Innovator's Dilemma: The Revolutionary Book That Will Change the Way You Do Business

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Overview

In this revolutionary bestseller, Harvard professor Clayton M. Christensen says outstanding companies can do everything right and still lose their market leadership, or worse, disappear completely. And he not only proves what he says, he tells others how to avoid a similar fate.

Focusing on "disruptive technology" of the Honda Supercub, Intel's 8088 processor, and the hydraulic excavator, Christensen shows why most companies miss "the next great wave." Whether in electronics or retailing, a successful company with established products will get pushed aside unless managers know when to abandon traditional business practices. Using the lessons of successes and failures from leading companies, The Innovator's Dilemma presents a set of rules for capitalizing on the phenomenon of disruptive innovation.

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Product Details

  • ISBN-13: 9780060521998
  • Publisher: HarperCollins Publishers
  • Publication date: 1/7/2003
  • Series: Collins Business Essentials Series
  • Edition description: Reprint
  • Pages: 320
  • Product dimensions: 5.32 (w) x 8.04 (h) x 0.82 (d)

Meet the Author

CLAYTON M. CHRISTENSEN is the Kim B. Clark Professor at Harvard Business School, the author of seven books, a five-time recipient of the McKinsey Award for Harvard Business Review's best article, and the cofounder of four companies, including the innovation consulting firm Innosight. In 2011 he was named the world's most influential business thinker in a biennial ranking conducted by Thinkers50.

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Reading Group Guide

The summary and questions in this guide are designed to stimulate thinking and discussion about The Innovator's Dilemma, how its findings are manifest in many industries today, and the implications of those findings for the future.

Thesis of the Book
In The Innovator's Dilemma, Professor Clayton Christensen asks the question: Why do well-managed companies fail? He concludes that they often fail because the very management practices that have allowed them to become industry leaders also make it extremely difficult for them to develop the disruptive technologies that ultimately steal away their markets.

Well-managed companies are excellent at developing the sustaining technologies that improve the performance of their products in the ways that matter to their customers.This is because their management practices are biased toward:

Listening to customers,
Investing aggressively in technologies that give those customers what they say they want
Seeking higher margins, and
Targeting larger markets rather than smaller ones.

Disruptive technologies, however, are distinctly different from sustaining technologies. Disruptive technologies change the value proposition in a market. When they first appear, they almost always offer lower performance in terms of the attributes that mainstream customers care about. In computer disk drives, for example, disruptive technologies have always had less capacity than the old technologies. But disruptive technologies have other attributes that a few fringe (generally new) customers value. They are typically cheaper, smaller, simpler and frequently more convenient to use. Therefore, they open new markets.Further, because with experience and sufficient investment, the developers of disruptive technologies will always improve their products' performance, they eventually are able to take over the older markets. This is because they are able to deliver sufficient performance on the old attributers, and they add some new ones.

The Innovator's Dilemma describes both the processes through which disruptive technologies supplant older technologies and the powerful forces within well-managed companies that make them unlikely to develop those technologies themselves. Prof. Christensen offers a framework of four Principles of Disruptive Technology to explain why the management practices that are the most productive for exploiting existing technologies are anti-productive when it comes to developing disruptive ones. And, finally, he suggests ways that managers can harness these principles so that their companies can become more effective at developing for themselves the new technologies that are going to capture their markets in the future.

Principles of Disruptive Technology
#1 Companies Depend on Customers and Investors for Resources
In order to survive, companies must provide customers and investors with the products, services and profits that they require. The highest performing companies, therefore, have well-developed systems for killing ideas that their customers don't want. As a result, these companies find it very difficult to invest adequate resources in disruptive technologies -lower margin opportunities that their customers don't want - until their customers want them. And by then, it is too late.

#2 Small Markets Don't Solve the Growth Needs of Large Companies
To maintain their share prices and create internal opportunities for their employees, successful companies need to grow. It isn't necessary that they increase their growth rates, but they must maintain them. And as they get larger, they need increasing amounts of new revenue just to maintain the same growth rate. Therefore, it becomes progressively more difficult for them to enter the newer, smaller markets that are destined to become the large markets of the future. To maintain their growth rates, they must focus on large markets.

#3 Markets That Don't Exist Can't Be Analyzed
Sound market research and good planning followed by execution according to plan are the hallmarks of good management. But, companies whose investment processes demand quantification of market size and financial returns before they can enter a market get paralyzed when faced with disruptive technologies because they demand data on markets that don't yet exist.

