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260 of 271 people found the following review helpful:
5.0 out of 5 stars
Disruptive technologies create a threat to large companies, November 13, 2001
This is a book is about successful, well-led companies -often market leaders- that carefully pay attention to what customers need and that invest heavily in new technologies, but still loose their market leadership suddenly. This can happen when disruptive technologies enter the stage. Most technologies improve the performance of existing products in relation to the criteria which existing customers have always used. These technologies are called sustaining technologies. Disruptive technologies do something different. They create an entirely new value proposition. They improve the performance of the product in relation to new performance criteria. Products which are based on disruptive technologies are often smaller, cheaper, simpler, and easier to use. However, the moment they are introduced, they can not at once compete against the traditional products and so they cannot directly reach a big market. Christensen researched how disruptive technologies have developed in the computer disk industry, an extremely rapid evolving industry. He identified six steps in the emergence of disruptive technologies: 1. Disruptive technologies often are invented in traditional large companies. Example: at Seagate Technology, the biggest producer of 5,25 disks, engineers in 1985 designed the first 3,5 disk. 2. The marketing department examines first reactions from important customers to the new technology. Then they notice that existing customers are not very interested and they conclude that not a lot of money can be made with the new product. Example: this is what happened at Seagate. The 3,5 disk's were put upon the shelf. 3. The company keeps on investing in the traditional technology. Performance improvement of the traditional technology is highly appreciated by existing customers and a lot of money is being made. Example: Seagate invested in the 5,25 disk technology. This led to considerable improvement of the technology and to a considerable improvement of sales. 4. New companies are started up (by ex-employees of the traditional companies) and markets for the new technology emerge by trial and error. Example: ex-Seagate people started up Corner Peripherals. This company focused on the small emerging market for 3,5 inch disks. In the beginning this was only for the laptop market. 5. The new players move up in the market. The performance of the new technologies gets better after some time, enabling them to compete better and better with the traditional companies and products. Example: the performance of the 3,5 disks improved drastically. The 3,5 inch disk moved up in the market, to the personal computer market. Corner pushed Seagate out of the PC market for 3,5 inch disk drives. 6. Traditional companies try to defend their market position and to get along in the new market. Often they notice that they have fallen behind so far, that they cannot keep up. Example: Seagate did not succeed in capturing a significant part of the new market for 3,5 inch disk drives for PC's. The events described above can be understood by the four principles of disruptive technologies which Christensen formulates: 1. In well-led companies it is customers, not managers, who actually determine resources allocation. This is a proposition of the resources dependence theory (Pfeffer & Salancik, 1978) which is supported strongly by the research of Christensen. In essence: middle managers will not tend to invest in technologies that are not directly appreciated by important (large) clients, because they will not be able to get quick financial gains by doing this. 2. Small markets can not fulfil the growth need of large companies. For several reasons, growth is important for companies. Unfortunately, the bigger the company, the harder it is to continue growth. A small company (40 million sales) with a growth target of 20%, must achieve 8 million extra sales. A large company (4 billion sales), has to achieve 800 million of extra sales! Emerging markets often simply are not large enough to fulfil such growth needs. They can, however, fulfil the growth needs of new small companies. 3. Markets that do not exist can not be analysed. The ultimate applications of disruptive technologies can not be foreseen on forehand. Failure is an intrinsic unavoidable step to success. 4. Technology supply does not always equal the market demand. The speed of technological progress is often bigger than the speed with which the customer demand develops. By improving the performance of the disruptive technologies (for instance the 3,5 inch disks, first only used in the laptop market), they became suitable for the larger PC-market. These steps explain why traditional companies are often not capable of applying disruptive technologies. Christensen argues that you can not resist these four principles. What you can do however, is use them to your advantage. For instance: in a large company you can create an 'island' where the new technology is developed for the new market. Also it is possible get an ownership in emerging companies which develop the new technologies (several companies have done this successfully). I think the innovator's Dilemma is an excellent book. The ideas are empirically foudend and together they form a coherent theoretical framework. The examples from the computer disk industry, the steel industry and others, are very well-documented and interesting. The book is logically structured and reads easily.
