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

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

Posted by jack_miller | Published 6 months ago

With 582 ratings

By: Clayton M. Christensen, L.J. Ganser, et al.

Purchased At: $34.99

His work is cited by the world's best-known thought leaders, from Steve Jobs to Malcolm Gladwell. In this classic best seller - 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. Christensen explains why most companies miss out on new waves of innovation. No matter the industry, he says, a successful company with established products will get pushed aside unless managers know how and when to abandon traditional business practices. Offering both successes and failures from leading companies as a guide, The Innovator's Dilemma gives you a set of rules for capitalizing on the phenomenon of disruptive innovation.

This book used to be required reading, but it is woefully outdated and has lost relevance. The central themes are still sound but the stale references to companies and industries from the 80s/90s and nods to then-'emerging' technologies and services that are now old school is all just distracting and, to be honest, boring. Since this book arrived and wowed the progressive thinkers of 20+ years ago we have all gone through Lean Start-ups, self-disruption, Red-Blue Ocean, etc. - this is all Innovation 101 now. His hardware and manufacturing-centric world has been replaced with software, content, and services - and, frankly, the models have changed a bit. I was initially encouraged to see the book has been reprinted in 2016 but it seems like they updated little to nothing. It is a shame - the core lessons are still valid but his delivery has lost context in a much-evolved world.

- peyton_ruiz

The Innovator’s Dilemma is an interesting work written by Clayton M. Christensen in 1997. The book seeks to explain why certain businesses are successful in their ventures and why other firms fail in response to new technologies. Christensen tries to explain throughout the book why some firms, when new technologies enter the market, fail either because they adapt the new technology or not. The author initially believes that new technologies are constantly emerging and all businesses must continually adapt to stay relevant. However, this proves to be false as in his studies not all firms that ignored the new technology failed while not all firms that adapted the new technology succeeded. This is the fundamental dilemma in the book, and Christensen’s main purpose is to figure out a recipe for managers to follow to stay successful when disruptive technologies enter the market. Most of the book revolves around the study of the disk drive market since they were first developed in the 1950’s. The disk drive industry was important because technology was rapidly advancing and smaller drives were being released within a few years of each other. Many of the established firms often chose not to invest in the next smaller disk drive because they did not have enough memory to meet their standards. However, emerging firms would find new markets for the use of smaller drives and also find ways to make them more powerful, eventually drive the existing firms out of business. Christensen eventually concludes that successful businesses often collapse, despite having good managers, because they fail to find the new markets for disruptive technologies while instead supplying current customers with what they currently need.
The goal of the book is to educate people in the business world about how new technologies affect firms and to provide a new way of thinking about disruptive technologies. The end of the piece brings the conclusion that leading firms almost always have set technologies that work well for their current customers, choosing not to invest in new technologies because what they are currently doing is working, current customers do not want change. That is, until new technologies grow to be superior than their predecessors. Christensen does a fantastic job in making his point clear as he provides a plethora of studies across different markets to support his claims. The first half of the book is essentially a detailed history of the disk drive industry that has multiple examples of different firms both choosing to invest in smaller drives and continuing to use their already established, larger drives. He uses this information to create hypothesis’ about why these firms made their decisions and whether it lead them to success or not. Essentially, the author’s process in writing the book is to look at different industries that had disruptive technologies and discover what trends lead to success and what trends lead to failure. He spends a lot of time focusing on a single industry, the disk drive. However, he does bring up several other markets including the mechanical excavator, steel, computer, and discount retailer industries. This variety of different scopes enhances his argument, especially since he sees similar trends across all of these different markets. Many of his examples include established firms choosing not to adopt new technologies because it does not fit their current business motives, but then later being replaced by firms that dared to find new markets for the new technology. His claims are definitely unbiased as all of his conclusions are drawn from the hard evidence that he compiles and delivers to the reader throughout the book about the different firms in those industries. It is almost impossible to disagree with his conclusion since all of his evidence accurately backs up his claims.
Personally, I enjoyed reading the book but mostly because it appeals to my interests. As a young business major, the book is intended for me to read and may directly pertain to my own future. However, this book would be challenging to read for the average person that is not interested in business. The book is confusing at some times and is clearly designed for educated readers with a basic understanding of the business world. I would say that the book is a must-read for managers of a company that may be facing disruptive technologies in their industry as it does provide direct advice for people of that demographic. It is a book that I would certainly recommend to my peers within my major.
Christensen does a decent job in making the book engaging. Some of the chapters where he is providing data are dry and confusing, but he does always provide a summary at the end of chapters to keep the reader focused. A lot of the book is also repetitive in regards to the disk drive industry and the author reiterating his claims about disruptive technologies. Nonetheless, the book is overall definitely a success for its purpose. There is plenty of evidence throughout the book that prove his claims in real-world situations. His main ideas about why firms choose to serve current customers with current technology rather than try to force new technologies on customers also makes logical sense, given the customer-centric market that is present in today’s society. His complex conclusion that disruptive technologies succeed only when they find a market that does not currently exist is confusing, but is definitely supported with his evidence.
In conclusion, the book is a great read for those looking to advance their knowledge in the business world and think about topics that are not usually discussed. The author’s conclusions are creative and complex, but are backed up with hard evidence throughout the piece. The insights and advice brought up by Christensen are useful knowledge to any person studying business and the impact of emerging technologies. This is a book that I will definitely keep in mind in the future and I will recommend to others.