#4 Technology Supply May Not Equal Market Demand
Although disruptive technologies can initially be used only in small markets, they eventually become competitive in mainstream markets. This is because the pace of technological progress often exceeds the rate of improvement that mainstream customers want or can absorb. As a result, the products that are currently in the mainstream eventually will overshoot the performance that mainstream markets demand, while the disruptive technologies that underperform relative to customer expectations in the mainstream market today, may become directly competitive tomorrow. Once two or more products are offering adequate performance, customers will find other criteria for choosing. These criteria tend to move toward reliability, convenience and price, all of which are areas in which the newer technologies often have advantages.

A big mistake that managers make in dealing with new technologies is that they try to fight or overcome the Principles of Disruptive Technology. Applying the traditional management practices that lead to success with sustaining technologies always leads to failure with disruptive technologies, says Prof. Christensen. The more productive route, which often leads to success, he says, is to understand the natural laws that apply to disruptive technologies and to use them to create new markets and new products. Only by recognizing the dynamics of how disruptive technologies develop, can managers respond effectively to the opportunities that they present. Specifically he advises managers faced with disruptive technologies to:

1 -- Give responsibility for disruptive technologies to organizations whose customers need them so that resources will flow to them.

2 --Set up a separate organization small enough to get excited by small gains.

3 -- Plan for failure. Don't bet all your resources on being right the first time. Think of your initial efforts at commercializing a disruptive technology as learning opportunities. Make revisions as you gather data.

4 -- Don't count on breakthroughs. Move ahead early and find the market for the current attributes of the technology. You will find it outside the current mainstream market. You will also find that the attributes that make disruptive technologies unattractive to mainstream markets are the attributes on which the new markets will be built.

Questions for Discussion
The characteristics of a disruptive technology are:
They are simpler and cheaper and lower performing. They generally promise lower margins, not higher profits. Leading firms' most profitable customers generally can't use and don't want them. They are first commercialized in emerging or insignificant markets.

The Innovators Dilemma discusses disruptive innovations in the disk-drive, excavator, steel and auto industries. Looking back through history, can you identify some disruptive technologies that eventually replaced older products and industries? Can you think of others that are emerging today, maybe even ones that could threaten your business?

2. There is a tendency in all markets for companies to move upmarket toward more complicated products with higher prices. Why is it difficult for companies to enter markets for simpler, cheaper products? Can you think of companies that have upscaled themselves out of business? How might they have avoided that?

3. The same tendency for companies to move upmarket that can be fatal for established companies also accounts for the eventual development of emerging markets into mainstream markets. Besides the examples in the book, can you think of companies that have upscaled themselves to success.

4. In attempting to commercialize a disruptive technology, why is it important to begin investing on the assumption that your expectations will be wrong? Besides the motorcycle, excavator and disk-drive examples in the book, can you think of other examples where a company began marketing a product for one application but the big market turned out to be for another application?

5. One of the hallmarks of disruptive technologies is that initially they underperform the current technology on the attributes that matter most to mainstream customers. The companies that succeed in commercializing them, therefore, must find different customers for whom the new technology's attributes are most valuable. Can you think of any markets that are emerging today based on attributes or qualities that seemed unimportant to the mainstream markets when they were introduced? What older, mainstream products or companies are threatened?

6. When two or more products meet the minimum specifications for the functionality of a product, customers begin to look for other deciding factors. According to a Windermere Associates study cited in the book, the progression usually is from functionality to reliability to convenience to price. What are some current markets that have recently moved one or more steps along this progression?

7. Most people think that senior executives make the important decisions about where a company will go and how it will invest its resources, but the real power lies with the people deeper in the organization who decide which proposals will be presented to senior management. What are the corporate factors that lead mid-level employees to ignore or kill disruptive technologies? Should well-managed companies change these practices and policies?

8. What are the personal career considerations that lead ambitious employees in large corporations to ignore or kill disruptive technologies? Should well-managed companies change the policies that encourage employees to think this way?

9. What do the findings in this book suggest about how companies will be organized in the future? Should large organizations with structures created around functionalities redesign themselves into interconnected teams, as some management theorists currently believe? Or, recognizing that different technologies and different markets have differing needs, should they try to have distinct organizational structures and management practices for different circumstances? Is this realistically possible?

