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March 6 - March 19, 2018
Companies stumble for many reasons, of course, among them bureaucracy, arrogance, tired executive blood, poor planning, short-term investment horizons, inadequate skills and resources, and just plain bad luck.
IBM dominated the mainframe market but missed by years the emergence of minicomputers, which were technologically much simpler than mainframes.
As in retailing, many of these leading computer manufacturers were at one time regarded as among the best-managed companies in the world and were held up by journalists and scholars of management as examples for all to follow.
One theme common to all of these failures, however, is that the decisions that led to failure were made when the leaders in question were widely regarded as among the best companies in the world.
There are times at which it is right not to listen to customers, right to invest in developing lower-performance products that promise lower margins, and right to aggressively pursue small, rather than substantial, markets.
This concept of technology therefore extends beyond engineering and manufacturing to encompass a range of marketing, investment, and managerial processes. Innovation refers to a change in one of these technologies.
Second, disruptive technologies typically are first commercialized in emerging or insignificant markets.
By and large, a disruptive technology is initially embraced by the least profitable customers in a market.
Principle #3: Markets that Don’t Exist Can’t Be Analyzed
In dealing with disruptive technologies leading to new markets, however, market researchers and business planners have consistently dismal records.
Companies whose investment processes demand quantification of market sizes and financial returns before they can enter a market get paralyzed or make serious mistakes when faced with disruptive technologies.
the right markets, and the right strategy for exploiting them, cannot be known in advance.
The basis of product choice often evolves from functionality to reliability, then to convenience, and, ultimately, to price.
“good” companies often begin their descent into failure by aggressively investing in the products and services that their most profitable customers want.
you want to understand why something happens in business, study the disk drive industry. Those companies are the closest things to fruit flies
Essentially, it revealed that neither the pace nor the difficulty of technological change lay at the root of the leading firms’ failures.
They offered less of what customers in established markets wanted and so could rarely be initially employed there.
The fear of cannibalizing sales of existing products is often cited as a reason why established firms delay the introduction of new technologies.
They found that firms failed when a technological change destroyed the value of competencies previously cultivated and succeeded when new technologies enhanced them.
These computer makers incur little expense researching component technologies, preferring to build their machines with proven component technologies procured from vendors.
A disruptive innovation, however, cannot be plotted in a figure such as 2.5, because the vertical axis for a disruptive innovation, by definition, must measure different attributes of performance than those relevant in established value networks.
Sustaining projects addressing the needs of the firms’ most powerful customers (the new waves of technology within the value network depicted in Figure 2.5) almost always preempted resources from disruptive technologies with small markets and poorly defined customer needs.
Consequently, they had to find new customers.
The S-curve framework, therefore, asks the wrong question when it is used to assess disruptive technology. What matters instead is whether the disruptive technology is improving from below along a trajectory that will ultimately intersect with what the market needs.
A key determinant of the probability of an innovative effort’s commercial success is the degree to which it addresses the well-understood needs of known actors within the value network.
“the most formidable barrier the established firms faced is that they did not want to do this.”
the performance of the first backhoes was measured differently from the performance of cable-actuated equipment.
And as a general rule, the established firms saw the situation the other way around: They took the market’s needs as the given.
established firms attempt to push the technology into their established markets, while the successful entrants find a new market that values the technology.
Although some had employed hydraulics to a modest degree as a bucket-curling mechanism, they lacked the design expertise and volume-based manufacturing cost position to compete as hydraulics invaded the mainstream.
Hydraulics was a technology that their customers didn’t need—indeed,
They did not fail because they lacked information about hydraulics or how to use it; indeed, the best of them used it as soon as it could help their customers. They did not fail because management was sleepy or arrogant. They failed because hydraulics didn’t make sense—until it was too late.
Bower notes that most proposals to innovate are generated from deep within the organization not from the top. As these ideas bubble up from the bottom, the organization’s middle managers play a critical but invisible role in screening these projects.
Projects that fail because the technologists couldn’t deliver, for example, often are not (necessarily) regarded as failures at all, because a lot is learned from the effort and because technology development is generally regarded as an unpredictable, probabilistic endeavor. But projects that fail because the market wasn’t there have far more serious implications for managers’ careers.
Hence, middle managers—acting in both their own and the company’s interest—tend to back those projects for which market demand seems most assured.
Surely there is some credibility to such accusations. But managerial incompetence cannot be a complete answer for the failure of North American integrated mills to counter the conquest by minimills of vast portions of the steel industry.
The reason is that good management itself was the root cause. Managers played the game the way it was supposed to be played.
The ultimate uses or applications for disruptive technologies are unknowable in advance.
resource dependence theorists assert that organizations will survive and prosper only if their staffs and systems serve the needs of customers and investors by providing them with the products, services, and profit they require.
Even if a manager has a bold vision to take her or his company in a very different direction, the power of the customer-focused people and processes in any company well-adapted to survival in its competitive environment will reject the manager’s attempts to change direction.
provided more evidence that two models for how to make money cannot peacefully coexist within a single organization.
Managers who confront disruptive technological change must be leaders, not followers, in commercializing disruptive technologies.
creating new markets is significantly less risky and more rewarding than entering established markets against entrenched competition.
There is no evidence that any of the leaders in developing and adopting sustaining technologies developed a discernible competitive advantage over the followers. 2
Despite evidence that leadership in disruptive innovation pays such huge dividends, established firms, as shown in the first four chapters of this book, often fail to take the lead.
the larger and more successful they become, the more difficult it is to muster the rationale for entering an emerging market in its early stages,
The Newton’s features were defined through one of the most thoroughly executed market research efforts in corporate history;
disruptive technologies often enable something to be done that previously had been deemed impossible.
It assumed that its customers knew what they wanted and spent very aggressively to find out what this was. (As the next chapter will show, this is impossible.)
Small markets cannot satisfy the near-term growth requirements of big organizations.