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119 of 128 people found the following review helpful:
4.0 out of 5 stars
A new paradigm, August 11, 1998
We have all seen large, powerful, and successful corporations upstaged and driven out of business by startups using new ideas to grow exponentially and dominate the new business landscape. In his book "The Innovator's Dilemma," Clayton M. Christensen provides a unique and novel theory that explains why entrenched corporations often fail to capitalize on such new ideas, and fall prey to firms with fewer initial resources. With enough data and case histories to make even the skeptic sit up and take notice, Christensen sculpts an argument that demands our attention at once. Step by step he shows that such extinctions come about not necessarily because of arrogance and dogmatism (though these play their parts) but because of the architectural and organizational structures that make good companies good. Like Einstein's theory of relativity, with its concepts of relative time and space, some of Christensen's conclusions seem unintuitive. Others even seem contrary to phy! sical reality. Sometimes it really is wrong to listen to your customers. Sometimes it is better to build a product with low margin and a limited market rather than build a product with high margin and large, virtually guaranteed market. Christensen builds his thesis upon the notion that technology comes in two broad flavors: sustaining and disruptive. Established product lines use sustaining technology to make incremental improvements. In the language of biology, sustaining technology facilitates gradual Darwinian evolution where incremental improvements coupled with survival of the fittest lead to gradual product improvement. For example, tire manufacturers use sustaining technology to enhance the tread, sidewall, and belt design of automotive tires. Sustaining technology is not trivial, and often involves tremendous expenditures of capital. It is, however, what established companies do best, and these companies have developed very effective organizational and manag! erial structures for dealing with it. Disruptive technol! ogy, on the other hand, approaches product evolution outside the sustaining envelope. Disruptive technologies typically offer a cheaper solution to a small, often unidentified subgroup. Once established within this small market the disruptive technology evolves through sustaining technology until it eventually satisfies the performance criteria of more traditional markets. When this happens, the disruptive technology bursts onto the scene, attacking the soft underbelly of the established corporations, often with fatalistic consequences. In the parlance of evolutionary biology, disruptive technology is like punctuated evolution; fast with significant changes in the gene pool. Christensen may be excused for lacking the breadth to discuss similarities between such diverse fields as biology and business management. Still, the book would have benefited immeasurably by a co-author in the field who might have offered greater insight into universal principles governing the evol! ution of complex systems. Repeatedly I found myself going to books by authors such as Richard Dawkins and Stephen Jay Gould to refine my mental image of the multidimensional landscape in which biological organisms and industrial businesses compete for the resources of survival. The book is well written and persuasive in its arguments. It questions many established ideas and shows that often these ideas fail to apply to disruptive technologies. Often the best corporations are especially susceptible. Defense against disruptive technologies does not come from being smarter and working closer with customers. Paradoxically, working closely with customers and following established rules for corporate investment often make a company more susceptible to harm from disruptive technologies. Companies naturally evolve toward higher-end products with greater margins. Consequently, they find it difficult to enter markets with disruptive technologies that often begin with low margi! ns, are technologically simple, and do not have a clearly d! efined customer base. Such markets are ideal for start-up firms. The author suggests, with several case histories, that one of the best ways for established firms to deal with disruptive technologies is to spin off autonomous organizations that exist within the economic constraints of disruptive technologies. The author does an excellent job of using examples, drawing most from the disk-drive industry. He also includes examples from the computer, motorcycle, steel, automotive, and earth-moving industries as well. In each case he explains how disruptive technologies emerged and often destroyed well-run companies that were following all the established rules. This drives home the fact that disruptive technologies pose such a great risk precisely because they can destroy industries not only in spite, but because they follow established business practices. After describing disruptive technologies, with historical cases to illustrate points, the author ends with a case st! udy involving electric vehicles. I found this chapter to be among the weakest, and something of a distraction from the more substantial earlier material. Ironically, in the process of trying to frame electric vehicles as disruptive