The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail

by Clayton M. Christensen

Principle #3: Markets that Don’t Exist Can’t Be Analyzed

This is where Steve blanks business model and customer discovery overlap with disruptive innovation---get out of the building because these customers don't exist in a market report!

Sound market research and good planning followed by execution according to plan are hallmarks of good management. When applied to sustaining technological innovation, these practices are invaluable;

with disruptive technologies leading to new markets, however, market researchers and business planners have consistently dismal records.

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.

It is in disruptive innovations, where we know least about the market, that there are such strong first-mover advantages. This is the innovator’s dilemma.

They demand market data when none exists and make judgments based upon financial projections when neither revenues or costs can, In fact, be known.

the law that the right markets, and the right strategy for exploiting them, cannot be known in advance.

it suggests that managers assume that forecasts are wrong, rather than right, and that the strategy they have chosen to pursue may likewise be wrong,

develop plans for learning what needs...

values that cause employees to prioritize projects to develop high-margin products, cannot simultaneously accord priority to low-margin products. The very processes and values that constitute an organization’s capabilities in one context, define its disabilities in another context.

When the performance of two or more competing products has improved beyond what the market demands, customers can no longer base their choice upon, which is the higher performing product. The basis of product choice often evolves from functionality to reliability, then to convenience, and, ultimately, to price.

Question then is, where is our product relative to the other incumbent? Once we meet compete on functionality, then we commoditize to reliability, ease of use, and finally compete on price as the products are indistinguishable otherwise. Under performing technologies need to compete on price initially and add ease of use, reliability,and finally functionality all the while keeping price low. By then, incumbent is too late to respond.

they race the competition toward higher-performance, higher-margin markets,

In doing so, they create a vacuum at lower price points into which competitors employing disruptive technologies can enter.

how their mainstream customers use their products can catch the points at which the basis of competition will change in the markets they serve.

So your product development strategy shifts as you meet functional needs then to reliability, ease of use,and finally price. Don't keep investing beyond customer needs

Markets that do not exist cannot be analyzed: Suppliers and customers must discover them together.

The strategies and plans that managers formulate for confronting disruptive technological change, therefore, should be plans for learning and discovery rather than plans for execution.

Even more frustrating, as the second anniversary of Kittyhawk’s launch approached, were the inquiries received by HP marketers from companies making mass-market video game systems to buy very large volumes of Kittyhawk—if HP could make a version available at a lower price point.

Look at this market pull for a disruptive technology!

To a significant extent, HP had designed Kittyhawk to be a sustaining technology for mobile computing.

The large inquiries and orders that finally began arriving for the Kittyhawk, however, were for a truly disruptive product: something priced at $50 per unit and with limited functionality.

For these applications, a capacity of 10 MB would have been perfectly adequate.

Unfortunately, because HP had positioned the drive with the expensive features needed for the PDA market rather than designing it as a truly disruptive product, it simply could not meet t...

The HP project managers concede in retrospect that their most serious mistake in managing the Kittyhawk initiative was

to act as if their forecasts about the market were right, rather than as if they were wrong.

Information as a double edged sword...overconfident, relying on assumptions and actions of others, missing the context for the information because they didn't acquire it themselves

Such planning and investment is crucial to success in a sustaining technology, but, the managers reflected, it was not right for a disruptive product like Kittyhawk.

This would lead them toward a much more exploratory, flexible approach toward product design and investment in manufacturing capacity;

Intel’s system for allocating production

capacity operated according to a formula whereby capacity was committed in proportion to the gross margins earned by each product line. The system therefore imperceptibly began diverting investment capital and manufacturing capacity away from the DRAM business and into microprocessors—without an explicit management decision to do so.

Amid all the uncertainty surrounding disruptive technologies, managers can always count on one anchor:

Experts’ forecasts will always be wrong.

If i haven't gathered the data and the context for that information, then it's highly suspect

It is simply impossible to predict with any useful degree of precision how disruptive products will be used or ...

If markets cannot be predicted in advance, how can firms that target them be more successful?

The case studies reviewed in this chapter suggest a resolution to this puzzle. There is a big difference between

the failure of an idea and the failure of a firm.

the company didn’t deplete its resources pursuing its big-bike strategy and was able to invest aggressively in the winning strategy after it had emerged.

successful new business ventures abandoned their original business strategies when they began implementing their initial plans and learned what would and would not work in the market.

Lean startup in a nut shell

Guessing the right strategy at the outset isn’t nearly as important to success as conserving enough resources (or having the relationships with trusting backers or investors) so that new business initiatives get a second or third stab at getting it right.

Small bets,small budgets---bullets, not cannonballs until you're calibrated

In most companies, however, individual managers don’t have the luxury of surviving a string of trials and errors in pursuit of the strategy that works. Rightly or wrongly, individual managers in most organizations believe that they cannot fail:

This is the misaligned incentive of large organizations. Why they acquire disruptive startups to grab the emerging market rather than pursue it directly

blocking their rise through the organization.

Too risky for management politicking

unwillingness of individual managers to put their careers at risk acts as a powerful deterrent to the movement of established firms into the value networks created by those technologies.

“Pressure from the market reduces both the probability and the cost of being wrong.

Discovering markets for emerging technologies inherently involves failure,

But in disruptive situations, action must be taken before careful plans are made.

Counterintuitive to traditional business planning and strategy

plans must serve a very different purpose: They must be plans for learning

managers would identify what critical information about new markets is most necessary and in what sequence that information is needed. Project and business plans would mirror those priorities, so that key pieces of information would be created, or important uncertainties resolved, before expensive commitments of capital, time, and money were required.

This is the planning and strategic approach. My struggle has been figuring it what information is necessary. See case study on electric vehicles though

Discovery-driven planning,

to identify the assumptions upon which their business plans or as...

Had HP’s managers instead assumed that nobody knew in what volume PDAs would sell, they might have built small modules of production capacity rather than a single, high-volume line.

Fromn the position that "we don't know" you can begin to build a plan for learning and modular business systems that support flexibility until market pull is significant to invest in automated processes

Discovery-driven planning would have forced the team to test its market assumptions before making commitments that were expensive to reverse—in

markets for disruptive technologies often emerge from unanticipated successes, on which many planning systems do not focus the attention of senior management.

discovering the emerging markets for disruptive technologies agnostic marketing,