The Innovator’s dilemma

My summary from reading the innovator’s dilemma book and some thoughts about the book

First I want to thank Clayton Christensen for everything he has taught us.

Book summary

So, what is the innovator’s dilemma? According to Christensen it’s the phenomenon that the very traits that make a company successful are very different for market with existing product / service and for market for disruptive innovation. Hence, great leading incumbent company often fail at disruptive innovation even though their management did everything they are supposed to.

4 principles of disruptive technology

Christensen offers four principles of disruptive technology to explain why management practice that are most productive for existing technologies are anti-productive for developing disruptive ones.

1. Companies depend on customers and investors for resources
2. Small markets don’t solve the large needs of large companies
3. Markets that don’t exist can’t be analyzed
4. Technology supply may not equal market demand

1) Why company can’t depend on its customers

Customers may tell you what they need, but they may not be right in telling you what they want. A simple Ex: did customers tell Apple that they need a smart phone?

Customers will typically want a better version of existing product. When a disruptive productive comes along, customers desire will switch. However, this typically does not give incumbent company time to react, and will likely lose market share to the disruptive company.

2) The market for disruptive product is often small in the beginning:

Incumbents are typically looking to improve their margins or looking at larger market opportunities. Leading incumbents are typically public companies and they have to report their finance every quarters. The market opportunity for disruptive innovation are typically small in the beginning, and tends to be overlooked by leading incumbents.

3) Markets that don’t exist can’t be analyzed

The market for disruptive innovation are not only small in the beginning, but also lacks data for proper analysis. This is a problem for leading incumbents as they need to use market data to size the opportunity before making investment decision. As a matter of fact, the opportunity is often negative for disruptive innovation in the beginning.

4) Technology supply may not equal market demand

The speed of technology improvement often exceeds customer demands. As technology improve, cheaper alternative that couldn’t satisfy user demands may become sufficient tomorrow. Leading incumbent that’s focused on improving their cash cow will often miss the shift in trend.

4 ideas on managing disruptive technological change

Christensen then gave four ideas on how management can harness the principle and surmount the barriers:

1. Give responsibility for disruptive technologies to organizations whose customers need them so that resources will flow to them\
2. Set up separate small organization to get excited by small gains
3. Plan for failure & make revision as you gather data (the lean methodology)
4. Don’t’ count on breakthroughs. Attributes that make disruptive technologies unattractive to mainstream will be the attributes on which the new markets will be built.

My thoughts

My research into Jobs to be Done and “slower than expected” pace of digital transformation in banks has led me to this book. The concepts explains well why some of the banks are slow to adopt to innovations, and hence why start-ups have a chance. Given that the book was written in the late 90’s, the concept in the book are definitely worth the read, but the examples are outdated except the electric car use case in the end. In addition, you can apply the concepts to today companies’ approach to innovation. The separate company idea can be seen in some of the most innovative companies today like Google X. The plan for failure and make revision is the lean methodology that’s often applied to product development today. I would recommend to really grasp the concepts, one should apply the concepts in the book to a product either they are working on or a product that they like just like Christensen has done.

Also, the way I went through the book: I applied speed reading technique where I read the intro (talked about how the book and chapters are structured), the summary at the end, and very quickly skimmed through the chapters.