- marina_gonzales

I learned why the company I work for is failing from this book. It is a great read and very informative. I was educated about the steps it takes to lead a business to success and what people do to sink a company. It was a bit depressing. I realize the lack of sufficient leadership in the company I work for. I am shocked at how many idiot decision makers are running companies. The book made clear why large companies behave the way they do in order to stay on top. The book showed how difficult it is to create a formula of success with innovation. This is a book I will read again. I finished the book with greater knowledge of the business world.

- darrell_alvarez

Clayton Christensen’s The Innovator’s Dilemma, while admittedly a bit dry, remains one of the most important business leadership books on the market. Christensen’s incredibly thorough research into industries like mechanical excavators, disk drives, and even retail is empirically supported throughout and provides abundant examples of the phenomenon of disruptive innovation and the context in which it can take industry leaders by surprise. Since the book was first written in the late 1990s, the environment has changed and the pace of technological innovation has increased drastically. These environmental factors, or contextual changes, may require adjustments to the recommendations in this book; however, the foundational principles remain the same—when companies are doing everything right, they can still lose their position of leadership in the market. Companies are incentivized to act in accordance with what their customers want, and if they are not careful, that mentality can preclude them from taking advantage of disruptive opportunities that their current customers are not yet interested in. Christensen’s warnings should be heeded by leaders and managers at all levels of the organization. As the pace of technological innovation continues to increase, leaders will be required to anticipate disruptive innovation to survive, and I look forward to reading about how the Innovator’s Dilemma can be addressed in this age of near-constant innovation and rapid technological advancement.

- halle_cruz

I've been involved in innovation most of my career, and now wish I'd read this book much earlier. The simple but powerful thesis of the book is backed up by data and case studies from disparate industries. Like many business books it is a bit repetitive at the end. And my Kindle edition suffered from poor editing in the first few sections although those problems disappeared later on. But the ideas and usefulness are five stars.

- hadley_gonzales

What is disruptive technology? How can your company successfully recognize and approach disruptive technology? These are the questions this book will answer for you. Based on sound logic and decades of research the author walks the reader through the process of disruption and why it is so difficult for a large company to successfully lead with disruptive technology. This is a must read for anyone looking to evaluate how likely their technology is to disrupt or be disrupted.

- zaid_cooper

The subject of this classic is disruptive technology.

