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

The Innovator's Dilemma: The Revolutionary Book that Will Change the Way You Do Business (Collins Business Essentials)
The bestselling classic on disruptive innovation, by renowned author Clayton M. Christensen. His work is cited by the world’s best-known thought leaders, from Steve Jobs to Malcolm Gladwell. In this classic bestseller—one of the most influential business books of all time—innovation expert Clayton Christensen shows how even the most outstanding companies can do everything right—yet still lose market leadership.

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

When faced with new and innovative technology, some firms are unable to maintain their position within their industry.

In The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail, Clayton Christensen explains the reason why some of the most successful firms lost their position in the market once new challengers stepped up to the plate.

When it comes to innovation, there are some companies that are unable to confront the challenges placed before them in an effective manner. In order for managers to handle competitive innovations, they need more than just suggestions for what to do, they must have an actual framework to manage any impact these new innovations will have on their company.

Typically there are two types of innovations a company must contend with. One is a helpful innovation that helps a business succeed and move forward. The second is a disruptive innovation that can end up transforming an entire industry.

Usually a disruptive innovation is something that initially seems to appeal to only a small audience. However, over time, these innovations gain the audience of the market by offering an alternative that is easier or cheaper (and sometimes both) than the original product it is in competition with.

The Innovator’s Dilemma is a chance to look at the different innovations that can have an impact on a business and how to handle these innovations as they change the way business is done

It is important to be able to recognize a helpful innovation over one that would be considered a disruptive innovation. When dealing with new innovations, a company must look beyond suggestions to a plan of action to actually deal with the impact that these innovations can have on the business.

Even with the importance of market research being well-established, it is nearly impossible to get what you need when it comes to new technology.

Key Points

  • New technology is easy to improve at first, but gets harder over time

As new technology is created, new improvements and ideas seem to come easy. However, over time, it can be hard to keep improving technology, even with further research.

It is all about that initial breakthrough, which actually leads to the viability of that product on the market. Once a product hits the market, customer feedback can help to make improvements and small tweaks that make the new technology better.

These small changes usually come at a small cost to the company. In some cases, these small changes can lead to continued improvements that gives consumers new versions of the technology on a regular schedule.

However, at some point, the technology will hit a plateau. At this plateau, it can cost more to make changes that are effective and worthwhile. Plus, it can also be harder to find things to change to improve this technology.

In some cases, once a company gets to a point where it is no longer viable to keep tweaking their technology, it can open a space for a rival company to step in and offer their own product as a competitor.

  • There are two types of innovations: Sustaining innovations and disruptive innovations

Even though we can say that all innovations are likely to create a disruption, that does not make them all disruptive. Instead, there are some that would be considered useful in the long run, which we consider to be sustaining innovations.

In some cases, an innovation can help a company and their technology to keep reaching customers and giving them what they need. These sustaining innovations allow a company to maintain their customers.

Disruptive innovations on the other hand are more likely to weaken a company and their relationship with customers. They often appeal to a small portion of customers because of the new features that have been added. These innovations threaten established market players and their hold on their customers.

In many cases, these disruptive innovations might appeal to a small amount of customers at first, but over time, it can expand to more consumers.

  • Disruptive innovations use their pricing to enter the market

Typically new technology trying to enter the market are unable to compete with the product quality of established companies. In order to gain their share of the market, these new innovations have to use specific aspects of their technology to garner interest.

Even with the original company offering a better quality of technology, when a new company introduces new features, as well as competitive pricing, it can disrupt the market hold of the established product. Although quality might be sacrificed by choosing the new technology, the price along with a specific feature not associated with the original product can be enough to sway consumers.

  • Disruptive technology can create its own market, which means that listening to customers can end up being counterproductive to a business

While traditional business models rely on customer feedback to stay relevant, managers must also understand that often customers do not actually know what they want.

There are times when a business develops a technology that customers don’t know they want and so they are not ready to accept it in their lives. In fact, it can take years for customers to embrace change enough that they will even try something new and innovative.

  • Market research does not work with new technology

If a product does not exist, a customer cannot offer their feedback on it. When disruptive, new technology is released, it actually creates its own market where there wasn’t one before.

It can take a long time for a customer to know they want something, especially when it comes to new technology that could one day become the preferred product on the market.

  • Shifting market trends can show more favor to new technologies over firms that are well-established

Well-established firms typically focus on their current market over developing new customers in different areas. Typically this is because smaller markets are unlikely to make a profit for these larger companies.

This leaves the market open for new companies to step in and focus on the new products that the smaller group of customers is looking for. This can lead to rapid growth for these companies as they satisfy a demand that the well-established firm cannot. And these larger firms wouldn’t want to enter these niche markets to begin with, because it may end up diluting their brand in the end.

In order to compete with these new companies, larger firms can look towards purchasing their rivals who are offering these new innovations that they are not planning to offer under their own name.

An example of this is Facebook, which purchased WhatsApp in 2014. While Facebook was the larger company, with more consumers using it, WhatsApp posed a serious threat to their communication platform dominance. By purchasing WhatsApp, Facebook was able to take control of a platform that many users were turning to for their communication needs.

  • Innovation can be hard to achieve in larger companies due to bureaucracy

The larger a company is, the harder it can be to be innovative. It is the size of the company that makes it hard to adapt quickly to a changing market.

With larger companies being more bureaucratic, it can take a long time for new ideas to travel through the company. This is why managers need to be prepared for change in a way that does not impact its human resources in a major way or challenge the values of the company.

In some cases, an employee might resent having to work on a project that has not yet been proven or which is considered low-cost.

On the customer front, they may not associate a product that costs less with the larger company. And even if they do, they may have expectations of this low-cost product that is higher because of the company producing it.

In order to handle the customer’s expectations, it might be better to either rebrand different products to appeal to customers. Another option is to create a new company that caters to these less expensive products.

  • Employees who leave large firms to start their own company can be a serious challenge to the established firm's position in the market

When an employee with talent leaves a larger firm to start their own company, this can cause a disruption in the market. It can actually threaten the hold the larger firm has over its customers.

These new firms, which can be considered a spin-off of the original, often prove the idea that the larger company might be able to create innovative ideas, but they are unable to bring them to market. By having what is essentially insider knowledge, these defectors can exploit what they know to create their own business that acts in competition to the large firm where they started.

Summary

Larger firms have a hard time bringing new technology to the market for a number of reasons. Not only does it take longer to get ideas through an organization, but it can be hard to determine what is sustainable technology and what is a disruptive technology.

Market research will never work with new technology, as customers cannot judge a product that does not yet exist. And it can take a long time for new technology to be accepted by customers, as they may not even know that they want or need this new innovation.

When employees defect from larger, well-established firms, they can end up challenging their previous company for a place in the market, leading to a loss of customers for the large firms.

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