The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail by Clayton Christensen

Summary

  1. The research reported in this book supports his latter view: it shows that in the cases of well-managed firms, good management was the most powerful reason they failed to stay atop their industries. Precisely because these firms listened to their customers, invested heavily in new technologies that would provide their customers more and better products of the short 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. What this implies at a deeper level is that many of what are now widely accepted principles of good management are, in fact, only situationally appropriate. There are time at which it is right not to listen to customers, right ot invest in developing lower-performance products that promise lower margins, and right to aggressively pursue small, rather than substantial markets. 

Key Takeaways

  1. One common theme to all of these failures, however, is that the decisions that led to failure were made when the leaders in question were widely regarded as among the best companies in the world
  2. The failure framework is built upon 3 findings. The first is that there is a strategically important distinction between what I call sustaining technologies and those that are disruptive. Second, the pace of technological progress can, and often does, outstrip what markets need. This means that the relevance and competitiveness of different technological approaches can change with respect to different markets over time. And third, customers and financial structures of successful companies color heavily the sorts of investments that appear to be attractive to them, relative to certain types of entering firms
  3. Case for investing in disruptive technologies can’t be made confidently until it is too late
  4. Established firms confronted with disruptive technology typically viewed their primary development challenge as a technological one: to improve the disruptive technology enough that it suits known markets. In contrast, the firms that were most successful in commercializing a disruptive technology were those framing their primary development challenge as a marketing one: to build or find a market where product competition occurred along dimensions that favored the disruptive attributes of the product. 
  5. It has almost always been the case that disruptive products redefine the dominant distribution channels, because dealers’ economics – their models for how to make money – are powerfully shaped by the mainstream value network, just s the manufacturer’s are. 
  6. Principles of disruptive innovation
    1. Companies depend on customers and investors for resources – difficult for companies tailored for high-end markets to compete in low-end markets as well. Creating an independent organization that can compete in these disruptive technologies is the only viable way for established firms to harness this principle. Promise of upmarket margins, simultaneous upmarket movement of customers, and the difficulty of cutting costs to move downmarket profitably create a powerful barrier to downward mobility. In fact, cultivating a systematic approach to weeding out new product development initiatives that would likely lower profits is one of the most important achievements of any well-managed company. Creates a vacuum in the low-end market that attracts competition
    2. Small markets don’t solve the growth needs of small companies – create small organizations that get excited about small opportunities and small wins
    3. Markets that don’t exist can’t be analyzed – those who need analysis and quantification before they invest become paralyzed when faced with disruptive technologies
    4. Technology supply may not equal market demand – sometimes “good enough” is competitive and established firms tend to overshoot what the market demands. Moves from functionality to reliability to convenience to price
    5. Not wise to always be a technological leader or a follower – need to take distinctly different postures depending on whether they are addressing a disruptive or sustaining technology. Disruptive technologies have a large first-mover advantage and leadership is important

What I got out of it

  1. Great way to think about how you could do all the right things and still lose. Helmer’s counterpositioning in action