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Business Innovation Strategy

Published in 1997, the book The Innovator’s Dilemma challenges the common wisdom prevalent at that time regarding innovation and organizational culture. Good, well-managed established companies, doing all the right things and touted as market leaders, lose market dominance quickly in the face of disruptive technology that produces new and unexpected competitors and new ways of doing things. The business best practices that have served a company well become inadequate because the business leaders ignore the rising innovative competitors and changes happening in the marketplace structure. Management keeps on doing what it has always done, like listening to current customers and continuing to pursue large markets and not seeing opportunities in smaller markets. The companies fail to look forward and adapt to the changes going on in smaller emerging markets, often driven by disruptive technology. The management’s decision-making should frame the challenge as a market challenge and respond accordingly.

Corporate Innovation Strategy Takeaways

• Successful and established companies have great sustaining technologies, meaning they are well-prepared to continue business as usual.
• Successful companies fail, not because they cannot cope with technological change, but because they fail to recognize the impact of disruptive technologies in their industry/market.
• The structure of the company drives the strategies and investments management makes.
• Management needs to follow the principles of disruptive innovation which serves as guides as to when to continue following widely accepted principles of management and when to follow alternative principles.
• Technology is the processes which transform labor, capital, information and materials into products and services of great value.
• Disruptive technology is not a technological problem but a marketing problem.
• Technology progress and marketing progress are separate from each other.
• Most often, the pace of progress is not realized before the market’s awareness of the need to accommodate change.
• Disruptive technology is usually a novel presentation of proven technology and carries better attributes, but may initially underperform established products in the market.
• There are barriers to innovation that can be overcome with management understanding.
• There are “Five Principles of Disruptive Technologies” that managers can harness for business success.

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The Innovator’s Dilemma Book Summary

The book the Innovator’s Dilemma is an ideal guide for any company which wishes to survive and thrive in the face of disruptive technologies. Written in 1997, the book remains relevant today, a testament to author Clayton Christensen’s ability to get to the root of the competitive challenges associated with technology. It establishes principles for managing disruptive technology that many corporate decision-makers, still struggling today to help their companies stay ahead of the innovative startups, should learn.

This is a two part book. Part one reveals why companies fail when challenged by disruptive technology. Part two gives solutions to manage disruptive technologies in a focused and easy way.

Christensen examined the Hard Disk Drive Industry between 1970 -1995 to learn why good companies fail. This period was dominated by several large firms in the industry and was characterized by rapid changes in the form of decreasing prices per MB with an increase in the capacity and speed per square inch of disk surface. All the large firms, and a majority of new entrants, except IBM, failed or were acquired. They failed on account of not understanding the market impact of disruptive technology and not because they could not keep up with the technological changes. They did not know how to manage uncertainty and unpredictability so were unable to thrive in these conditions which are described in the book Antifragile.

Christensen defines technology as “the process by which an organization transforms labor, capital, materials and information into products and services of greater value”. He defines innovation as a “change in one of these technologies”. There are sustaining technologies and disruptive technologies. The conclusion was that market structures, rather than technology, determines what becomes disruptive technology. Ironically, the author found companies fail because they are managed well. At the same time, young businesses starting from scratch learn to position themselves to grow rapidly as explained in the book Ready, Fire, Aim.

The management system locks the company into a value configuration with supply chains and customers in order to meet customer needs. They listen to existing customer feedback, retain existing internal processes and rely on current suppliers. To implement disruptive technology, the company would have to ignore customer feedback, find new suppliers and change internal processes. They do not realize there are customers out there ready to embrace new products and services. In the book Give Em’ the Pickle, business leaders are told to listen to their customers and be willing to give them what they want and not just what is expected or available.

Sustaining technology - technology that keeps the business going - has three characteristics. First, it improves performance of established products in a way that customers value. Second, it meets the demands of mainstream customers. Third, sustaining technology is found in established firms that are leaders in terms of having available resources to invest in innovation. The challenge is that leaders rely on what the book The 22 Immutable Laws of Marketing calls the Law of Diversion. Companies do not launch a different brand for fear of harming the existing brand, so a young flexible company fills the void.

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The author presents a vivid metaphor for disruptive technology. It is old wine sold in a new, unique bottle. There are four primary characteristics of disruptive technology. One, disruptive technology is simpler, cheaper, convenient and has better attributes than the established product. Two, it is technologically straightforward. Three, disruptive technology is presented to the marketplace by new entrants in the industry, following a strategy the book Blue Ocean Strategy describes as opening up new market space and creating new demand. Fourth, disruptive technology cannot serve mainstream customers but can create new markets.

