[Book 8] The Innovator’s Dilemma by Clayton Christensen

The Innovator’s Dilemma is a must read for anyone in a business role who wants to understand how companies succeed and fail when it comes to innovation; simply put, this book has proven to be ahead of it’s time. Clayton eloquently explains how disruptive technology goes from raw, niche and unprofitable to overtake industries. Equally important, he unpacks why established players routinely fail to startups despite having a massive resource advantage. This book has helped me evaluate startup ideas, better filter how to interpret customer desires, and understand underlying driving forces of innovation (or lack thereof) in large organizations.

You should read this book if you…

• want to know how startup technologies succeed and/or how establish players fail
• are looking better to understand the pros and cons of listening to what your best customers want
• seek to better understand how the limitations of a large organization affect how decisions are made

Additional Information

Year Published: 1997
Ease of Read (from 1-5): 4 – Moderately Challenging
Book Ranking (from 1-10): 9 – Excellent – Broad and very well articulated insights

Key Highlights

1. You should always listen to and respond to the needs of your best customers, and that you should focus investments on those innovations that promise the highest returns. But these two principles, in practice, actually sow the seeds of every successful company’s ultimate demise. That’s why we call it the innovator’s dilemma: doing the right thing is the wrong thing.
2. Disruptive technologies bring to a market a very different value proposition than had been available previously. Generally, disruptive technologies underperform established products in mainstream markets. But they have other features that a few fringe (and generally new) customers value. Products based on disruptive technologies are typically cheaper, simpler, smaller, and, frequently, more convenient to use.
3. 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.
4. 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. They demand market data when none exists and make judgments based upon financial projections when neither revenues or costs can, In fact, be known. Using planning and marketing techniques that were developed to manage sustaining technologies in the very different context of disruptive ones is an exercise in flapping wings.
5. Simply put, when the best firms succeeded, they did so because they listened responsively to their customers and invested aggressively in the technology, products, and manufacturing capabilities that satisfied their customers’ next- generation needs. But, paradoxically, when the best firms subsequently failed, it was for the same reasons— they listened responsively to their customers and invested aggressively in the technology, products, and manufacturing capabilities that satisfied their customers’ next- generation needs. This is one of the innovator’s dilemmas: Blindly following the maxim that good managers should keep close to their customers can sometimes be a fatal mistake.
6. The third pattern shows that, despite the established firms’ technological prowess in leading sustaining innovations, from the simplest to the most radical, the firms that led the industry in every instance of developing and adopting disruptive technologies were entrants to the industry, not its incumbent leaders.
7. The concept of the value network— the context within which a firm identifies and responds to customers’ needs, solves problems, procures input, reacts to competitors, and strives for profit— is central to this synthesis. Within a value network, each firm’s competitive strategy, and particularly its past choices of markets, determines its perceptions of the economic value of a new technology. These perceptions, in turn, shape the rewards different firms expect to obtain through pursuit of sustaining and disruptive innovations. In established firms, expected rewards, in their turn, drive the allocation of resources toward sustaining innovations and away from disruptive ones. This pattern of resource allocation accounts for established firms’ consistent leadership in the former and their dismal performance in the latter.
8. Many scholars have asserted that the essence of strategic technology management is to identify when the point of inflection on the present technology’s S- curve has been passed, and to identify and develop whatever successor technology rising from below will eventually supplant the present approach.
9. Furthermore, the 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. The S- curve framework, therefore, asks the wrong question when it is used to assess disruptive technology. What matters instead is whether the disruptive technology is improving from below along a trajectory that will ultimately intersect with what the market needs.
10. Indeed, 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.
11. For an organization to accomplish a task as complex as launching a new product, logic, energy, and impetus must all coalesce behind the effort. Hence, it is not just the customers of an established firm that hold it captive to their needs. Established firms are also captive to the financial structure and organizational culture inherent in the value network in which they compete— a captivity that can block any rationale for timely investment in the next wave of disruptive technology.
12. The firms that lost their battles with disruptive technologies chose to ignore or fight them. These principles are: Resource dependence: Customers effectively control the patterns of resource allocation in well- run companies. Small markets don’t solve the growth needs of large companies. The ultimate uses or applications for disruptive technologies are unknowable in advance. Failure is an intrinsic step toward success. Organizations have capabilities that exist independently of the capabilities of the people who work within them. Organizations’ capabilities reside in their processes and their values— and the very processes and values that constitute their core capabilities within the current business model also define their disabilities when confronted with disruption. 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.
13. The evidence from the disk drive industry shows that creating new markets is significantly less risky and more rewarding than entering established markets against entrenched competition.
14. But in disruptive situations, action must be taken before careful plans are made. Because much less can be known about what markets need or how large they can become, plans must serve a very different purpose: They must be plans for learning rather than plans for implementation. By approaching a disruptive business with the mindset that they can’t know where the market is, managers would identify what critical information about new markets is most necessary and in what sequence that information is needed. Project and business plans would mirror those priorities, so that key pieces of information would be created, or important uncertainties resolved, before expensive commitments of capital, time, and money were required.
15. Unfortunately, some managers don’t think as rigorously about whether their organizations have the capability to successfully execute jobs that may be given to them. Frequently, they assume that if the people working on a project individually have the requisite capabilities to get the job done well, then the organization in which they work will also have the same capability to succeed. This often is not the case because organizations themselves, independent of the people and other resources in them, have capabilities. To succeed consistently, 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.
16. An organization’s values are the standards by which employees make prioritization decisions— by which they judge whether an order is attractive or unattractive; whether a customer is more important or less important; whether an idea for a new product is attractive or marginal; and so on. Prioritization decisions are made by employees at every level. At the executive tiers, they often take the form of decisions to invest or not invest in new products, services, and processes. Among salespeople, they consist of on- the- spot, day- to- day decisions about which products to push with customers and which not to emphasize.
17. An organization’s values are the standards by which employees make prioritization decisions— by which they judge whether an order is attractive or unattractive; whether a customer is more important or less important; whether an idea for a new product is attractive or marginal; and so on. Prioritization decisions are made by employees at every level. At the executive tiers, they often take the form of decisions to invest or not invest in new products, services, and processes. Among salespeople, they consist of on- the- spot, day- to- day decisions about which products to push with customers and which not to emphasize.
18. Its developers made it so convenient to use, and continue to make it simpler and more convenient, by watching how customers use the product, not by listening to what they or the “experts” say they need. By watching for small hints of where the product might be difficult or confusing to use, the developers direct their energies toward a progressively simpler, more convenient product that provides adequate, rather than superior, functionality.
19. Historically, disruptive technologies involve no new technologies; rather, they consist of components built around proven technologies and put together in a novel product architecture that offers the customer a set of attributes never before available.