THE INNOVATOR’S

DILEMMA
About the Author – Clayton Christensen
• Professor at Harvard Business School
• Introduced Disruptive Innovation Theory

• Most Influential Business Thinker in the World, 2011

& 2013
• The London Times

• “One of Most Influential Business Theorists of the

Last 50 Years”
- Forbes
Thesis
Question: Why do well-managed companies fail? How can industry leaders fail so
predictably to new entrants?

Well known examples:

• Sears
• IBM
• BlackBerry
• Nokia
Example 1: Excavators (1950s-1970s)

Cable Excavators Hydraulic Excavators

Example 2: Steel (1960s-1990s)

Integrated Steel Mills Mini-mills

Value Propositions and Networks
• Products offer specific qualities that make them valuable to customers. These
qualities are value propositions.

• Customers, customers of customers, etc. build a value network around these

qualities.

• Value networks demand continual improvement along those qualities, because

those are the ones that are important.
• Example: Intel continues to make faster (more instructions per sec) and smaller
processors. This is because its’ customers (value network) demand this.
Sustaining Innovation
• Innovation along the qualities important to the value network.
Disruptive Innovation
• Innovation along qualities not seen as valuable by the value network.
• Radically change the value proposition offered to the market.

• Disruptive products usually offer worse performance than existing products along
qualities demanded by current value network.
• But they are better for other qualities, which may not be valuable right now...
Disruptive or Sustaining?
Innovation Type of Innovation
The development of the diesel-powered excavator,
replacing the steam-powered excavator. SUSTAINING
The invention of the digital camera, replacing the film
camera. DISRUPTIVE
The invention of a new engine that allows Boeing to make
planes that can carry 10% more passengers than its
competitors. SUSTAINING

Not easy to do. Clayton Christensen initially thought the iPhone was sustaining, but later conceded
disruptive.
Markets for Disruptive Technologies
• Due to the nature of Disruptive Technology, they can’t be sold to mainstream
customers.

• Initial markets of disruptive technologies are small and remote from mainstream
customers.
• Often, it’s not even clear who the customers will be when disruptive innovations are being
made.
Ex: Hydraulic Excavators
• Hydraulic excavators, when introduced:
• Carried fewer cubic feet per bucket.
• Could not extend as far as cable excavators.

• However, they were:

• More maneuverable.
• Had smaller buckets.
• Could be attached to the back of a small tractor.

• Hydraulic excavators were initially used for small sewage projects and residential
foundations.
• Previously done by hand.
• Cable excavators were too expensive, too big, and too imprecise for them.
Moving Up-Market
• How do disruptive technologies go from serving a small,
unimportant market to completely taking over the
larger markets of the incumbents?

• Higher Rate of Innovation

• Technology Supply vs Market Demand
Moving Up-Market

Higher
Rate of
Innovation

Technology
Supply
VS
Market
Demand
Source: http://dltj.org/article/disruptive-innovation-card/
Why Successful Companies Fail
When dealing with disruptive technologies, the things that make
companies so successful are also those that lead to their downfall.
• Listening to Customers
• Investing in Technologies that Customers Want
• Focusing on Large Markets, not Small Ones
• Seeking Higher Margins
Why Successful Companies Fail
Listen to Customers
Why Successful Companies Fail
Invest in technologies their customers want, rather than
the disruptive ones.

• Ex: IBM continued investing in mainframes, even well after the invention of
the minicomputer and the personal computer.

• This is something very hard to change from within an organization.

• Executives cannot simply dictate resource allocation, much of it is
subconscious by middle managers (and Program Managers!)
• Hard to motivate employees about a technology that their customers do
not want.
Why Successful Companies Fail
Focus on large markets, not small ones

• Ex: $10 million market for new, disruptive technology

• To Microsoft: Less than 0.0002% of revenue – boring!
• To Start-up: Great business opportunity!

• Again, it’s hard to motivate employees (sales & engineering) to work on

things that are so inconsequential to the organization’s bottom line.
Why Successful Companies Fail
Seek higher margins

Source:
http://theinnovationands
trategyblog.com/wp-
content/uploads/2013/04
/130415-minimills-and-
integrated-mills1.jpg
Technical Competency
• Are incumbents incapable of fighting entrants?
• “Too slow”, “Too big”, “Bureaucratic”, etc.

• Most often, incumbents have the ability and technology to create

disruptive products.
• Disruptive Innovation is a marketing problem, not an engineering
problem.
Technical Competency
• Should incumbents wait for the market/technology to develop?
• By the time incumbents decide to enter, they will be at a disadvantage to the
entrants, who now have:
• Technical Know-How
• Economies of Scale
• Distribution and Business Channels
• Customer Loyalty

• The incumbent sacrifices all of its inherent advantages by waiting.

• However, this is not necessarily true for sustaining technologies.
How To Fight Back • The history of how companies have
fought back is analogous to human
flight.
• First, we tried to adapt ourselves
for flight.
• Eventually, we learned to use the
laws of nature to our advantage.

• Most companies will try to combat

disruptive technologies by trying to
adapt themselves.
• However, the successful companies
will harness the principles of disruptive
technologies to their advantage.
How to Fight Back
• Set up or buy a small, independent organization to combat the disruptive
technology.
• Its’ customers will need the disruptive technology, ensuring resource flow
as managers make the right decisions.
• Can get excited about small markets and small wins.
How to Fight Back
• Plan for failure. Don’t bet all your resources at the start.

• It’s impossible to know about markets that haven’t yet been created.
• Must be found through “trial and error”.

• Ex: HP Kittyhawk Disk Drive

How to Fight Back
• Don’t wait for breakthroughs.
• Move early and find markets based on current technology.
• What makes the product unattractive to mainstream customers will make
it attractive to new markets.
• Ex: iPhone
Thank You
The Innovator’s Dilemma by Clayton M. Christensen
Collin’s Business Essentials (2006)

Available at the MS Library.

Other interesting books:

• The Innovator’s Solution: Creating and Sustaining
Successful Growth
• The Innovator’s Prescription: A Disruptive Solution for
Health Care