The Innovators Dilemma

by Clayton M. Christensen
Logan Buchanan October 6, 2005

Thesis
Well-managed companies often fail because because the very management practices that have allowed them to become industry leaders also make it extremely difficult for them to develop the disruptive technologies that ultimately steal away their markets.
p.265

Overview
Characteristics of goods companies Why they fail anyway Case studies How to succeed Related KM Issues

What do good companies do well?

 Listen responsively to their customers  Invest aggressively in the technology, products, and manufacturing capabilities that satisfied their customers future needs  Seek higher margins  Target larger markets rather than smaller ones

Why do good companies fail?

Good management The Dilemma: The logical, competent decisions of management that are critical to the success of their companies are also the reasons why they lose their positions of leadership.

Why good management can lead to failure

1. Difference between sustaining and disruptive technologies 2. The pace of technological progress often outstrips the needs of the market. 3. Customers and financial structures of successful companies heavily influence the types of investments that appear attractive.

Two Types of Innovations

Sustaining Improve performance of established products Meet demands of mainstream customers in major markets Vary in difficulty, cost, time, etc. Established firms Disruptive Generally underperform established products in mainstream markets Have new features that fringe / new customers value Cheaper, simpler, smaller, more convenient to use Entrant firms

Why good management can lead to failure

1. Difference between sustaining and disruptive technologies 2. The pace of technological progress often outstrips the needs of the market. 3. Customers and financial structures of successful companies heavily influence the types of investments that appear attractive.

Market Need v. Technology Improvement

Technologies can progress faster than demand Suppliers give customers more than they need or are willing to pay Allows room for underperforming disruptive technologies

Why good management can lead to failure

1. Difference between sustaining and disruptive technologies 2. The pace of technological progress often outstrips the needs of the market. 3. Customers and financial structures of successful companies heavily influence the types of investments that appear attractive.

Disruptive Technologies v. Rational Investments

Disruptive products are simpler and cheaper, and promise lower margins Disruptive technologies are first commercialized in emerging or insignificant markets Most profitable current customers are not interested in the product

Case Studies
Primary takes examples from the disk drive industry. Equates this to studying fruit flies Steel minimills Mechanical excavator industry Motorcycles Insulin Department and discount stores

Disruptive Technological Change in the Mechanical Excavator Industry

Leading firms have successfully adopted a series of sustaining innovations Almost the entire population of mechanical shovel manufacturers was wiped out by a disruptive technology hydraulics that the leaders customers and their economic structure had caused them initially to ignore

Principles of disruptive innovation

1. Companies depend on customers and investors for resources 2. Small markets dont solve the growth needs of large companies 3. Markets that do not exist cannot be analyzed 4. An organizations capabilities define its disabilities 5. Technology supply may not equal market demand

How did the successful managers harness these principles to their advantage?
1. Embedded projects to develop and commercialize disruptive technologies within an organization whose customers needed them 2. Projects in organizations small enough to get excited about small opportunities and wins 3. Planned to fail early and inexpensively in the search for the markets for a disruptive technology 4. Utilized the organizations resources, but maintained independent values and processes 5. Found or developed new markets that valued the attributes of the disruptive products, rather than search for a technological breakthrough

Related KM Issues
Values & Beliefs
Values and beliefs are integral to knowledge, determining in large part what the knower sees, absorbs, and concludes from his observations [] The power of knowledge to organize, select, learn, and judge comes from values and beliefs as much as, and probably more than, from information and logic. Davenport and Prusak, p 12

Lost innovation
Steve Jobs, Xerox PARC & the graphical interface computer - Davenport and Prusak, p 59

More KMS Issues

Knowledge is the principle advantage, technology eventually evens out. (But can knowledge and organizational experience also be a hindrance?) Autonomous groups Management support is essential, creativity should be encouraged Organization size - large v. small Space and time are less of a constraint for sharing