10. The CEO of a disk drive maker is quoted in Chapter 4 as saying that "We got way ahead of the market" in explaining why his company failed to commercialize a 1.8-inch disk drive that it had developed. At the time, however, there was a burgeoning market for 1.8-inch drives among new users that his company hadn't discovered. Prof. Christensen's argues that "disruptive technology should be framed as a marketing challenge, not a technological one" Do you think there is a market somewhere for all technologies? If not, how would you as a manager go about figuring out which technologies to shelve and which ones to pursue aggressively?

11. Similarly, Prof. Christensen argues that companies should not wait for new breakthroughs to improve a technology's performance. Instead, they need to find customers who value the very attributes that others consider to be shortcomings. As a manager, how do you decide when a technology --or idea -- needs more development and when its time to aggressively put it on the market?

12. The primary thesis of The Innovator's Dilemma is that the management practices that allow companies to be leaders in mainstream markets are the same practices that cause them miss the opportunities offered by disruptive technologies. In other words, well-managed companies fail because they are well managed. Do you think that the definition of what constitutes "good management" is changing?. In the future, will listening to customers, investing aggressively in producing what those customers say they want, and carefully analyzing markets become "bad management." What kind of system might combine the best of both worlds?

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See All Sort by: Showing 1 – 20 of 28 Customer Reviews
  • Posted February 28, 2010

    I Also Recommend:

    An Engineer's take on THE INNOVATOR'S DILEMMA

    What it does: Provides insight for business managers that need to deliver continually improved products to their markets. Provides good information about how business have grown and fallen in the face of technical advancement. It does provide case-study backed recommendations on how to manage innovative business ventures.

    What it does not do: This is not about 'how to innovate,' how to make a better mouse trap, nor even how to find out what your customer wants. Christensen assumes that you have that much together already. The book's emphasis is on business management.


    Comments:
    Before reading "The Innovator's Delimma," I thought that I knew what a 'disruptive innovation' was. (After all, I am an experienced engineering manager working in new product development.) But Christensen succeeded in changing my paradigm here and gave me significant insight into the evolution and demise of corporations.

    Christensen's book takes an academic study of business innovation, drawing extensively on the computer hard drive industry, to divide innovation into two classes: 'sustaining' and 'disruptive.' What many people would be inclined to call 'disruptive innovation' are, in Christensen's view, radical 'sustaining innovations.' The 'disruptive innovations' are initially generally not especially technically innovative, but they fill a market niche and grow to the point of challenging the established. He then digs into details, and pulls out similar supporting case studies of the excavator industry (steam shovels to back hoes), computers and electronics, and lesser detail in discussing changes in retailing.

    He shares some good insights into why big companies have fallen to upstarts. This is rooted in the natural tendencies of companies to progress from lower-end, lower-margin products to higher-end, higher-margin products. He also shows how companies succeed by innovating and managing to provide what customers' want, and how that focus can cause a company to miss the disruptive technology. His case-study supported recommendations on how companies can address the dilemma seem convincing.

    A few complaints about the book: 1) the texts and graphs do not agree or match in several cases - this was very annoying, 2) the case studies are largely from manufacturing, so applications to the services industry may not be as straightforward as one would hope, 3) the advice is geared more towards keeping a large corporation alive rather than in assisting small companies grow.

    He ends with a discussion of how he would manage commercializing an electric car, based on his research findings. (I don't think that GM has been listening.) In my opinion, he didn't follow his own advice well enough in his plan - it relies too much on mainstream market.

    2 out of 2 people found this review helpful.

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  • Posted September 28, 2010

    Trying hard isn't enough when it comes to innovation!

    We are all familiar with the story of the innovative and nimble startup surpassing the corporate leader with a disruptive technology that the larger corporation was blind to. Why this happens is the subject of Clayton Christensen's thoughtful Innovator's Dilemma. Although originally published in 1997, it's a highly relevant and useful read today.
    Christensen was interested in how the market leaders missed the disruptive innovations. At the time, most thought the corporate leaders were just too arrogant or too bureaucratic to see the disruption coming. Could there be more structural forces at play? Turns out, there are.

    The first half of the book follows the development of the disk drive and the hydraulic excavator to understand and make clear these forces. First, the author distinguishes between sustaining technologies and disruptive technologies. Market leaders, it turns out, are capable of innovation but those innovations typically occur as incremental evolutionary changes to existing products - sustaining innovations.