technology, the author seems to have missed one of the best examples of a disruptive technology, and one that nearly destroyed America's foremost industries: small cars. Overall, Christensen's work is on a high academic level, though some of the technical material is inconsistent. For example, the ordinates in figures 1.4, 1.5, and 6.1 disagree with each other. The text on page 128 also disagrees with figure 6.1, while the text on page 150 disagrees with figure 7.1. These may be simple examples of typographical errors, but they lessen confidence in the book's technical accuracy. On the positive side, the book has excellent organization and lots of pertinent examples, as well as extensive notes and documentation. The index is also very co! mplete and thorough. Though Christensen's ideas are new! and radical they are so lucid, logical, and clear that anyone involved in American business cannot afford to ignore them. Duwayne Anderson
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23 of 23 people found the following review helpful:
4.0 out of 5 stars
Disruptive vs. Sustaining Technologies, January 12, 2000
Christensen clearly presents the reality of how disruptive technologies affect organizations. He reviews the business perspectives of large firms vs. those of small firms, and their issues with disruptive and sustaining technologies, i.e., resources, profit margins, customers, etc. Christensen explains that what to us, from the point of 20/20 hindsight, may now seem like blatantly obvious organizational faux pas, at the time seemed like the correct path for the organization to follow. He also reviews companies that have been able to not only survive, but succeed with the emergence of disruptive technologies. Disruptive Technologies vs. Sustaining Technologies One of the main reasons why great firms fail is that they attempt to market and manage disruptive technologies utilizing the same methodologies that are found to be successful for the management and marketing of sustaining technologies. These firms are essentially held captive by their customers, since this methodology is based on pleasing the established customer base. Disruptive technologies often are intended for different customer bases that may not have yet been discovered. Due to this, disruptive technologies are often not seen as successful or profitable by large firms that need to keep large profit margins. They are instead seen as successful by smaller entrant organizations with smaller profit margins. "Resource Dependence - Customers effectively control the patterns of resource allocation in well-run companies" Management, especially middle management, is very aware of the customer base their company holds. Their customers are the ones who keep pouring money back into their organization through the purchase of products. These customers have set their expectation on the sustaining technology the organization currently offers, as it helps them run their business. They usually have little interest in a disruptive technology that more than likely will not currently meet their needs. This, in turn, causes any new projects involving disruptive technologies that are kept within the same organization and held to the same profit expectations, which initially they will no be able to meet, to not be held at the top of the organizational priority list. The disruptive technology will be "shelved" until it comes into the mainstream, and by that time it may be too late. "Small markets don't solve the growth needs of large companies" When a disruptive technology begins to make its presence known, the disruptive technology needs to be viewed with serious consideration. From this, proper planning for its many possibilities should take place. These plans need to remain flexible, and development of the disruptive technology should take place within a department, organization, or subsidiary that has little financial bearing on the company as a whole. This is the necessary environment for the successful development of a disruptive technology. The larger organization can not expect this disruptive technology to command the profit margins of the organization's sustaining technologies until it has discovered its customer base. "The ultimate uses or applications for disruptive technologies are unknowable in advance. Failure is an intrinsic step toward success." A great example from the book is the introduction of Honda motorcycles in the U.S. in 1959. Initially Honda wanted to conquer the American market with their 50cc Supercub bike, but their bikes weren't built for running at high speeds for extended periods like Harley-Davidson and BMW. Honda discovered, after failing to market the bikes as road bikes, from actually watching how people used the bikes, that their bikes were best suited for off road dirt biking, a sport that had not yet come to fruition. Harley-Davidson attempted to take part of the new market, but tried to do so by marketing this disruptive technology as a sustaining technology. Their plan failed to prove profitable. "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." Honda was able to do this by creating a new market segment, off road bikers! These same bikes were not attractive to those customers interested in long haul road bikes such as Harley-Davidson and BMW, but Honda's bikes now hold a majority of the market.
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