Photo by Vlada Karpovich from Pexels
Ken Norton described “The Innovator’s Dilemma By Clayton Christensen” as
“The most important business and product management book of the past fifty years. If you’re a technology PM and you haven’t read Christensen, do so right now.”
This inspired me to pick up this book. This blog is my book summary.
Sustaining Vs Disruptive Technologies
Sustaining technologies improve the performance of established products, along the dimensions of performance that mainstream customers in major markets have historically valued. Most technologies are sustaining in nature.
Disruptive technologies bring a value proposition that is very different than what is available previously. While disruptive technologies may underperform established products, they have other features that a few (and generally new) customers value. Products of this category are typically cheaper and more convenient to use. Examples would be the personal desktop computer and discount retailing.
The Dilemma
The established firms in an industry were every good at leading sustaining technologies. But the firms that developed disruptive technologies were always entrants to the industry, not incumbent leaders. In face, the established firms failed to capture the market offered by the disruptive technology.
The reason why it is called a dilemma is that, all along the established firms still failed even though they followed good managerial decisions. The paradigms of sound management (working harder, being smarter, investing more aggressively and listening more astutely to customers) proved useless - even counterproductive - when dealing with disruptive technologies.
The purpose of the book is to understand why established firms failed, what can be learnt from the entrants and how can it be applied to any firm.
Why did the established firms fail?
 |
|---|
| Photo by Sebastian Arie Voortman from Pexels |
The main reasons why established firms failed to develop disruptive technologies were:
- They took the market’s needs as a given.
They were firm believers of “stay close to the customers”. Their existing large customers didn’t value the capabilities provided by the disruptive technologies. Hence they failed to see the potential of these technologies from the start.
The entrant companies on the other hand, first found a market for the initial capabilities offered by the new technologies, accumulated experience in that market and then used that experience to enter other larger markets. Even though the incumbents tried to catchup, it was too late. They lost the race as the entrants had the first mover advantage and had captured a large share of the market.
- The markets which favoured disruptive technologies offered lowered margins initially.
The established companies which focused on obtaining higher markets didn’t find the lower margin markets attractive.
Middle managers, whose careers depended on sponsoring successfully projects, always allocated resources to projects for which the market demand seems most assured and which provided high margins. Thus products for higher margin markets always won the interest and resources of established companies. Hence products of disruptive technologies were ignored.
The 5 Principles
The following are 5 fundamental principles that managers in the successful firms managed correctly. The firms that lost the battle with disruptive technologies chose to ignore or fight them.
| Principle | How successful managers reacted |
|---|---|
| 1. Customers control resource allocation. | Create an independent organisation and align it with emerging customer that value the disruptive tech. It is difficult for 2 cost structures to coexist together peaceful in a single company. |
| 2. Large companies are in need of large revenue stream to maintain their desired growth rate | Create an independent organisation which is small enough to be excited about the opportunity offered by a disruptive technology in its early years. |
| 3. It is impossible to predict the use cases for disruptive tech and the size of the market and initial attempts will result in failure. | The managers focused on product discovery before committing expensive resources in building the solution. They adopted a learning mindset aimed at learning through trial and error. They realised the importance of conserving resources to future iterations instead of draining all resources in the first attempts itself. |
| 4. An organization’s capabilities are dependent on not just resources but also on the organization’s culture and values. | Along with assigning resources, the managers also made sure the culture and values matched the set of tasks that need to be done. |
| 5. The disruptive technologies will not obtain a product-market fit in the mainstream market. | AThe entrant companies first found a market for the initial capabilities of the new technologies, accumulated experience in that market and then used that experience to enter other larger markets. |
The author recommends applying these learnings when confronted with new technologies to be able to be a successful manager/firm.
Hope you found these notes helpful. Thanks for reading.