The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail
Clayton M. Christensen
HarperCollins (2003)

A brilliant analysis of a multi-dimensional paradox

Having just re-read this business “classic,” I admire it even more now than I did when it was first published. In his Introduction, Christensen makes his objective crystal clear: “This book is about the failure of companies to remain competitive when they confront certain types of market and technological change….the good companies — the kinds that many managers have admired for years and tried to emulate, the companies known for their abilities to innovate and execute….It is about well-managed companies that have their competitive antennae up, listen astutely to their customers….invest aggressively in new technologies, and yet they still lose market dominance.” Why? For Christensen, the answer is revealed in what he calls “the innovator’s dilemma”: the logical, competent decisions of management which are critical to the success of their companies are also the reasons why they lose their positions of leadership.

In Part One, Chapters 1-4, Christensen builds a framework that explains why sound decisions by great managers can lead to failure. In Part Two, Chapters 5-10, he attempts to resolve the dilemma by examining why and under what circumstances new technologies have caused great firms to fail. He makes an important distinction between sustaining technologies and those that are disruptive. He offers four “laws or principles” of disruptive technology:

#1: Companies depend on customers and investors for resources (Chapter 5)
#2: Small markets don’t solve the growth needs of large companies (Chapter 6)
#3: Markets that don’t exist can’t be analyzed (Chapter 7)
#4: Technology supply may not equal market demand (Chapter 8)

Actually, these four could also be viewed as guidelines as well as check-points by which to detect early-warning danger signs. Unless and until, however, it becomes obvious that a given technology will create sustaining rather than only temporary disruption. One of the book’s most important points seems to confirm what Pogo the Possum once said: “We have met the enemy and he is us.” Nearly all of the corporate wounds which Christensen examines are self-inflicted. If not in all instances avoidable, at least the damage done could at least have been reduced.

For example, Christensen examines companies in which (a) disruptive technologies were first developed internally, (b) marketing personnel then sought reactions from lead customers, (c) the pace of sustaining technological development was accelerated, (d) disaffected employees created new companies and (by trial and error) located markets for disruptive technology, (e) moved upmarket in direct competition, and (f) caused established firms to respond in defense of their own customer base. In essence, well-established companies (“incumbents”) thus become threatened by “entrants” and a disruptive technology change. In response, they re-allocate resources away from those technologies which address their customers’ needs.

In Part Two, Christensen describes in detail HOW managers can address and harness four principles by which to prevail against disruptive technologies. Once again, he asserts that a company’s customers effectively control what it can and cannot do. Managers who deny or ignore this do so at great peril. To support his assertion, Christensen examines several quite different companies: Quantum, Plus Development, Control Data, Micropolis, DEC, IBM, Kresge, Woolworth, and Hewlett-Packard. In some of these companies, the innovating managers who were faced with disruptive technologies created organizations whose cost structures enabled them to make money in the value network where the disruptive technology was taking root, and where customers’ power and the managers’ intentions were aligned. The emphasis is on alignment.

In Chapter Six, Christensen insists that managers must be leaders, not followers, in commercializing disruptive change. Hence the importance of a strategic decision: To be a leader or a follower? It is often prudent for “incumbents” to be followers, resisting pressure from customers, until opportunities to commercialize disruptive technologies are sufficient and appropriate. As Christensen suggests, “In sustaining technologies, in fact, evidence strongly suggests that companies which focus on extending the performance of conventional technologies, and choose to be followers in adopting new ones, can remain strong and competitive.”

Christensen’s book provides invaluable assistance to completing that immensely difficult process. It remains for each of his readers to answer questions such as these: Which customers do we want? Which technologies will help us to get and then keep them? For each technology, which strategies will be most effective to sustain it? Should we attack competitors with disruptive technology? How can we best defend ourselves against it? How should our resources be allocated? What about timing? Should we lead or follow? If we follow, should we prepare to lead later?

Finding the correct (i.e. most appropriate) answers to questions such as these will obviously help to clarify today’s realities and to suggest strategies for an uncertain future. But beware of taking anyone or anything for granted. As Christensen explains so eloquently and compellingly, the process of resolving one major dilemma may well reveal others. Hence the importance of alertness, speed, flexibility, and (yes) passion.