The Innovator's Dilemma

This book is a classic one, and I have known its core arguments for a long time. But just now I’ve gone through it all consistently. And The Innovator's Dilemma (Clayton M. Christensen, 2011, 336 pages) does not disappoint.

The main dilemma in the book revolves around the question as of why well-managed firms, with lots of available resources and know-how, fail in the marketplace. It may not seem so, but many companies in this category indeed fail.

When looking at the data for companies and market distribution over a few decades, comprising a period in which several generations of products (and companies) had entered (and left) the disk-drive market, from around the 1960’s to the 1990’s, Clayton found information that did not fit any previous explanatory models.

At the core, the most intriguing fact was that most companies that failed actually had great management, which did apparently a great job. They listened carefully to their customers, invested in improving the quality of their products on the precise metrics that their customers required, and even invested on new generations of products that in some cases were perfectly compatible with the new generation of technology that eventually put them out of business.

The problem is that their organizations grew accustomed with their marked situation. They got used to deliver on market segments that were the most lucrative, and typically their clients never asked for new generation of products until it was too late.

The dilemma here is that “disruptive innovations” are not a technological challenge to incumbents. They are a marketing challenge. Firstly, because the marked leaders grow used to good margins in their operations, and natually search for even higher (premium) tiers of the market, whenever possible. While technologically disruptive products typically start on lower tiers, and typically do not satisfy the main requirements of the majority of users. Often, however, despite being initially simpler and cheaper, they eventually catch-up on different quality metrics to be “good enough” to conquer new market segments.

Secondly, and related, it is organizationally almost impossible to get collaborators excited around new ideas when they seem to point to currently smaller or inexistent market segments, with lower potential revenue. Even when mid-managers get a mandate to invest on the “new wave”, resources in practice are sucked up into those parts of operations that “pay the bills”.

The solution to the dilemma? In short, creating a separate organization, with a cost structure that matches the new market, and whose people can get excited with the lower monetary value of orders they can obtain. The challenge here is to find new markets that also get excited with at least one of the new properties of this new product that is not yet good enough to serve the majority of the users in existing markets.

One of the aspects I like the most in the book is that it dialogues with my preferred book on innovative products: Crossing the Chasm. The chasm approaches the same problem from the perspective of the new users' profiles for a new product (innovators, early adopters, early majority, etc.), while here the same market evolution is seen from the perspective of existing companies serving current clients before and during the unfolding of a new technology wave.