The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail (Management of Innovation and Change)
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well-managed companies that have their competitive antennae up, listen astutely to their customers, invest aggressively in new technologies, and yet still lose market dominance.
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At its zenith Sears accounted for more than 2 percent of all retail sales in the United States.
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arresting aspect of its story is that there was no gimmick. Sears opened no big bag of tricks, shot off no skyrockets. Instead, it looked as though everybody in its organization simply did the right thing, easily and naturally. And their cumulative effect was to create
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But Apple and IBM lagged five years behind the leaders in bringing portable computers to market.
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Digital Equipment Corp.
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Digital Equipment Corporation is a company in need of triage.
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There are two ways to resolve this paradox. One might be to conclude that firms such as Digital, IBM, Apple, Sears, Xerox, and Bucyrus Erie must never have been well managed. Maybe they were successful because of good luck and fortuitous timing, rather than good management. Maybe they finally fell on hard times because their good fortune ran out. Maybe. An alternative explanation, however, is that these failed firms were as well-run as one could expect a firm managed by mortals to be—but that there is something about the way decisions get made in successful organizations that sows the seeds of ...more
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Precisely because these firms listened to their customers, invested aggressively in new technologies that would provide their customers more and better products of the sort they wanted, and because they carefully studied market trends and systematically allocated investment capital to innovations that promised the best returns, they lost their positions of leadership.
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There are times at which it is right not to listen to customers,
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This book derives a set of rules, from carefully designed research and analysis of innovative successes and failures in the disk drive and other industries, that managers can use to judge when the widely accepted principles of good management should be followed and when alternative principles are appropriate.
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principles of disruptive innovation
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there is a strategically important distinction between what I call sustaining technologies and those that are disruptive.
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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.
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vexatious
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The reason for painting such a complete picture of a single industry is to establish the internal validity of the failure framework.
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external validity of the failure framework—the conditions in which we might expect the framework to yield useful insights.
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successful firms faced with disruptive technological change, then the usual answers to companies’ problems—planning better, working harder, becoming more customer-driven, and taking a longer-term perspective—all exacerbate the problem.
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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.
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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.
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Creating an independent organization, with a cost structure honed to achieve profitability at the low margins characteristic of most disruptive technologies, is the only viable way for established firms to harness this principle.
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Many large companies adopt a strategy of waiting until new markets are “large enough to be interesting.” But the evidence presented in chapter 6 shows why this is not often a successful strategy.
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Small organizations can most easily respond to the opportunities for growth in a small market. The evidence is strong that formal and informal resource allocation processes make it very difficult for large organizations to focus adequate energy and talent on small markets, even when logic says they might be big someday.
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Markets that Don’t Exist Can’t Be Analyzed
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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.
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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.
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They demand market data when none exists and make judgments based upon financial projections when neither revenues or costs can, in fact, be known.
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Called discovery-based planning, 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. Investing and managing under such assumptions drives managers to develop plans for learning what needs to be known, a much more effective way to confront disruptive technologies successfully.
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organizations have capabilities that exist independently of the people who work within them.
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The very processes and values that constitute an organization’s capabilities in one context, define its disabilities in another context.
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in many other contexts. Chapter 10 thus takes us deeply into the innovator’s dilemma that “good” companies often begin their descent into failure by aggressively investing in the products and services that their most profitable customers want. No automotive company is currently threatened by electric cars, and none contemplates a wholesale leap into that arena. The automobile industry is healthy. Gasoline engines have never been more reliable. Never before has such high performance and quality been available at such low prices. Indeed, aside from governmental mandates, there is no reason why ...more
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Circuit-switched telecommunications networks Packet-switched communications networks
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Microsoft Windows operating systems and applications software written in C++. Internet Protocols (IP), and Java software protocols Medical doctors Nurse practitioners General hospitals Outpatient clinics and in-home
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But the electric car is a disruptive technology and potential future threat. The innovator’s task is to ensure that this innovation—the disruptive technology that doesn’t make sense—is taken seriously within the company without putting at risk the needs of present customers who provide profit and growth.
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“Sears Makes It Look Easy,” Fortune, May, 1964,
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Blindly following the maxim that good managers should keep close to their customers can sometimes be a fatal mistake.
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By 1976 about $1 billion worth of disk drives were produced,
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The value of drives produced rose to about $18 billion by 1995.
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By the mid-1980s the PCM market had become insignificant, while OEM output grew to represent about three-fourths of world production.
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The number of megabits (Mb) of information that the industry’s engineers have been able to pack into a square inch of disk surface has increased by 35 percent per year, on average, from 50 Kb in 1967 to 1.7 Mb in 1973, 12 Mb in 1981, and 1100 Mb by 1995.
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The smallest available 20 MB drive shrank from 800 cubic inches (in. 3 ) in 1978 to 1.4 in. 3 by 1993—a 35 percent annual rate of reduction.
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The technology mudslide hypothesis was wrong.
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Why were the leading drive makers unable to launch 8-inch drives until it was too late? Clearly, they were technologically capable of producing these drives. Their failure resulted from delay in making the strategic commitment to enter the emerging market in which the 8-inch drives initially could be sold.
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The initiative for the new drives came from Seagate’s engineering organization. Opposition to the program came primarily from the marketing organization and Seagate’s executive team; they argued that the market wanted higher capacity drives at a lower cost per megabyte and that 3.5-inch drives could never be built at a lower cost per megabyte than 5.25-inch drives.
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de novo
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explicit customer demands have tremendous power as a source of impetus in the resource allocation process:
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ORGANIZATIONAL AND MANAGERIAL EXPLANATIONS OF FAILURE
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Henderson and Clark, 1 for example, conclude that companies’ organizational structures typically facilitate component-level innovations, because most product development organizations consist of subgroups that correspond to a product’s components. Such systems work very well as long as the product’s fundamental architecture does not require change. But, say the authors, when architectural technology change is required, this type of structure impedes innovations that require people and groups to communicate and work together in new ways.
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When Tom West, Data General’s project leader and a former long-time Digital employee, removed the cover of the DEC minicomputer and examined its structure, he saw “Digital’s organization chart in the design of the product.”
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CAPABILITIES AND RADICAL TECHNOLOGY AS AN EXPLANATION
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which technological problems it would solve and which it would avoid determine the sorts of skills and knowledge it accumulates.
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