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The innovator’s Dilemma - Book Review

1 September 2018
Dr. Moria Levy
book cover

"The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail" was authored by Clayton Christensen, a professor at Harvard University. Although initially written in 1997, a revised edition emerged in 2017 with updated content. The book is built on the author's research, primarily analyzing the hard disk market but extending beyond. This market is intriguing due to rapid disruptive technological advancements, such as USB flash drives. The book delves into why companies, even when led by accomplished managers, need help navigating technology transitions.

 

The book covers the following topics:

 

  • The Dilemma: Why successful firms stumble with transformative changes.

  • Effective Transformation Management.

  • Propelling Breakthroughs.

  • Facilitating Organizational Support.

  • Market and Customer Dynamics.

  • Sustaining Progressive Practices.

 

The book presents numerous examples from various domains, ranging from disks (as mentioned earlier) to the evolution of insulin injection products, hydraulic equipment, and even the automobile market, spanning multiple industries. A small note before diving into the content: while the proposed model applies to most scenarios, exceptions will inevitably arise. It's essential not to hinge on the overall framework's credibility on a single distinct example. The book encourages contemplation and offers insights on navigating, perhaps more crucially, how not to navigate, pioneering strategic transformations within established organizations. As always, there is no universally winning formula. Overall, the book provides instructive and worthwhile reading.

 

The Dilemma: Why successful firms stumble with transformative changes.

 Many prosperous companies need to improve in sustaining their success when disruptive market changes occur. Many even experience collapse, fading from memory within a few years. The central theme elucidated by Christensen is that this predicament only sometimes arises from managerial inadequacies or unsuccessful leadership. While such instances undoubtedly exist and always will, the downfall often materializes despite capable management. The core issue is structural: Management approaches suitable for linearly growing enterprises are ill-suited for companies necessitating technological or paradigmatic shifts:

 

  • Flourishing companies evolve in alignment with prevailing customer demands. However, groundbreaking changes typically target needs that still need to exist or be consciously recognized among the existing customer base. Resource allocation predominantly adheres to the prism of current customer needs, which could be more conducive to fostering transformative shifts.

  • Prosperous companies build upon higher prices and profit margins, often due to their established status. These dimensions are necessary for managing organizational overhead. Conversely, success within transformative domains often hinges on streamlined and efficient operations. An entrenched corporate structure faces challenges when attempting to meet the demands of a transformative phase.

  • Established companies are beholden to stock exchanges and investors, demanding consistent quarterly performance. Their quest for swift victories complicates their ability to embrace mistakes and setbacks—a characteristic intrinsic to organizations pursuing breakthroughs.

  • Flourishing companies persistently seek enhancements in performance and expanded functionalities. In contrast, breakthrough solutions frequently compromise performance and functionality.

 

Incidentally, it's crucial to acknowledge that numerous breakthroughs stem from linear technological advancements, with the breakthrough itself originating from innovative packaging, alternative customer segments, or a distinct value proposition. Notably, substantial technological progress often germinates within established firms but falters due to their inability to offer these innovations to their existing clientele. Emerging enterprises seize the opportunity, introduce the technologies to new markets and objectives, and subsequently venture into the established domains after succeeding elsewhere.

 

Effective Transformation Management.

 

Propelling Breakthroughs.

Breakthrough solutions can emerge when the supply is abundant within an established market. Throughout a domain's lifecycle, breakthroughs steer products and solutions through the following phases:

1. Functionality and Performance (occasionally size)

2. Reliability

3. Convenience

4. Price

 

At any point marked by saturation, a transition becomes ripe for moving to the subsequent phase.

 

Critical characteristics of groundbreaking solutions are as follows:

 

1. They introduce more straightforward and more affordable products.

2. They cater to an emerging or less prominent market segment.

3. Initially, they won't address the needs of the more lucrative customer base that the company already serves.

 

Facilitating Organizational Support

An organization aspiring for a breakthrough requires a structure conducive to resource allocation, even if the profit margins do not align with the norms recognized and accepted in the established market. The organizational framework should consistently and unwaveringly accommodate decision-making that diverges from customary practices in an established market. For instance, it's all too convenient to resist venturing into new markets that may not inherently offer substantial organizational growth akin to the accustomed past trajectories. However, the very essence of breakthroughs thrives on a distinctive growth approach. Consequently, mechanisms must be engineered to deviate from conventional paths. Implementation of this concept is feasible through various approaches:

  • Operating as a distinct entity

  • Functioning as a self-contained, independent spinoff or sub-organization with distinct personnel and mechanisms that don't mirror the overarching structure

  • Constituting a division within an organization leveraging the resources of the larger entity but eschewing its established values and operational procedures

IBM, for example, pioneered a breakthrough endeavor by establishing a unit based in Florida, deliberately distanced from decision-makers in New York. They adopted metrics for success divergent from the company's customary benchmarks.

This organization should remain small in scale and history—compact enough to channel enthusiasm even towards modest customers and initial minor profits. The leader of this entity holds heightened significance, particularly within an entity seeking unconventional strategies and actions, necessitating a pioneering spirit.

 

Market and Customer Dynamics.

Exploring a new market involves attempting to "push" novel technology into established domains. Within the existing market, the approach entails identifying and sifting out "appropriate" customers, directing the new solutions exclusively towards them. Alternatively, engagement with the established market might commence only in phase B after installing a unique and distinct market.

 

Organizations must recognize that analyzing a nonexistent market proves challenging, making formulating business plans—a prerequisite for most fledgling companies seeking funding—difficult.

 

So, how does one discover a market? It requires extensive contemplation, often accompanied by substantial trial and error. Christensen narrates the story of Honda's entry into the American market with motorcycles. Their attempts to compete with local players like BMW and Harley-Davidson proved futile. Honda's successful entry was eventually achieved by penetrating the market through an off-road strategy, focusing on dirt bikes. Interestingly, this idea emerged serendipitously after the manager in charge personally experienced it.

 

Sustaining Progressive Practices.

There are several recommendations on how to proceed:

  • Embrace failure and resilience: It's acceptable but crucial to encounter setbacks along the journey. The loss of an idea only translates to the inability of the entire company. Mistakes are essential in the process of discovering a winning market and strategy. Research indicates that most successful companies begin with something other than a triumphant system.

 

  • Act without meticulous planning: Unlike conventional advice in regularly evolving organizations, groundbreaking ventures benefit from taking action even without careful planning. Given the inherent uncertainty of an unknown market, comprehensive planning has limited utility. Planning emerges as a consequence of discoveries made along the way rather than being the initiator.

 

  • Efficient resource management: Similar to any gradually evolving organization, a groundbreaking venture requires resources for its sustenance. Attaining success depends on verifying the availability of necessary resources and ensuring a pathway for development.

 

  • Distinct management of values and processes includes resources, processes, and values. When guiding a groundbreaking enterprise, adjustments must be made to processes and values to enable lean organizational practices and unconventional decision-making. Acknowledging that changing processes or values within an established organization takes more work is essential.

 

  • Decision-making: Decision-making in a groundbreaking company leans more toward estimates rather than strictly adhering to planned and known profitability.

 

Following significant success and establishing a new market, there's room to revisit and develop the company with processes, values, and decision-making strategies conducive to expanding into larger markets and capitalizing on the change. After years (varying based on the market dynamics), the stage will be set again—for another breakthrough. And the cycle continues.

 

 


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