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The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail (Management of Innovation and Change) Paperback – January 5, 2016
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From the Publisher
His book, one of the most significant business books of the past 50 years, became a mammoth bestseller, and its title entered the language.” Fortune magazine
Christensen’s The Innovator’s Dilemma is the foundational read for managing disruptive innovation.” Steve Blank, Silicon Valley serial-entrepreneur and academician, as seen in strategy+business magazine
This is an important read, even if you’re at the very early stages of growing a startup.” Drew Houston, CEO, Dropbox
Praise for The Innovator’s Dilemma and Clayton M. Christensen:
[Clayton Christensen is] one of the most influential business theorists of the last fifty years.”
The Financial Times
The Innovator’s Dilemma achieves a rare feat: It is at once a satisfying intellectual solution to a long-standing business puzzle and a practical guide for executives and investors.”
. . . Required reading in Silicon Valley, where it has been championed by the likes of Steve Jobs, George Gilder, and Andy Grove.”
The Huffington Post
A seminal book.”
A holy book for entrepreneurs in Silicon Valley . . .”
The notion of disruptive technology’ is one of the timeliest ideas of the Internet age. Coined by Harvard Business School professor Clayton Christensen, it’s at the heart of his influential book The Innovator’s Dilemma.”
About the Author
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The goal of the book is to educate people in the business world about how new technologies affect firms and to provide a new way of thinking about disruptive technologies. The end of the piece brings the conclusion that leading firms almost always have set technologies that work well for their current customers, choosing not to invest in new technologies because what they are currently doing is working, current customers do not want change. That is, until new technologies grow to be superior than their predecessors. Christensen does a fantastic job in making his point clear as he provides a plethora of studies across different markets to support his claims. The first half of the book is essentially a detailed history of the disk drive industry that has multiple examples of different firms both choosing to invest in smaller drives and continuing to use their already established, larger drives. He uses this information to create hypothesis’ about why these firms made their decisions and whether it lead them to success or not. Essentially, the author’s process in writing the book is to look at different industries that had disruptive technologies and discover what trends lead to success and what trends lead to failure. He spends a lot of time focusing on a single industry, the disk drive. However, he does bring up several other markets including the mechanical excavator, steel, computer, and discount retailer industries. This variety of different scopes enhances his argument, especially since he sees similar trends across all of these different markets. Many of his examples include established firms choosing not to adopt new technologies because it does not fit their current business motives, but then later being replaced by firms that dared to find new markets for the new technology. His claims are definitely unbiased as all of his conclusions are drawn from the hard evidence that he compiles and delivers to the reader throughout the book about the different firms in those industries. It is almost impossible to disagree with his conclusion since all of his evidence accurately backs up his claims.
Personally, I enjoyed reading the book but mostly because it appeals to my interests. As a young business major, the book is intended for me to read and may directly pertain to my own future. However, this book would be challenging to read for the average person that is not interested in business. The book is confusing at some times and is clearly designed for educated readers with a basic understanding of the business world. I would say that the book is a must-read for managers of a company that may be facing disruptive technologies in their industry as it does provide direct advice for people of that demographic. It is a book that I would certainly recommend to my peers within my major.
Christensen does a decent job in making the book engaging. Some of the chapters where he is providing data are dry and confusing, but he does always provide a summary at the end of chapters to keep the reader focused. A lot of the book is also repetitive in regards to the disk drive industry and the author reiterating his claims about disruptive technologies. Nonetheless, the book is overall definitely a success for its purpose. There is plenty of evidence throughout the book that prove his claims in real-world situations. His main ideas about why firms choose to serve current customers with current technology rather than try to force new technologies on customers also makes logical sense, given the customer-centric market that is present in today’s society. His complex conclusion that disruptive technologies succeed only when they find a market that does not currently exist is confusing, but is definitely supported with his evidence.