With the help of many examples from industry (disk-drives being his main workhorse) the author explains what technologies are likely to disrupt, who is likely to be disrupted, why they are likely to be disrupted and what the choices are that the established players have when presented with disruption.

The most important point is that disruption generally comes from the practice of repackaging and marketing already existing, straightforward technology at a lower price point to a new customer base that is not economically viable for the established players.

For example, QuickBooks was marketed to mom-and-pop stores who could not afford to pay an accountant and it was the el-cheapo version of Quicken. It is of no use to a proper corporation. JC Bamford got started with hydraulic backhoes that were good enough for small contractors looking to dig a small ditch but wholly inadequate for the purposes of a miner. 5.25 inch disk drives were marketed to the nascent market for personal computers and were of no use to minicomputer manufacturers.

Disruptive technology is cheaper per unit, but its price / performance ratio is much worse than that of the established technology. It’s not good enough for the clients of the established players. Ergo it must be sold on its (lower) price alone, meaning that its purveyors must seek new markets. Flash memory, for example, was first used in cameras, pacemakers etc. Not in computers!

There is a large number of reasons that established players will frown upon the new technology:

1. Good companies listen to their clients. Their clients will tell them they don’t want it. They will demand performance and they will pay for performance.

2. Profitability will be lower in the lower-margin disruptive technology. Profit margins will typically mirror cost structures and will thus be higher for the higher-end product. Established players will in the short term make more money if they allocate their resources toward not falling behind their immediate competition for the higher-end product. (i.e. “sustaining” their competitive edge in the higher margin / higher tech market)

3. The processes used by the established players to sell and support the established technology may not be the right ones for the new tech.

The main thing to realize is that the technology does not live by itself. It is embedded in a “value network.” A car serves a commuter, a digger serves a mine, a disk drive is screwed down somewhere in a computer etc.

The seeds of disruption lie in the fact that the technology itself and its value network may not necessarily be progressing at the same speed.

If the technology is improving much faster than the trajectory of improvement of the “value network” (for example, if the desktop PC users demand extra disk storage slower than the industry is capable of delivering extra disk storage), then

1. The point comes when the value network of the established technology does not need the incremental improvements on which the established players are competing with one another to deliver.

2. More importantly, a point comes when the performance of the disruptive technology becomes good enough to be embedded in the value network of the established technology. So 3.5 inch disks developed for laptops can do good enough a job for a desktop, for example, without taking up the space required for a 5.25 inch disk.

It gets worse: sure, disruptive technology is deficient in terms of features / performance, but the price sensitive customers who do not care so much about performance often care a lot about reliability. (A small contractor who buys a single backhoe digger cannot afford a maintenance team.) Similarly, the unsophisticated customers of the disruptive technology may care a lot about ease of use. (Mom and pop using Quickbooks have no idea what double-entry book-keeping is!) What this means is that when the performance of the disruptive technology has become good enough for it to be embedded into the value network of the established technology, it often brings with it an advantage in reliability and ease of use.

So at that point the disruptive technology is cheaper, more reliable and easier to use than the established technology, all while delivering adequate performance.

And that’s how purveyors of the established technology (who have been at war with one another to deliver on the ever-increasing performance their customers have been demanding) find themselves at a disadvantage versus the disruptors when it comes to reliability and ease of use right about when their customers tell them they won’t pay for extra performance or features any more.

The disadvantage of the lower-tech disruptor has created an advantage and it’s game, set and match!

What’s an established player to do? If I’m running a super successful company and I spot a new technology what am I to do?

One thing I should not do is listen to my underlings. The dealers who sell my cars will not want a customer who just walked into the dealership to buy a V8 to drive out in a small electric car. The salespeople will keep asking me for the most expensive product because they will be paid a commission on their margin and will keep pushing me “north-east” on the price / performance chart. Resistance to disruptive technology often comes from the rank-and-file.

I also should not listen to my shareholders. Small markets (and all disruptive technology starts small) do not solve the growth problems of large companies.

