The Innovator’s Dilemma

The crux of The Innovator’s Dilemma is that smart managers from successful companies fail to navigate disruptive innovation because they are focused on responding to the needs of their current customers and on investments that promise the highest returns. Established firms have a tendency to move upmarket in search of greater profitability in the market tiers above them miss out on disruptive technologies that emerge below them.

According to Christensen’s research, there are two types of innovation: sustaining innovation and disruptive innovation. Established firms are good at sustaining innovation; incremental improvements in technology but as companies become large they lose the capability to enter small emerging markets and entrant firms ultimately overtake them utilizing disruptive technologies. After an extensive look at the factors that cause these large firms to fail when distributive change happens using case studies of the disk drive, hydraulic earth moving and steel industries, Christensen provides insights into how firms can succeed with fundamental technological change: Acquire or Spin off a smaller organization to execute and serve smaller “right fit” markets. The spin off is not beholden to the firm’s current customer base or cost structure, what Christensen calls their “value network”. Within that spin off, smaller wins can have a bigger impact. The spin off should plan to fail early and inexpensively.

Overall, the book was engaging, if somewhat academic. The case study of the disk drive industry was exhaustive and, to my dismay, the author kept coming back to it. Either way, this is a must-read for leaders in organizations that deal with technology and innovation, which, let’s be honest is any organization.