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The Innovator's Dilemma, When New Technologies Cause Great Firms to Fail (平装)
by Clayton M. Christensen
| Category:
Strategy, Innovation, Change, Business |
| Market price: ¥ 208.00
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¥ 158.00
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 Good for Gifts |
| MSL Pointer Review:
In-depth analysis, excellent examples, actionable recommendations, a great book about business strategies, must read for managers. |
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AllReviews |
  1 2 Total 2 pages 15 items |
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H. Arsham (MSL quote), USA
<2006-12-26 00:00>
The Innovator's Dilemma explores how the creation of new technologies can cause companies to lose market share or their markets entirely, even companies that do everything right such as listening to their customers, watching the marketplace, and investing in research and development. The author argues that, while existing thriving companies can be successful with sustaining technologies, these same companies often falter with the advent of disruptive technologies. They either often do not want to put their resources into developing the new technology, because their existing customer do not want it or they attempt to fit the new technology into the existing market instead of looking to create new markets for the new product which generally doesn't work. Both of these decisions cause the company to lag in the development of the disruptive technology and eventually wither away to the competition of smaller companies that focused on developing the eruptive technology.
The dilemma examined is, while it is important for companies to give their customers what they want to be successful in the present, they need to know when to begin to move their resources into technologies or services t hat represent the moneymakers and markets of tomorrow. Though concentrating mainly on the disk drive industry, the author also looks at the retailing industry, pharmaceutical industry, and automobile industry including the development of the electric car, among others. Examples of disruptive technologies include the evolution of disk drives from 14 inch to 8 inch to 5.25 inch to 3.5 inch to 1.8 inch, the introduction of off-road motorcycles to North America. The replacement of transistors by vacuum tubes, and the creation of discount retailers such as K-Mart. Sustaining technologies are those that improve upon existing products or technologies 'along the dimensions of performance that mainstream customers in major markets have historically valued'. Most advances in technology have been sustaining in nature, which may very well be one reason why, when faced with a disruptive technology, ordinarily successful companies fail with regards to those disruptive technologies. Another reason for successful firms failing to capitalize on disruptive technologies, this goes against what is normally considered 'rational financial decision-making'.
Generally, disruptive technologies have low profit margins, are geared to 'emerging or insignificant markets', and a company's best customers usually do not want, need, or cannot use the disruptive technology. The author outlines four basic principles to successfully deal with disruptive innovations which he likened to man first learning how to fly. In the introduction, he wrote that when man first learned to fly, he ignored the basic principle of physics. Once the basics principles of physics were recognized and put to use, man was able to fly. Similarly, he argues that once managers recognize and utilize the principles of disruptive innovation, they will be able to successfully deal with such innovations. These principles are: Companies Depend on Customers and Investors for Resources. Small Markets Don't Solve the Growth Needs of Large Companies. Markets That Don't Exist Can't Be Analyzed. Technology Supply May Not Equal Market Demand. These four principles are discussed in the firs half of the book. The author argues that if managers can understand and use these four principles when faced with disruptive technologies, they then can and will be able to effectively navigate through those unknown waters. One of the reasons put forth for repeated failures is that the then-successful companies focused solely on providing what their customers wanted and neglected to look to or invest in nascent technologies. Their total customer focus caused them to lose sight of new and potentially lucrative markets and products. Also put forth as a reason for these failures is the companies' fears of cannibalization; that us is, the companies feared that the new disruptive technology would be purchase at the expense of their more successful products. However, as he points out, disruptive technology never initially replaces and existing technology, and , as such , the short term fear of cannibalization of existing high profit products is unfounded. When and established company waits to introduce a disruptive technology until the market for that product is already established, then the fear of cannibalization is much more real.
The author looks also to value networks to determine whether or not a company will be successful with regards to disruptive technologies. A value network is essentially the framework that a company uses to solve problems, deal with its customers, and generally do its business. It is from within this network that marketing decisions and 'perceptions of the economic value of a new technology' are formulated. As can be deduced, a large, established firm will have different marketing plans and value perceptions of a new product for a small or unknown market than would startup or smaller company. Often times it is through this value network that the decisions to pas on a new technology are made. Shadow prices are discussed in relation to how different value networks view the varying characteristics of the product. The author outlines six steps in the evolution of a disruptive technology: Disruptive technologies were first developed within established firms. Established firms may have chosen not to market the technology, but they knew how to develop it. Marketing personnel then sought reactions from their lead customers. The most important customers have no use at the moment for the new technology and, therefore, show little interest in it. Established firms step up the pace of sustaining technological development. They do this in order to keep up with the needs of their current customers and thereby 'win the competitive wars against other established firms which were making similar improvements'. By taking this tack, established firms neglect possible competition from entrant companies with disruptive technologies. New companies were formed, and markets for the disruptive technologies were found by trial and error.