First and foremost, I must understand that the challenge I face is a MARKETING challenge. The tech I’ve got covered. The resources too.

If my company’s processes and my company’s values (defined as “the standards by which employees make choices involving prioritization”) are aligned with the marketing challenge, I’m in luck: chances are that for my company this new technology will eventually become a “sustaining” technology.

I can get my wallet out and buy EARLY a couple of the new entrants. Early enough that my money is not buying process or values or culture, but merely assets/resources and ideally walking and talking resources (the founders) who will adopt the processes and values of my organization.

Alternatively, I can carve out some great people from my organization and:
1. Give them responsibility for the new technology and assign to them the task of identifying the customers for this new technology
2. Match the size of this new subdivision to the current size of the market.
3. Allow them to “discover” the size of the opportunity, rather than burden them with having to forecast it: “the ultimate uses or applications for disruptive technologies are unknowable in advance”
4. Let them fail small, as many times as necessary
That’s what IBM did when they ran their PC business out of Florida and what HP did when they realized ink jets would one day compete with laser printers!

If, on the other hand, my company’s processes or my company’s values are not aligned with the marketing challenge, then I need to buy a leader in the new technology, and have a finger in every pie. And I need to protect my acquired company from my organization. This is, obviously, a bigger challenge (and one my shareholders may not embrace, as their dollars are as good as mine, but the author stays away from this discussion!) As the succession in technologies plays out, I will then eliminate large parts of my current organization. The author cites an occasion on which this is exactly how things played out.

And there you have it! I think that’s the author’s answer to “The Innovator’s Dilemma”

Obviously, that’s a very quick sketch. You’ll have to buy the book to see the complete story (and to be convinced, I suppose). Be warned that in the interest of keeping the various chapters self-consistent you may find some repetition, but overall this is a very quick read.

I’m aware of people who really dislike Clayton Christensen. I’ve even come across a Twitter account that’s dedicated to trashing him. But I, for one, was convinced that he’s describing a valid concept with many applications.

Also, as a guy who established a disruptive business within an established player I totally experienced both the dismay of my superiors when they realized that “small markets don’t solve the problems of large organizations” and the discomfort of trying to shoehorn my project into the rather baroque established processes.

So I have lived through many of the steps the book describes and I reckon they are described very accurately. The research shows!

- angie_green

The first business book I read was "In Search of Excellence" by Peters and Waterman. It profiles a bunch of companies and why they are great. The problem is, those companies don't exist anymore. The very thing that Peters and Waterman wrote about that made them great, also made them fail. In Clayton Christensen's book he tries to unpick what it is that makes a great company and what is it that makes a company fail. He uses the computer hard drive market as his test cases. A market that needed constant innovation, both from a product and company prospective, for those products and companies to survive. If you are in business or in a start-up you should really read this to learn from other people's mistakes.

- aubree_bennet

In his business career Christensen was fascinated by the question "Why do otherwise well functioning companies fail?"; that is; why when companies are innovating they nonetheless miss the boat in the innovation that goes on to dominate the present era of a market. To answer this he studied and analysed the disk-drive industry; sifting lots of data to come up with common patterns and interviewing prior executives, innovators etc.. This book is the sum of his research.

As with his other book "How will you value your life" the lessons here are quite simple, but behind them is much research consideration and insight. He pitches what he calls 'The theory of disruption' which explains how many new technologies manage to knock established ones off their perch. The book is a bit dated now and a reader in 2017 might think 'hmm, well that's a bit obvious' *but* bear in mind at the time this was written this was the *only* manual on this topic! The knowledge is still applicable; it can explain how PCs became laptops, laptops became smart phones, became tablets, became smart-watches...

A worthwhile read to challenge the way you think about business and innovation.

- zoey_lewis

Read this decades ago and it was profound, astonishing, one of those books that makes a point that stays with you forever. And I'm watching it happening today, and this time, thanks to this book, I understand that it's not unreasonable for the titans to completely miss the big picture - how ironic. Awesome, must read.

