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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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What do the Honda Supercub, Intel's 8088 processor, and hydraulic excavators have in common? They are all examples of disruptive technologies that helped to redefine the competitive landscape of their respective markets. These products did not come about as the result of successful companies carrying out sound business practices in established markets. In The Innovator's Dilemma, author Clayton M. Christensen shows how these and other products cut into the low end of the marketplace and eventually evolved to displace high-end competitors and their reigning technologies.
At the heart of The Innovator's Dilemma is how a successful company with established products keeps from being pushed aside by newer, cheaper products that will, over time, get better and become a serious threat. Christensen writes that even the best-managed companies, in spite of their attention to customers and continual investment in new technology, are susceptible to failure no matter what the industry, be it hard drives or consumer retailing. Succinct and clearly written, The Innovator's Dilemma is an important book that belongs on every manager's bookshelf. Highly recommended. --Harry C. Edwards --This text refers to an out of print or unavailable edition of this title.
The author, an associate professor at Harvard Business School, asks why some well-managed companies that stay on top of new technology and practice quality customer service can still falter. His own research brought a surprising answer to that question. Christensen suggests that by placing too great an emphasis on satisfying customers' current needs, companies fail to adapt or adopt new technology that will meet customers' unstated or future needs, and he argues that such companies will eventually fall behind. Christensen calls this phenomenon "disruptive technology" and demonstrates its effects in industries as diverse as the manufacture of hard-disk drives and mass retailing. He goes on to offer solutions by providing strategies for anticipating changes in markets. This book is another in the publisher's Management of Innovation and Change series. David Rouse --This text refers to an out of print or unavailable edition of this title.
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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.
The Innovator's Dilemma makes a compelling argument based on the author's study of the computer disk drive industry. Disk drive manufacturing was chosen for its frequent turnover of technology and competitors in a relatively short timespan.
Cristensen places technological innovations in two categories: sustaining and disruptive. Sustaining innovations are those that help sustain an organization's existing customer base by improving the performance, capacity, reliability, or value of an existing product technology. Disruptive innovations produce products that are technologically inferior from the perspective of a firm's existing customer base. Disruptive products, however, may include improvements that, while unimportant to the existing market, hold potential for new and emerging markets. Christensen uses the example of the introduction of small 50cc Honda motorcycles in the late 1950's. From the perspective of the existing motorcycle market at the time, the Honda was inferior compared to larger, more powerful motorcycles such as Harley Davidson and BMW. Honda found a niche, however, as a dirt bike - an emerging market that had not been explored by other manufacturers but was ideally suited for a small, inexpensive motorcycle.
Once a market is established for a disruptive technology, it can then evolve into the mainstream and become technologically improved to the point of competing with and eventually overtaking existing mainstream technologies. In the case of Honda, once a market was established, small motorcycles were technologically improved to the point of appealing to a mass market rather than just dirt bike enthusiasts.
Organizations overlook disruptive technologies for a variety of reasons. Often, larger organizations listen to their existing customers and what is important to them, overlooking small, emerging markets. The innovator's dilemma is that at the time disruptive technologies are introduced, mainstream companies are often wildly successful marketing their sustaining technology to existing customers. Investing in disruptive technology necessitates a diversion of resources away from the organization's most profitable activities that its customers are asking for, toward an unproven technology with a small, uncertain market. Disruptive technologies are often not as cost effective to manufacture or sell when they are viewed from the perspective of existing markets. Small 3.5 inch disk drives, for example, initially cost more per megabyte of capacity compared to larger 5.25 inch drives while, and they had less overall capacity Although they were not attractive to desktop computer manufactures, they represented a cost effective solution to the needs of the emerging mobile computer market where size was more important than large capacity.
Citing examples from a number of industries, Christensen makes the point that traditional business planning works well for established markets and sustaining technologies. In the case of disruptive technologies, however, he argues that strategy should be based on discovery of new opportunities and that individuals working on the development and marketing of disruptive technologies should be organizationally separate.
Overall, the Innovator's Dilemma is a concise, well written book in which the author is able to effectively convey a technically complex study on a technically complex industry. Overall, the Innovator's Dilemma should be required reading for anyone in an business planning role.