Often the people who developed the disruptive technologies at the established firms would leave and form their own companies to market their innovations. In the process, they would develop and new market. The entrants moved up-market. Once these new companies developed their own markets, they were able to make some changes to their products and begin to move in on the established firms. Established firms belatedly jumped on the bandwagon to defend their customer base. By this point, it is generally too late for the established firms. Those that succeed in getting the new technology to market generally don't get any significant market share. They basically just hang on. The author examined companies such as Apple, Hewlett-Packard, Kresge, Woolworth's, and Honda. He concluded that the successful managers took the following steps when faced with disruptive technologies. They embedded projects to develop and commercialize disruptive technologies within an organization whose customers needed them. When managers aligned a disruptive innovation with the 'right' customers, customer demand increased the provability that the innovation would get the resources it needed. They placed projects to develop disruptive technologies in organizations small enough to get excited about small opportunities and small wins. They planned to fail early and inexpensively in the search for the market for a disruptive technology. They found that their markets generally coalesced through an iterative process of trial, learning and trial again. When commercializing disruptive technologies, they found or developed new markets that valued the attributes of the disruptive products, rather than search for a technological breakthrough so that the disruptive product could compete as a sustaining technology in mainstream markets. The decision making process that the MBA students learn at Business Schools, including decisions under risk, the minimization of regret, etc., would be among the proper and useful methods to use when making decisions regarding sustaining innovations according to the book. However, it seems that the author is arguing that it is these exact decision analyses that often cause firms to fail when faced with disruptive technologies.
Disruptive technologies have to be analyzed using different decision models and that is what The Innovator's Dilemma sets out to demonstrate. The Innovator's Dilemma shows that, if addressed properly, disruptive technologies can prove highly successful and profitable. If addressed using the common decision-making approach best geared for everyday issues and sustaining technological improvements. Then disruptive technologies could prove to be a disaster for the existing staid corporation. |
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B. Shenoy (MSL quote), USA
<2006-12-26 00:00>
This is one of the most insightful books on business that I have ever read. It explains a very important concept - how radically new (disruptive) technologies can dislodge existing well-established (sustaining) technologies and in the process beat market leaders at their own game. First a brief explanation of the nature of disruptive technologies and how different they are from sustaining technologies. Then comes the inability of established firms to pursue these technologies due to "resource dependence". Excellent managers fail miserably when confronted by these disruptive forces. The conventional processes of being extremely customer focused, profit driven and rational decision making for technology selection are the soft spots that eventually lead to the demise of these firms when attacked by disruptive products.
Disruptive technologies initially offer products that perform slightly lower on a given parameter but are typically smaller, have lower unit costs and more convenient to use. Mainstream users initially reject these products due to lower performance. Hence disruptive products soon find small niches for themselves in totally new markets (value networks) where they are appropriate for use. Due to this adoption and growth in volumes in these segments the technology trajectory begins to move upwards intersecting and invading the territory of the conventional market from below. Incumbents ignore the threat even at this stage and before they realize their folly, they are soon filing for Chapter 11.
Large companies ignore small markets (markets for disruptive technologies are initially small) and look for growth in established markets (markets for disruptive technologies are not initially known at all). Executives of large companies are reluctant to take on challenges in small and unknown terrain since they are always trained to "think big".
The hypothesis is explained very clearly using the disk drive industry (I would like to use the term " high clock speed" industry) and extended to industries as diverse as steel, excavators, retail and pharmaceuticals.
The case study on automobile industry is frightening for those serving the sustaining gasoline segment.
Yesterday evening I was struggling through the chaotic New Year eve traffic at 6: 30 PM in Bangalore, India to reach home early in my 1.3 liter mid segment petrol engine car. While I was virtually trapped in the chaos, I observed a cute small battery powered car navigate effortlessly through the gaps and finally was far ahead of the crowd. What next?. I decided to revisit this book.
