on daily basis as a consumer or just simply as a human being. I bought a book ages ago and it was waiting in a line for quite a while. I prefer articles to books I must admit, but felt like I really need to read the book said to be the mandatory theoretical background for entrepreneurs in all domains.
It was a hard and a dry read for me I must confess. First, due to academic approach the book takes. Second, due to the cases the study and book is built on (I have neither expertise no any interest in hard disk drive or mechanical excavator industries) . I agree with other reviews saying the book could have been 70% shorter or one can get the idea by just reading the first and the last chapters.
So far, I’ve found the concept of sustaining and disruptive innovation quite useful in understanding the innovator’s dilemma and hopefully will avoid the type of ‘good management that can lead to failure’. I believe I will have to re-read it a bit later again more passionately and thoughtfully.
Traditional thinking that good decision making, right management skills and listening to customer has led many firms to failure, at the onset of disruptive innovation.
The book with its many examples across industries, presents what is innovator's dilemma and why they fail. It explains why the very nature of disruptive innovation and its proclivity to succeed in emerging market (only), cripples large firm even with their immense resources and expertise.
The book also provides the solution, based on extensive study of both success and failures, which can help managers better access and take right decision while tackling a disruptive innovation.
To an entrepreneur, it also gives a better understanding of disruptive innovation. Why, when and how it can capture the emerging market under the nose of big firms. The characteristics of such innovation identified in the book, lays down a firm foundation to help differentiate it from a sustaining innovation.
WORTH READING TWICE !!!! AND WORTH SPENDING MORE TIME TO RESEARCH FURTHER !!!!
KEY POINTS Disruptive technologies or innovations upset the existing “order of things”. The process appeals to customers who are not served by the current market. With time, because the capacity/performance of the innovation exceeds the market’s needs, the innovation comes to displace the market leaders.
Market leaders generally don’t react until it’s too late, because they don’t represent an interesting market, being low end and often low cost. One successful strategy might be to hive off a separate “company within a company” that is responsible for the firm’s response. A smaller, more nimble organization is better placed to work in the initially smaller and less lucrative market that the innovation is creating.
SUMMARY Initially the author examines why firms fail despite being a competitive market leader. Sustaining changes is not the problem, the issue is that they are almost always best utilized by well positioned firms. However, the story changes when disruptive innovations are brought to light as they either explore lowering the price per unit or serving a niche market.