In conclusion, the book is a great read for those looking to advance their knowledge in the business world and think about topics that are not usually discussed. The author’s conclusions are creative and complex, but are backed up with hard evidence throughout the piece. The insights and advice brought up by Christensen are useful knowledge to any person studying business and the impact of emerging technologies. This is a book that I will definitely keep in mind in the future and I will recommend to others.
Top international reviews
With the help of many examples from industry (disk-drives being his main workhorse) the author explains what technologies are likely to disrupt, who is likely to be disrupted, why they are likely to be disrupted and what the choices are that the established players have when presented with disruption.
The most important point is that disruption generally comes from the practice of repackaging and marketing already existing, straightforward technology at a lower price point to a new customer base that is not economically viable for the established players.
For example, QuickBooks was marketed to mom-and-pop stores who could not afford to pay an accountant and it was the el-cheapo version of Quicken. It is of no use to a proper corporation. JC Bamford got started with hydraulic backhoes that were good enough for small contractors looking to dig a small ditch but wholly inadequate for the purposes of a miner. 5.25 inch disk drives were marketed to the nascent market for personal computers and were of no use to minicomputer manufacturers.
Disruptive technology is cheaper per unit, but its price / performance ratio is much worse than that of the established technology. It’s not good enough for the clients of the established players. Ergo it must be sold on its (lower) price alone, meaning that its purveyors must seek new markets. Flash memory, for example, was first used in cameras, pacemakers etc. Not in computers!
There is a large number of reasons that established players will frown upon the new technology:
1. Good companies listen to their clients. Their clients will tell them they don’t want it. They will demand performance and they will pay for performance.
2. Profitability will be lower in the lower-margin disruptive technology. Profit margins will typically mirror cost structures and will thus be higher for the higher-end product. Established players will in the short term make more money if they allocate their resources toward not falling behind their immediate competition for the higher-end product. (i.e. “sustaining” their competitive edge in the higher margin / higher tech market)
3. The processes used by the established players to sell and support the established technology may not be the right ones for the new tech.
The main thing to realize is that the technology does not live by itself. It is embedded in a “value network.” A car serves a commuter, a digger serves a mine, a disk drive is screwed down somewhere in a computer etc.
The seeds of disruption lie in the fact that the technology itself and its value network may not necessarily be progressing at the same speed.
If the technology is improving much faster than the trajectory of improvement of the “value network” (for example, if the desktop PC users demand extra disk storage slower than the industry is capable of delivering extra disk storage), then
1. The point comes when the value network of the established technology does not need the incremental improvements on which the established players are competing with one another to deliver.
2. More importantly, a point comes when the performance of the disruptive technology becomes good enough to be embedded in the value network of the established technology. So 3.5 inch disks developed for laptops can do good enough a job for a desktop, for example, without taking up the space required for a 5.25 inch disk.
It gets worse: sure, disruptive technology is deficient in terms of features / performance, but the price sensitive customers who do not care so much about performance often care a lot about reliability. (A small contractor who buys a single backhoe digger cannot afford a maintenance team.) Similarly, the unsophisticated customers of the disruptive technology may care a lot about ease of use. (Mom and pop using Quickbooks have no idea what double-entry book-keeping is!) What this means is that when the performance of the disruptive technology has become good enough for it to be embedded into the value network of the established technology, it often brings with it an advantage in reliability and ease of use.
So at that point the disruptive technology is cheaper, more reliable and easier to use than the established technology, all while delivering adequate performance.
And that’s how purveyors of the established technology (who have been at war with one another to deliver on the ever-increasing performance their customers have been demanding) find themselves at a disadvantage versus the disruptors when it comes to reliability and ease of use right about when their customers tell them they won’t pay for extra performance or features any more.
The disadvantage of the lower-tech disruptor has created an advantage and it’s game, set and match!
What’s an established player to do? If I’m running a super successful company and I spot a new technology what am I to do?
One thing I should not do is listen to my underlings. The dealers who sell my cars will not want a customer who just walked into the dealership to buy a V8 to drive out in a small electric car. The salespeople will keep asking me for the most expensive product because they will be paid a commission on their margin and will keep pushing me “north-east” on the price / performance chart. Resistance to disruptive technology often comes from the rank-and-file.
