The innovator's dilemma

The innovator’s dilemmaWhen New Technologies Cause Great Firms to Fail

Clayton M. ChristensenProfessor of Business AdministrationHarvard Business School

About the Author:

Global Business Book Award The best business book of the year (1997)

The Innovator’s Dilemma

Li WeiTechnology commercialization managerExploit Technologies Pte Ltd (ETPL)Agency for Science, Technology and Research (A*STAR, Singapore)

Summary and presentation by

B. Eng & Ph.d (Engineering)Nanyang Technological University Singapore

M.B.A.INSEADFontainebleau, France

This is John

Say ”Hi”, John Hi˜

John is a product engineer in a well established technology company

His company has been the leader in this market for decades

But one day ...

John’s company went out of business, and he lost his job

In the past one year, his company lost almost all their customers to a competitor with a disruptive innovation

John is really sad because his company didn’t do anything wrong, somehow, they lost the competition so badly

But John doesn’t know that his company failed because

THEY DID EVERYTHING RIGHT

To understand the reason, John must know two types of innovation

Sustaining Innovation

Disruptive InnovationVS

improves product’s performance based on the features valued by mainstream customers

Sustaining Innovation

It is aiming at moving upward along certain performance metrics

Speed

power

often involved lower performancein many product features

Disruptive innovation

born in the niche market that’s neglectedby current market offering

It is for niche market

Sustaining innovationis driven by existing

market demand

But it canultimately failthe company

Disruptive innovation is an unproven

opportunity

But it can be the future of the

company

This is the core of the innovator’s dilemma

Why did John’s company, the market leader, miss the opportunity for the disruptive innovation?

Let’s find out what happened to John’s company

John had many ideas for new products and improvements

With the marketing department, the project team gathered feedback from their lead customers anddid the market analysis

They chose the best project for the product or improvement their leader customers want

Big market sizeBest profit marginCustomer validation

best project

They did everything right

Meanwhile, the competitor with disruptive innovation …

Their product was not valued by main stream market, but they found a niche market by trial and error

As their product improving, the competitor managed to grow the niche market and encroach the customer base of John’s company

John’s company belatedly jumped on the bandwagon to defend customer base

However, in the newly developed market, John’s company hadn’t developed any competitive advantage and they are too late

In the history, the same story happened to many great companies

They failed because the very management practices that made them market leader also make it extremely difficult for them to develop the disruptive innovation

To understand the difficulties, we need to firstly understand the concept of Value Network

The context within which a organization is established to get what it values

Value Network

revenue from The lead customers

For a established company, this is the value they are after

The highest performing company has a well-developed system tailored to capture the value from its lead customers

Structure Capability

Operation

Culture

Partnership Management The lead customers

Value network

Within a value network, the system and its past choices of markets, determines its perceptions of the

value of an innovation

It drives resource allocation towards sustaining innovation that is valued by the current lead customers

Funding

Manpower

And, it is extremely difficult to keep resources for a disruptive innovation for a unproven market

? Funding

Manpower

This pattern of resource allocation accounts for the well-run companies’ leadership in the sustaining innovation and their

dismal performance in the disruptive one

sustaining innovation disruptive innovation

If we can turn the time backwards, can John’s company do something different to better manage the disruptive innovation?

There are five principles of disruptive innovation

The managers can harness these principle to their advantage

1Customers effectively control the patterns of resource allocation in well-run companies

Lead customers

Well-run company

Lead customers

Well-run company

A spin-off organization

niche market

Give responsibility for disruptive innovation to organizations whose customers need them

disruptive innovation

2Small markets don’t solve the growth needs of large companies

Large company

Larger and larger and larger

Place disruptive innovation projects in organizations small enough to get excited about small market

Small organization

disruptive innovation

Small market

This is good enough for me

3Markets of disruptive innovation may not exist and can’t be analyzed

Do these before you talk to me again

Plan to fail early and inexpensively in the search for the market for disruptive innovation

4The existing process and values define the organizations’ disabilities when confronted with disruption

Utilize the resources of the mainstream organization to address disruption, but not its processes and values

I don’t need a oil truck, butI need the petrol in its tank

5Technology supply may not equal marketdemand It is not good enough, Let’s

improve its technology

When disruptiveinnovation is presented

Established firms take it asa technical challenge

Disruptive innovation is a marketing challenge

When disruptiveinnovation is presented

Disruption company take itas a marketing challenge

It isn’t valued by mainstream,Let’s find people who like it

Hi, John. Could you please give us asummary?

Hi, John. Could you please give us asummary?

OK !

Why great company can fail

The business exists in a value network that shapes leaders’ decisions. It couldblind them to the disruptive innovationand lose the future opportunity

To manage the disruptive innovation

1. Have a spin-off2. Match its size with its market3. Plan to failure4. Use the resource only5. It is a marketing challenge

Although John’s company failed, he isnot such a person who gives up easily.

He joins a start-up with a disruptiveinnovation

In a niche market, they don’t need to worrytoo much about their larger competitors

This gives them more time to fine tunetheir technology and develop a futuremass market

Like many other start-ups andentrepreneurs, they willsurprise the much largercompetitors in difference

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