Highly recommended for managers in all industries. |
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Tushar Khosla (MSL quote), USA
<2006-12-26 00:00>
Big firms are often beaten by new companies riding on the wave of new technology (referred as disruptive technology) than the existing competitors banking on incremental improvements in sustaining technologies. Why this happens and how can large organizations be made more capable of identifying and leveraging disruptive technologies are the two key challenges that the author, a research fellow from Harvard aims to address in part one and two of this book. Author uses insights from the detailed analysis of the hard disk drive industry, and also examples from the computers, retail, pharmaceutical and automobile industries.
The key reason for the great company's inability to identify, develop and leverage disruptive technologies lies in its decision making mechanism. Managers in successful companies focus on achieving the organizational growth and profitability needs through working better on satisfying the needs of existing important customers through improvement in existing technologies, making more efficient use of resources and designing and fine-tuning processes to make them more suitable to address repetitive tasks in most cost effective manner. In such a scenario, managers would view every technology through the prism of its relevance to existing customer needs and its ability to satisfy organizational growth and profitability requirements. The disruptive technologies which may have strengths in functionalities not valued higher by the existing customers, or may have initially smaller profit margins and market size tend to get ignored or dismissed by the Managers of successful firms in a very rational financial decision making process. These disruptive technologies often get attention, focus and ownership from start-ups or smaller forms and with time grow enough to challenge the mainstream incumbent firms. Quite often, it becomes too late for the big firms to respond to the threat then.
So, what is the way out? Here author proposes a framework for analyzing the capabilities of organization to work on any disruptive technology. Organization can be viewed as comprising Resources (people, technology, products, equipment etc.), Processes (mainly organizational processes of coordination, integration, communication and decision making) and values (criteria used to make selection among choices). Big firms are able to adopt and; leverage sustaining technological developments more effectively than disruptive ones as the sustaining technologies exhibit greater for towards prevailing organizational RPV profile. Disruptive technologies would conflict with mainstream values (say profitability hurdle rate) and may not get necessary attention, support or resources.
There are three options available with big firms, try create isolated inlands working on disruptive technologies within the existing firm(with limited chances of success), wait and watch and buy smaller firms as the disruptive technology start showing promise (at higher cost and may not be available as well) or create (spinout or acquire) smaller firm to work on opportunity. Author tends to support the last option.
"When a threatening disruptive technology requires a different cost structure in order to be profitable and competitive, or when the current size of the opportunity is insignificant relative to the growth needs of the mainstream organization, then and only then is a spin out organization a required part of the solution". Match the size of the organization to the size of the market- so that everyone views the endeavor as crucial to the growth and profitability of the organization. Johnson and Johnson used this strategy very effectively to launch products if disruptive technologies (say disposable contact lens, endoscopic surgical equipment) through very small companies acquired for this purpose.
Besides the RPV framework to help organization address disruptive technological opportunities, author also presents certain principles in dealing with disruptive innovations, such as "markets that don't exist can not be analyzed".
This book is both thought provoking and resourceful. It not only sensitizes to the limitations of traditional decision making process in addressing disruptive technological interventions but also provides some preliminary guidelines/ framework on how to overcome these limitations.
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Eric Peterson (MSL quote), USA
<2006-12-26 00:00>
This text excels on several levels: It is very readable, and tells a story which is understandable and compelling even at a cursory pace. For the motivated reader, digging deeper, especially spending time on the introduction and each chapter's endnotes, there is a huge amount of data and insight into that data that is well-structured for assimilation. Finally, the theories presented, once understood, become both a lens for interpreting past and current market dynamics, and set the stage for deployable actions in a number of industries. |
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Dustin Bauch (MSL quote), USA
<2006-12-26 00:00>
"Disruptive technology" is a term that is used a lot lately amongst innovators and entrepreneurs; however, not many people really understand the difference between sustaining and disruptive technologies. The Innovator's Dilemma thoroughly explains what the difference is between sustaining and disruptive technologies, gives examples of each in several industries, and gives techniques to help identify whether or not a new technology is disruptive. The author explains why large organizations often fail to successfully develop and implement disruptive technologies. He also offers suggestions as to how to deal with disruptive technologies and what their ideal development environments are. Overall, The Innovator's Dilemma is an excellent read. The author uses interesting examples to illustrate these concepts, covers a lot of important information about how disruptive technology products are born, and explains why large corporations often are not able to bring them to market and how smaller, start-up companies capitalize on the weaknesses. |
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