- myles_lopez

Christensen writes exactly as he speaks in public. (I’ve been lucky enough to hear him.). Using industries that are familiar but diverse (disk drives, earthmover, steel making) he patiently presents a strongly evidence-based explanation for the phenomenon of disruptive technologies and why established market leaders so consistently fail to defend against them.

Apart from the core premise - explanation of disruptive technologies - this book should be required reading for any scholar or businessperson tying to build an evidence-based case for anything.

- elaine_mendoza

This book explains the double edged sword of innovation. One the one hand, why large organisations find it hard to tackle the disruptive innovations of new businesses and why leaders of new markets, having grown large on innovation, succumb to the next new thing, especially in technology. Christensen tackles the problems and offers some solutions, but I was particularly interested in the book from the point of view of a small business owner trying to compete with larger and richer organisations in my field of work. From my perspective, this book is encouraging and useful as a guide to how being small and flexible, especially in times of change, it is possible to enter new markets, providing services that larger organisations cannot replicate, or have no interest in replicating due to low profit margins. The book is squarely aimed at managers in large organisations, rather than small business, so it is not a straightforward process of reading it for great business advice, but I found it stimulating and informative - well researched and supported by data evidence and case studies. I am sure that it is useful for anyone studying business management, but it may just help the little guy find a way to take on the bigger organisations and win.

- ahmed_anderson

The author makes a number of important points, two of which stood out for me:

1. The distinction between a product being the best it can be and what a customer actually needs from it. There are numerous examples given of where the technical specifications of products such as disk drives improved far beyond what customers needed. Beyond a certain point customers weren't prepared to pay much extra for further advancements. The result was commoditised pricing.

2. The distinction between what you are good at making and what the market wants. A good example was the manufacturers of cable excavators not understanding how small building contractors worked, and thus continuing to produce what they could, not what the market increasingly wanted. The result was that they almost all went out of business.

If you run or own a business, this is a useful book to read. It doesn't have to run a manufacturing business - my firm does software services, and yet there are still relevant lessons in this book.

- leighton_gutierrez

If you want to know why great companies fail this is very insightful and gives some clear guidance as to how we might avoid this - it isn't easy, but understanding the problem is the first step.

- chanel_sanchez

Short and to the point. Would benefit from additional examples in modern software industry however it is clear that this type of analysis is difficult to conduct, and does not change the essence of the argument.

- rocco_cruz

This book deals with the consequences of disruptive technologies for well established businesses and how these businesses should respond to the innovator's dilemma. The author claims that the same principles that make a company successful will bring the same company to failure when facing innovations from disruptive technologies. An indepth analysis of the reasons why this happens is provided and supported by plenty of facts and data. It is very well researched and written, an essential reading for both the business leaders and managers, and for everyone dealing with technological innovations.

- bjorn_evans

Very well known book so a must read. But the writing style is quite boring. There are only very few ideas which have been repeatedly presented. My recommendation is to just read the conclusion at the end. Another flaw is that this book is based on empirical data in the 1990s and does not necessarily work well in the current environment. For example the authors predictions and recommendations for electric car entry are completely off the mark given Tesla's successful entry strategy by targeting the premium end of the mainstream car market.

- brielle_smith

Jump to the end as this is like a theses from university. Very long to read and everything is justified every second all the time. Wish it had been re-written as a book. The conclusion is way better

- melania_robinson

An interesting read about startup companies with new technology, taking on established firms that are using existing technology. Probably important to read this if you are running a company of any size.

- phoenix_morales

Really enjoyed this book.
A very interesting insite into the world disruptive technologies and how fast paced the technology market is. Some wonderful examples of different industries and an indepth analysis of spesific times when a new technology has started as a low margin, low performance alternative and gradually surpassed market leaders changing industry standards.

- maria_hernandez

This arrived on the wrong day and the book is dirty has brown stains inside- it looks used. I’m very unhappy

- marianna_carter

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