I also should not listen to my shareholders. Small markets (and all disruptive technology starts small) do not solve the growth problems of large companies.
First and foremost, I must understand that the challenge I face is a MARKETING challenge. The tech I’ve got covered. The resources too.
If my company’s processes and my company’s values (defined as “the standards by which employees make choices involving prioritization”) are aligned with the marketing challenge, I’m in luck: chances are that for my company this new technology will eventually become a “sustaining” technology.
I can get my wallet out and buy EARLY a couple of the new entrants. Early enough that my money is not buying process or values or culture, but merely assets/resources and ideally walking and talking resources (the founders) who will adopt the processes and values of my organization.
Alternatively, I can carve out some great people from my organization and:
1. Give them responsibility for the new technology and assign to them the task of identifying the customers for this new technology
2. Match the size of this new subdivision to the current size of the market.
3. Allow them to “discover” the size of the opportunity, rather than burden them with having to forecast it: “the ultimate uses or applications for disruptive technologies are unknowable in advance”
4. Let them fail small, as many times as necessary
That’s what IBM did when they ran their PC business out of Florida and what HP did when they realized ink jets would one day compete with laser printers!
If, on the other hand, my company’s processes or my company’s values are not aligned with the marketing challenge, then I need to buy a leader in the new technology, and have a finger in every pie. And I need to protect my acquired company from my organization. This is, obviously, a bigger challenge (and one my shareholders may not embrace, as their dollars are as good as mine, but the author stays away from this discussion!) As the succession in technologies plays out, I will then eliminate large parts of my current organization. The author cites an occasion on which this is exactly how things played out.
And there you have it! I think that’s the author’s answer to “The Innovator’s Dilemma”
Obviously, that’s a very quick sketch. You’ll have to buy the book to see the complete story (and to be convinced, I suppose). Be warned that in the interest of keeping the various chapters self-consistent you may find some repetition, but overall this is a very quick read.
I’m aware of people who really dislike Clayton Christensen. I’ve even come across a Twitter account that’s dedicated to trashing him. But I, for one, was convinced that he’s describing a valid concept with many applications.
Also, as a guy who established a disruptive business within an established player I totally experienced both the dismay of my superiors when they realized that “small markets don’t solve the problems of large organizations” and the discomfort of trying to shoehorn my project into the rather baroque established processes.
So I have lived through many of the steps the book describes and I reckon they are described very accurately. The research shows!
As with his other book "How will you value your life" the lessons here are quite simple, but behind them is much research consideration and insight. He pitches what he calls 'The theory of disruption' which explains how many new technologies manage to knock established ones off their perch. The book is a bit dated now and a reader in 2017 might think 'hmm, well that's a bit obvious' *but* bear in mind at the time this was written this was the *only* manual on this topic! The knowledge is still applicable; it can explain how PCs became laptops, laptops became smart phones, became tablets, became smart-watches...
A worthwhile read to challenge the way you think about business and innovation.
Apart from the core premise - explanation of disruptive technologies - this book should be required reading for any scholar or businessperson tying to build an evidence-based case for anything.
1. The distinction between a product being the best it can be and what a customer actually needs from it. There are numerous examples given of where the technical specifications of products such as disk drives improved far beyond what customers needed. Beyond a certain point customers weren't prepared to pay much extra for further advancements. The result was commoditised pricing.
2. The distinction between what you are good at making and what the market wants. A good example was the manufacturers of cable excavators not understanding how small building contractors worked, and thus continuing to produce what they could, not what the market increasingly wanted. The result was that they almost all went out of business.
If you run or own a business, this is a useful book to read. It doesn't have to run a manufacturing business - my firm does software services, and yet there are still relevant lessons in this book.
A very interesting insite into the world disruptive technologies and how fast paced the technology market is. Some wonderful examples of different industries and an indepth analysis of spesific times when a new technology has started as a low margin, low performance alternative and gradually surpassed market leaders changing industry standards.