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

by Clayton M. Christensen

enormous boost to a project’s probability of success, therefore, when they ensure that it is being executed in an environment in which everyone involved views the endeavor as crucial to the organization’s future growth and profitability.

Rather than continually working to convince and remind everyone that the small, disruptive technology might someday be significant or that it is at least strategically important, large companies should seek to embed the project in an organization that is small enough to be motivated by the opportunity offered by a disruptive technology in its early years.

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.

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.

failure is intrinsic to the process of finding new markets for disruptive technologies, the inability or unwillingness of individual managers to put their careers at risk acts as a powerful deterrent

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

They must be plans for learning rather than plans for implementation.

Discovery-driven planning, which requires managers to identify the assumptions upon which their business plans or aspirations are based, 11 works well in addressing disruptive technologies.

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

Philosophies such as management by objective and management by exception often impede the discovery of new markets

Typically, when performance falls short of plan, these systems encourage management to close the gap between what was planned and what happened.

Amos Tversky and Daniel Kahneman, for example, have shown that people tend to regard propositions that they do not understand as more risky, regardless of their intrinsic risk, and to regard things they do understand as less risky, again without regard to intrinsic risk.

some managers don’t think as rigorously about whether their organizations have the capability to successfully execute jobs that may be given to them.

good managers need to be skilled not just in choosing, training, and motivating the right people for the right job, but in choosing, building, and preparing the right organization for the job as well.

Three classes of factors affect what an organization can and cannot do: its resources, its processes, and its values.

Resources are the most visible of the factors that contribute to what an organization can and cannot do. Resources include people, equipment, technology, product designs, brands, information, cash, and relationships with suppliers, distributors, and customers. Resources are usually things, or assets—they can be hired and fired, bought and sold, depreciated or enhanced.

The patterns of interaction, coordination, communication, and decision-making through which they accomplish these transformations are processes.

reason good managers strive for focus in their organizations is that processes and tasks can be readily aligned.

the very mechanisms through which organizations create value are intrinsically inimical to change.

The values of an organization are the criteria by which decisions about priorities are made.

The larger and more complex a company becomes, the more important it is for senior managers to train employees at every level to make independent decisions about priorities that are consistent with the strategic direction and the business model of the company.

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. This disability is not because of a change in the resources within the companies—their resources typically are vast. Rather, it is because their values change.

Large companies often surrender emerging growth markets because smaller, disruptive companies are actually more capable of pursuing them. Though start-ups lack resources, it doesn’t matter. Their values can embrace small markets, and their cost structures can accommodate lower margins.

the actions and attitudes of the company’s founder have a profound impact. The founder often has strong opinions about the way employees ought to work together to reach decisions and get things done.

Acquire a different organization whose processes and values are a close match with the new

change the processes and values of the current organization

independent organization and develop within it the new processes and values that are requir...

If the acquired company’s processes and values are the real driver of its success, then the last thing the acquiring manager wants to do is to integrate the company into the new parent organization. Integration will vaporize many of the processes and values of the acquired firm

If, on the other hand, the company’s resources were the primary rationale for the acquisition, then integrating the firm into the parent can make a lot of sense—essentially

Too often, however, resources such as these are then plugged into fundamentally unchanged processes—and little change results.

When new challenges require different people or groups to interact differently than they habitually have done—addressing different challenges with different timing than historically had been required—managers need to pull the relevant people out of the existing organization and draw a new boundary around a new group.

A separate organization is required when the mainstream organization’s values would render it incapable of focusing resources on the innovation project.

it is very difficult for a company whose cost structure is tailored to compete in high-end markets to be profitable in low-end markets as well.

disruptive technology requires a different cost structure in order to be profitable and competitive, or when the current size of the opportunity is insignificant relative to the growth needs of the mainstream organization, then—and only then—is a spin-out organization a required part of the solution.

the project cannot be forced to compete with projects in the mainstream organization for resources.

Whether the independent organization is physically separate is less important than is its independence from the normal resource allocation process.

never seen a company succeed in addressing a change that disrupts its mainstream values absent the personal, attentive oversight of the CEO—precisely

Only the CEO can ensure that the new organization gets the required resources and is free to create processes and values that are appropriate to the new challenge.

Note: The left and bottom axes reflect the questions the manager needs to ask about the existing situation. The notes at the right side represent the appropriate response to the situation on the left axis. The notes at the top represent the appropriate response to the manager’s answer to the bottom

determine that they have the resources required to succeed.

does the organization have the processes and values to succeed?

the very capabilities of their organizations also define their disabilities.

Understanding problems is the most crucial step in solving them.

Ensuring that capable people are ensconced in capable organizations is a major management responsibility in an age such as ours, when the ability to cope with accelerating change has become so critical.

the product evolution model, called the buying hierarchy by its creators, Windermere Associates of San Francisco, California, which describes as typical the following four phases: functionality, reliability, convenience, and price.

Two additional important characteristics of disruptive technologies consistently affect product life cycles and competitive dynamics: First, the attributes that make disruptive products worthless in mainstream markets typically become their strongest selling points in emerging markets; and second, disruptive products tend to be simpler, cheaper, and more reliable and convenient than established products.

established companies are so prone to push for high-performance, high-profit products and markets, they find it very difficult not to overload their first disruptive products with features and functionality.

a product whose performance exceeds market demands suffers commodity-like pricing,

disruptive products that redefine the basis of competition command a premium.

what is obvious in retrospect might not be at all obvious in the thick of battle.