The author names two main reasons established companies fail when faced with disruptive technologies.

1. In their pursuit of providing the best sustaining products, established companies often give their customers more than they need or more than they are willing to pay for. They have their own value networks, market perceptions and resource allocation strategies. Established companies inadvertently make disruptive technology more attractive to the customer.
2. Disruptive innovations are often simpler with lower profit margins. Established companies believe that it will not be a rational financial decision for them. They are under pressure to keep moving up-market. This creates a vacuum in the lower end markets. New entrants grab this opportunity and move in with their disruptive technology, providing value to fringe customers. By following the advice in the book Badass Your Brand, startups quickly build their markets and eventually become serious competitors to large businesses.

There are five key principles of disruptive technology presented that demonstrate why every company should embrace disruptive technology.

• Resources are controlled by customers and investors - Resource allocation of established companies is done by keeping customer demand in view at all times. They do not see the need to invest in disruptive technology, believing it is something that their customers do not want. In the meantime, maverick companies, like those described in the book Small Giants, step up and create new markets.

• Small markets do not meet the growth needs of large companies - Disruptive technologies typically signal the emergence of a new market. Established companies find these new markets too small and low profit. They fail to see the first mover advantages they offer.

• Markets that do not exist cannot be analyzed - Sustaining technology works well with sound market research and good planning. This is the forte and comfort zone of established companies.

Disruptive technology with no established database and new markets does not entice the established companies out of their comfort zone. They can address such a market by adopting “discovery based planning,” and plan to fail early at minimum cost to the company.

• An organization’s capabilities define its disabilities - An organization has capabilities independent of its employees. Company values and processes spell the capabilities of the organization. These are tied to the context in which they work. The Resource-Process-Values (RPV) Framework is used to appraise existing capabilities and create new ones.

• Technologies can progress faster than market demand - To stay ahead in a competitive market, companies develop superior products and surge ahead. This way, they end up over-satisfying customer needs and create a vacuum at the lower end. This gives a window for the new entrants to jump in.

Since 1997, some of the characteristics discussed are not as applicable. For example, disruptive technology is not always technologically straightforward, i.e. Artificial Intelligence, block chain, machine learning, etc. Also, disruptive technology today does serve mainstream customers, i.e. hop in your new car, and it connects to a satellite and collects data to improve services you get. Business leaders are reinventing their firms to embrace data and data analytics and using AI to remove traditional constraints on the business. More information on this strategy is found in the book Competing in the Age of AI.

However, it is the principles of disruptive technologies that largely still apply and deepen understanding of how to transition from sustaining technology to disruptive technology. Companies need to measure how their customers use their products and learn to recognize the signs of changing demand. Once ready to meet those changing demands, use the advice in the book Building a Storybrand to craft a marketing message for success. In this manner, they can stay ahead of the competition and use disruptive technology profitably.

About The Author Clayton Christensen

Clayton Christensen (1952-2020) is regarded as one of the world’s top experts on innovation and growth. A 2011 cover story in Forbes magazine noted that “Everyday business leaders call him or make the pilgrimage to his office in Boston, Mass. to get advice or thank him for his ideas.’’ In 2011, in a poll of thousands of executives, consultants and business school professors, Christensen was named as the most influential business thinker in the world.

Clayton Christensen was a man wearing many hats – that of a professor, author, entrepreneur, missionary, husband, father to five children and grandfather to his many grandkids. He worked as a missionary for his church in the Republic of Korea and learned to speak fluent Korean.

Professor Christensen received his B.A. in economics, summa cum laude, and an MBA with High Distinction.

In 1982 he was named a White House Fellow. In 1992 he became a faculty member at the Harvard Business School. He holds five honorary doctorates and an honorary chaired professorship at the Tsinghua University in Taiwan.

Prior to his academic career, Clayton helped co-found Ceramics Process Systems, a Massachusetts-based advanced materials company. He has subsequently helped establish many other successful enterprises, including the innovation consulting firm Innosight, the public policy think tank Innosight Institute, and the investment firm Rose Park Advisors. In 2011 and 2013, Christensen was named the world’s most influential business thinker by Thinkers50.

Clayton is the author of nine books and his first book, The Innovator’s Dilemma is a New York Times bestseller. Also becoming bestsellers are The Innovator’s Solution, Disrupting Class and How Will You Measure Your Life. Christensen explains disruptive technology in a YouTube video.

Christensen served the Boy Scouts of America for 25 years as a scoutmaster, cubmaster, den leader, troop and pack committee chairman. Christensen is the co-founder of the Christensen Institute, a nonprofit think tank dedicated to improving the world through Disruptive Innovation.

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