    Where they get tripped up is the development of disruptive technologies which fundamentally transform the existing product. In many cases the market leader also developed early forms of the disruptive technology or were at least aware of the development of the technology.
    Christensen, a professor at the Harvard Business School, makes the case that in ignoring the disruptive technology, the market leader was acting quite rationally. They were following their customers' and corporation's best interests.

    Christensen discovered that the disruptive technology yields a product that is inferior as measured by the traditional metrics for product quality. In the case of the disk drive it was price/unit storage. For the excavators, it was reach. For the disk drives, the disruption was the introduction of smaller and smaller drives. At each step of the way, these products were costlier than the existing larger drives in terms of price/unit storage. However, their advantages, in terms of other characteristics such as size, weight, and power consumption outweighed nominal improvement in the price/unit storage ratio provided by sustaining technologies. Eventually, price catches up and the disruptive products are better in both sets of characteristics.

    For the excavator (a big digger), the existing machines used cables to extend and control the basket. The overriding measure of performance was reach and capacity - how far out could the basket reach and grab a bucket of dirt. When hydraulic excavators appeared, their reach was very limited because of the physics of the hydraulic cylinders needed to control the baskets. Even today, a cable excavator will give you a longer reach. However, the hydraulic excavators had advantages of safety (no cable breaks) and had significantly lower maintenance costs. Eventually, as manufacturing of hydraulic excavators grew in practice, reach extended and for many uses such as building foundation excavation and utility pipe laying, as soon as the reach was sufficient for the task, the improvement in safety and the reduced maintenance costs made the hydraulic excavators superior.

    This book will change the way you think about innovation and the structures needed not only to spark the ideas, but get them built into new product lines.

    My name is David Marquet, from Practicum, Inc and we help our customers get everyone be a leader and avoid casting employees into follower roles. To co

    1 out of 2 people found this review helpful.

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  • Anonymous

    Posted March 1, 2013

    Great food for thought

    Even if it does get a bit clunky at times, the ideas are important considerations for managers today.

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  • Anonymous

    Posted January 28, 2013

    AWSOME

    HIGHLY recomended do read this book it is amazing!!!!!!!!!

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  • Posted October 4, 2010

    more from this reviewer

    Highly Recommended, but not for the casual reader

    For those interested in what makes company's succeed or fail when faced with technological change, this book should satisfy. Using the disk drive industry as his main focus, but delving into many other examples, Christensen shows how companies react to disruptive technological change, and why most often they fail to adapt. However, Christensen is not just descriptive, but includes advice on how a business can successfully adapt to disruptive technological change. Highly recommended, but technical at times.

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  • Anonymous

    Posted July 6, 2005

    A Must-Read!

    Professor Clayton M. Christensen¿s excellent book is a classic of strategy literature. The innovator¿s dilemma is that doing the right things can lead to failure. Sometimes it is wrong to listen to customers, invest in the highest return opportunities and do all of the things that made a successful company succeed. Clearly written, amply documented, provocative and challenging, this book is indispensable for anyone in business. If it has a shortcoming, it is that it focuses more on the dilemma than on resolving it and it does not offer specific remedial prescriptions. However, Christensen has authored or co-authored two other books that attempt to remedy that deficiency. We heartily recommend this book, which remains the leader of the three. It has the potential to change the way managers think about business - any business.

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  • Anonymous

    Posted May 2, 2002

    Highly Recommended

    Great book. Highly recommended reading on why large technology companies are often unable to win against startups.

