The Innovator's Dilemma by Clayton Christensen~6 minute read
I finished this book in June 2021. I recommend this book 10/10.
The Innovator's Dilemma makes you understand that creating disruptive products is very difficult, especially if you are already an established company. The book was first published in 1997, making you think it's outdated, but that is far from the truth. Clayton Christensen predicts the future of electric cars, it is more obvious as I write this in 2021—where Elon Musk and Tesla are still fighting some of the battles predicted by Clayton in the book.
The book is a practical guide for managers, executives, and investors to spot and handle tomorrow's new technologies. Get your copy here.
My notes and thoughts:
The principles of disruptive innovation:
Companies depend on customers and investors for resources.
Small markets don't solve the growth needs of large companies.
Markets that don't exist can't be analyzed.
An organization's capabilities define its disabilities.
Technology supply may not equal market demand.
P21- The fear of cannibalizing sales of existing products is often cited as a reason why established firms delay the introduction of new technologies. As Seagate-Conner's experience illustrates, however, if new technologies enable new market applications to emerge the introduction of new technology may not be inherently cannibalistic. But when established firms wait until a new technology has become commercially mature in its new application and launch their own version of the technology only in response to an attack on their home markets, the fear of cannibalization can become a self-fulfilling prophecy.
P43- Disruptive patterns:
Disruptive technologies were first developed within established companies.
Marketing personnel then sought reactions from their lead customers.
Established firms step up the pace of sustainable technology development.
New companies were formed, and markets for the disruptive technologies were found by trial and error.
The entrants moved upmarket.
Established firms belatedly jumped on the bandwagon to defend their customer base.
P70- This is typical of industries facing disruptive technology. The leading firms in the established technology remain financially strong until the disruptive technology is, in fact, in the midst of their mainstream market.
P71- And as a general rule, the established firms saw the situation the other way around: They took the market's needs as the given. They consequently sought to adapt or improve the technology in ways that would allow them to market the new technology to their existing customers as a sustaining improvement. The established firms steadfastly focused their innovative investments on their customers. Subsequent chapters will show that this strategic choice is present in most instances of disruptive innovation. Consistently, established firms attempt to push the technology into their established markets, while the successful entrants find a new market that values the technology.
P87- The story of sneaking up on the competition.
P99- How did successful managers harness these principles:
They embedded projects to develop and commercialize disruptive technologies within an organization whose customers needed them.
They placed projects to develop disruptive technologies in organizations small enough to get excited about small opportunities and small wins.
They planned to fail early and inexpensively in the search for the market for a disruptive technology.
They utilized some of the resources of the mainstream organization to address the disruption, but they were careful not to leverage its processes and values.
P129- How managers of large, successful companies deal with these realities of size and growth when confronted by disruptive change?
Try to affect the growth rate of the emerging market so that it becomes big enough, fast enough, to make a meaningful dent on the trajectory of profit and revenue growth of a large company.
Wait until the market has emerged and become better defined, and then enter after it "has become large enough to be interesting."
Place responsibility to commercialize disruptive technologies in organizations small enough that their performance will be meaningfully affected by the revenues, profits, and small orders flowing from the disruptive business in its earliest years.
P130- Great case study.
P158- An explicit assumption that no one—not our customers—can know whether, how, or in what quantities a disruptive product can or will be used before they have experience using it. Some managers faced with such uncertainty, prefer to wait until others have defined the market. Given the powerful first-mover advantages at stake, however, managers confronting disruptive technologies need to get out of their laboratories and focus groups and directly create knowledge about new customers and new applications through discovery-driven expeditions into the marketplace.
P161- When managers assign employees to tackle a critical innovation, they instinctively work to match the requirements of the job with the capabilities of the individuals whom they charge to do it. In evaluating whether an employee is capable of successfully executing a job, managers will assess whether he or she has the requisite knowledge, judgment, skill, perspective, and energy. Managers will also assess the employee's values—the criteria by which he or she tends to decide what should and shouldn't be done. Indeed, the hallmark of a great manager is the ability to identify the right person for the right job, and to train his or her employees so that they have the capabilities to succeed at the job they are given.
P167- Large companies often surrender emerging growth markets because smaller, disruptive companies are actually more capable of pursuing them. Though startups lack resources, it doesn't matter. Their values can embrace small markets, and their cost structure can accommodate lower margins. Their market research and resource allocation processes allow managers to proceed intuitively rather than having to be backed up by careful research and analysis, present in PowerPoint.
P172- For these reasons, managers who determine that an organization's capabilities aren't suited for a new task, are faced with three options through which to create new capabilities. They can:
Acquire a different organization whose processes and values are a close match with the new task.
Try to change the processes and values of the current organization.
Separate out an independent organization and develop within it the new processes and values that are required to solve the new problem.
P179- In 1999, Compaq computer, for example, launched a business to market its computers direct to customers over the internet, so that it could compete more effectively with Dell Computers. Within a few weeks its retailers had protested so loudly that Compaq had to back away from the strategy. This was very disruptive to the values, or profit model, of the company and its retailers. The only way it could manage this conflict would be to launch the direct business through an independent company. It might even need a different brand in order to manage the tension. Some have suggested that Walmart's strategy of managing its online retailing operation through an independent organization in Silicon Vally is foolhardy, because the spin-out organization can't leverage Walmart's extraordinary logistics management processes and infrastructure. I believe the spin-out was wise. However, based on figure 8.1, The online venture actually needs very different logistics processes than those of its brick-and-mortar operations. Those operations transport foods by the truckload. Online retailers need to pick individual items from inventory and ship small packages to diverse locations. The venture is not only disruptive to Walmarts's values, but it needs to create its own logistic processes as well. It needed to be spun off separately.
P190- This evolving pattern in the basis of competition—from functionality, to reliability and convenience, and finally to price—has been seen in many of the markers so far discussed. In fact, a key characteristic of a disruptive technology is that it heralds a change in the basis of competition.
P190-1-Two additional important characteristics of disruptive technologies consistently affect product life cycles and competitive dynamics: First, the attributes that make disruptive products. Worthless in mainstream markets typically become their strongest selling point in emerging markets; and second. disruptive product tend to be simpler, cheaper, and more reliable and convenient than established products. Managers must understand these characteristics to effectively chart their own strategies for designing, building, and selling disruptive products. Even though the specific market applications for disruptive technologies cannot be known in advance, managers can bet on these regularities.
P192- Marketing: To build or find a market where product competition occurred along dimensions that favored the disruptive attributes of the product. It is critical that managers confronting disruptive technology observe this principle. If history is any guide, companies that keep disruptive technologies bottled up in their labs, working to improve them, until they suit mainstream markets, will not be nearly as successful as firms that find markets that embrace the attributes of disruptive technologies as they initially stand. These latter firms, by creating a commercial base and then moving upmarket, will ultimately address the mainstream market much more effectively than will firms that have framed disruptive technology as a laboratory, rather than a marketing, challenge.
P226- This means that products that do not appear to be useful to our customers today (that is, disruptive technologies) may squarely address their needs tomorrow. Recognizing this possibility, we cannot expect our customers to lead us toward innovations that they do now need.
P227- Historically, the more successful approach has been to find a new market that values the current characteristics of the disruptive technology. Disruptive technology should be framed as a marketing challenge, not a technological one.
P234- Advice managers facing disruptive technologies:
Give responsibility for disruptive technologies to organizations whose customers need them so that resources will flow to them.
Set up a separate organization small enough to get excited by small gains.
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 a learning opportunity. Make revisions as you gather data.
Don't count breakthroughs. Move ahead early and fine 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.