Innovators Dilemma

The Innovator's Dilemma, When New Technologies Cause Great Firms to Fail by ClaytonChristensen Harvard Business School Press, 1997

ISBN 0-87584-585-1

Just when will satisfying your customers' needs lead your company to extinction? Christensen shows that disk drive manufacturers (for example) satisfied their customers' every request but were still undercut by new companies operating by different price structures. Why is this important? Because the rate at which this all happens has dramatically accelerated.

When the capabilities of a vendor outstrips the market as a whole (usually as a result of investing in capabilities demanded by their leading customers), there is an opportunity for a competitor to introduce a dramatically inferior product which is satisfies some few customers. If the cheapo product is successful enough, it begins improving, eventually catching up to the needs of the whole market and clobbering the original vendor. So, listening and investing carefully leads inevitably to death--that's the dilemma.

The above summary is slightly misleading. It's not the "cheapo product" that represents the threat, rather one that doesn't meet the needs of the existing market but does meet the needs of a related, emerging market ("disruptive technology" is the term for these types of innovations).

In the running example, hard drive manufacturers were doing quite well selling 11" disk drives to minicomputer makers and users. Each of the market leaders had developed 8" drives, but did not bring them to market. Why? 8" drives had a reduced capacity and cost more per megabyte. The minicomputer market's needs were not a addressed by 8" drives.

However, they were perfect for the emerging microcomputer market. Why? Because size mattered, and while the cost per megabyte was higher, the total cost was less, because of decreased capacity. So some new company comes along, brings an 8" drive to market and sells it to micro makers.

A few years go by, the technology improves, it turns out that the smaller form factor is conducive to decreased head vibration, the areal density goes up, and suddenly 8" drives are cheaper per megabyte than 11" drives. Only at that point are the minicomputer market's needs addressed.

End result: the 8" drives move "up-market" and displace 11" drives. The 8" drive companies displace the 11" drive companies. The 11" drive companies had the new technology, but listened to their customers and knew that an 8" drive didn't meet their needs. That's the innovator's dilemma.

A very interesting read. ClaytonChristensen looks a several other markets and situations where exactly the same sorts of dilemma's took place (hydraulic excavators, for one). The author does point out several strategies for dealing with this problem. A very intriguing look at the business world.

--PaulTevis

In other words, it's all about being stuck in a local maximum and your customers insisting that you stay in that local maximum?

I've recently been reading InnovationAndTheGeneralManager? also by ClaytonChristensen. It's more of a collection of case studies and the level of detail is intended more for business students rather than general readers but it's an interesting read nonetheless. It's definitely a good idea to read InnovatorsDilemma first. --JasonYip

A good book that talks about DisruptiveTechnology.

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