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  • Anonymous

    Posted April 1, 2001

    HOW TRADITION, BUREAUCRACY, DISBELIEF AND MISCONCEPTION HURT

    Professor Christensen is a Boston Consulting Group alum, as am I, and that firm has been very interested in the question of why dominant firms lose out to new entrants featuring innovative technologies. Professor Christensen has written the best work on this subject that it has been my pleasure to read. Unlike most academics, he is rigorous without being dull or irrelevant to those who must operate businesses. I particularly found his exploration of the differences between a sustaining and a disruptive technology to be very useful. His insights into how accounting and financial concerns can 'stall' organizational progress were also valuable. From the perspective of an organization seeking a 2,000 percent solution (a way to get 20 times the results with the same resources or the same results 20 times faster), his cases (especially the hard disk ones) accurately capture many of the classic 'stalls' that delay organizational progress. For example, tradition says that everyone focuses on serving the current customers. That's where the bread and butter are. Also, the overhead structure is established to serve those current needs. Both perspectives no longer serve when a disruptive technology is involved, and he persuasively argues that being first with disruptive technologies is very important. Bureaucracy comes into play because the authorization process requires a lot of confidence by those who will bet their careers that the market and financial projections will be achieved. The bureaucracy also increases the likelihood that an error will be made, or an unnecessary delay will occur. Disbelief comes from the tendency to misdefine who the customers will be and to underestimate the long-term potential of the technology. Professor Christensen puts in some nice technology development/time charts in to show how to better anticipate a new technology expanding from a lower need-defined market into the mainstream market. Misconception comes in because people misunderstand the danger of the disruptive technology, and how to manage it. THE INNOVATOR'S DILEMMA is very hepful here because it provides a model of best practices to cure the misconception stall here. Three other stalls are often important: Procrastination (delaying when delay is costly); Ugly Ducklings (avoiding what is unattractive, physically or financially); and Communications (not getting the message or not understanding the message). I suspect all 3 play a big role in the cases here, but I could not tell from the way the cases were written. I hope in his future work, Professor Christensen will also tie his thinking into the idea of innovation itself. I personally favor an 8 step process. One, measure everything you can in an area to understand how the measurements can help you improve. Two, apply the same approach to your most important activities. Be sure to consider how and why noncustomers do not find your offerings appealing. Three, seek out the best practices in other industries in these important activities, and estimate where these best practices will be in five years. Four, assemble a new combination of best practices from these cases that goes beyond what any one company will be doing in five years. Five, imagine the best that anyone will ever be able to do, ever, as the ideal best practice. In the case of disruptive technologies this would involve spotting them well in advance and being able to pursue them without pain to the rest of the organization, and pursuing very rapid adoption that leads to dominating the new marketplace. The analogy of slime mold may fit here (slime mold can come together to form new combinations that can move to locations where the food is better, and also to make spores that attach to animals and are carried to new locations where food may also be better). Six, find ways to approach the ideal best practice. Seventh, put the best people, resources, and incentives together to create great success in exceeding the future best practice and a

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  • Anonymous

    Posted January 31, 2001

    In depth and intelligent

    Excellent book. The topic of how good companies can fail is covered very thoroughly and effectively. The author uses tons of research and sources to back up his theories, and provides full explanations of each topic. Well researched, well organized, well written.

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  • Anonymous

    Posted November 24, 2000

    Rise and Fall of Well-managed Enterprises

    Clayton M. Christensen thoroughly and systematically analyzes the impact of both disruptive and sustaining technologies on well-managed enterprises. The author shows us how these enterprises belonging to very different industries fail precisely because they do all the right things in developing and bringing sustaining technologies to the market, i.e. 1. Listen to their customers carefully; 2. Invest enough money in developing new technologies that meet or exceed customer expectations; 3. Research market trends thoroughly; 4. Excel in allocating resources systematically to innovations that optimize returns. Christensen clearly explains to us why and how enterprises that are paragon of the above-mentioned approach to the market can lose their balance while dealing with the emergence of disruptive technologies. Well-managed enterprises eventually fail because they ignore or fight the five laws of disruptive technologies that Christensen has identified for us, i.e. 1. Tackle the disruptive technology appropriately, usually by setting up an autonomous entity free of the influence of mainstream customers; 2. Penetrate small markets through the use of an appropriate vehicle such as an autonomous entity, even if those markets don't allow well-managed enterprises to reach their targeted growth rates quickly; 3. Practice what Christensen calls 'agnostic marketing', i.e. gaining first experience in using a disruptive technology, often made possible by watching how real people use it rather than by listening to their wishes before making plans for implementation; 4. Pay due consideration to internal processes and values that make well-managed enterprises strong in one context and weak in another one; 5. Realize that mainstream customers are not necessarily able or willing to absorb any performance improvement that investing in sustaining technologies makes possible. To summarize, The Innovator's Dilemma brings a fresh perspective to an intricate issue that well-managed enterprises need to address sooner or later in their life.

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  • Anonymous

    Posted October 10, 2000

    Wonderful Ideas and Plans

    The author does a Superb job in discounting certain myths, suggesting nontraditional ideas, and giving us all hope as we face the tasks of changes in technology. He goes far beyond what I imagined, because he is simply brilliant in giving us the plans to develop out thoughts and strategies to win in the constantly changing marketplace.

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