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

by Clayton M. Christensen

Step 3: Established Firms Step Up the Pace of Sustaining Technological Development

Step 4: New Companies Were Formed, and Markets for the Disruptive Technologies Were Found by Trial and Error

The start-ups, however, were as unsuccessful as their former employers in attracting established computer makers to the disruptive architecture. Consequently, they had to find new customers.

Step 5: The Entrants Moved Upmarket

The established firms’ views downmarket and the entrant firms’ views upmarket were asymmetrical. In contrast to the unattractive margins and market size that established firms saw when eyeing the new, emerging markets for simpler drives, the entrants saw the potential volumes and margins in the upscale, high-performance

Step 6: Established Firms Belatedly Jumped on the Bandwagon to Defend Their Customer Base

firms attacking from value networks below brought with them cost structures set to achieve profitability at lower gross margins.

value network suggests that technology S-curves are useful predictors only with sustaining technologies. Disruptive technologies generally improve at a parallel pace with established ones—their trajectories do not intersect.

What matters instead is whether the disruptive technology is improving from below along a trajectory that will ultimately intersect with what the market needs.

1. The context, or value network, in which a firm competes has a profound influence on its ability to marshal and focus the necessary resources and capabilities to overcome the technological and organizational hurdles that impede innovation.

2. 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.

incumbent firms are likely to lag in the development of technologies—even those in which the technology involved is intrinsically simple—that only address customers’ needs in emerging value networks.

3. Established firms’ decisions to ignore technologies that do not address their customers’ needs become fatal when two distinct trajectories interact. The first defines the performance demanded over time within a given value network, and the second traces the performance that technologists are able to provide within a given technological paradigm.

4. Entrant firms have an attacker’s advantage over established firms in those innovations—generally new product architectures involving little new technology per se—that disrupt or redefine the level, rate, and direction of progress in an established technological trajectory. This is so because such technologies generate no value within the established network.

5. In these instances, although this “attacker’s advantage” is associated with a disruptive technology change, the essence of the attacker’s advantage is in the ease with which entrants, relative to incumbents, can identify and make strategic commitments to attack and develop emerging market applications, or value networks. At its core, therefore, the issue may be the relative flexibility of successful established firms versus entrant firms to change strategies and cost structures, not technologies.

disruptive technologies have such a devastating impact because the firms that first commercialized each generation of disruptive disk drives chose not to remain contained within their initial value network. Rather, they reached as far upmarket as they could in each new product generation, until their drives packed the capacity to appeal to the value networks above them. It is this upward mobility that makes disruptive technologies so dangerous to established firms—and so attractive to entrants.

the best resource allocation systems are designed precisely to weed out ideas that are unlikely to find large, profitable, receptive markets.

“good” management—working harder and smarter and being more visionary—doesn’t solve the problem.

Well-run companies are not populated by yes-people who have been taught to carry out mindlessly the directives of management. Rather, their employees have been trained to understand what is good for the company and what it takes to build a successful career within the company.

For an organization to accomplish a task as complex as launching a new product, logic, energy, and impetus must all coalesce behind the effort.

five fundamental principles of organizational nature that managers in the successful firms consistently recognized and harnessed.

Resource dependence: Customers effectively control the patterns of resource allocation

Small markets don’t solve the growth needs

The ultimate uses or applications for disruptive technologies are u...

Organizations have capabilities that exist independently of the capabilities of the pe...

Technology supply may not equal market demand. The attributes that make disruptive technologies unattractive in established markets often are the very ones that constitute their greatest value in emerging markets.

They embedded projects to develop and commercialize disruptive technologies within an organization whose customers needed them. When managers aligned a disruptive innovation with the “right” customers, customer demand increased the probability that the innovation would get the resources

They placed projects to develop disruptive technologies in organizations small enough to get excited about small opportunities and small

They planned to fail early and inexpensively in the search for the market for ...

They utilized some of the resources of the mainstream organization to address the disruption, but they were careful not to leverage its processes and values. They created different ways of working within an organization whose values and cost structure were turned to the disruptive task

When commercializing disruptive technologies, they found or developed new markets that valued the attributes of the disruptive products,

resource dependence, propounded by a minority of management scholars, 1 which posits that companies’ freedom of action is limited to satisfying the needs of those entities outside the firm (customers and investors, primarily) that give it the resources it needs to survive.

it is the customers, rather than the managers, who really determine what a firm will do. It is forces outside the organization, rather than the managers within it, that dictate the company’s course. Resource dependence theorists conclude that the real role of managers in companies whose people and systems are well-adapted to survival is, therefore, only a symbolic one.

One option is to convince everyone in the firm that the company should pursue it anyway, that it has long-term strategic importance despite rejection by the customers who pay the bills and despite lower profitability

The other option would be to create an independent organization and embed it among emerging customers that do need the technology.

how do non-executive participants make their resource allocation decisions? They decide which projects they will propose to senior management and which they will give priority to, based upon their understanding of what types of customers and products are most profitable to the company.

coupled with this is their view of how their sponsorship of different proposals will affect their own career trajectories within the company,

By embedding independent organizations within an entirely different value network, where they were dependent upon the appropriate set of customers for survival, those managers harnessed the powerful forces of resource dependence.

the most straightforward way of confronting this difficulty is to implant projects aimed at commercializing disruptive technologies in organizations small enough to get excited about small-market opportunities, and to do so on a regular basis even while the mainstream company is growing.

A crucial strategic decision in the management of innovation is whether it is important to be a leader or acceptable to be a follower.

There is no evidence that the leaders gained any significant competitive advantage over the followers;

pioneering firms appear not to have developed any sort of learning advantage enabling them to leverage their early lead

there is strong evidence that leadership in disruptive technology has been very important.

Firms that sought growth by entering small, emerging markets logged twenty times the revenues of the firms pursuing growth in larger markets.

Try to affect the growth rate of the emerging market, so that it becomes big enough, fast enough, to make a meaningful dent

Wait until the market has emerged and become better defined, and then enter

Place responsibility to commercialize disruptive technologies in organizations small enough that their performance will be meaningfully affected by the revenues, profits, and small orders

disruptive technologies often enable something to be done that previously had been deemed impossible. Because of this, when they initially emerge, neither manufacturers nor customers know how or why the products will be used, and hence do not know what specific features of the product will and will not ultimately be valued.

Projects make sense to people if they address the needs of important customers, if they positively impact the organization’s needs for profit and growth, and if participating in the project enhances the career opportunities of talented employees.

when things get tight, projects viewed as nonessential are the first to be canceled or postponed.