The Innovator's Dilemma: The Revolutionary Book that Will Change the Way You Do Business

The Innovator's Dilemma: The Revolutionary Book that Will Change the Way You Do Business

Harvard professor Clayton M. Christensen says outstanding companies can do everything right and still lose their market leadership -- or worse, disappear completely. And he not only proves what he says, he tells others how to avoid a similar fate.Focusing on "disruptive technology" -- the Honda Super Cub, Intel's 8088 processor, or the hydraulic excavator, for...

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Title:The Innovator's Dilemma: The Revolutionary Book that Will Change the Way You Do Business
Author:Clayton M. Christensen
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Edition Language:English

The Innovator's Dilemma: The Revolutionary Book that Will Change the Way You Do Business Reviews

  • Rod Dunsmore

    This is a great book on innovation and how start-up and entrepreneurs ought to fashion their company to go against entrenched incumbents.

    The gist of the book is an interesting trend the author found when analyzing the industry. He found that certain innovations were "disruptive" -- meaning they changed the way a market worked, and some were "sustaining" -- meaning they were really just improvements on existing products.

    The author traces disruptive innovations through the

    This is a great book on innovation and how start-up and entrepreneurs ought to fashion their company to go against entrenched incumbents.

    The gist of the book is an interesting trend the author found when analyzing the industry. He found that certain innovations were "disruptive" -- meaning they changed the way a market worked, and some were "sustaining" -- meaning they were really just improvements on existing products.

    The author traces disruptive innovations through the steel industry, where it took $100M + to build an integrated steel mill. Someone one day discovered a way to make steel with a much cheaper furnace -- a "mini-mill". This mini-mill made steel that was ugly and weak, compared to the integrated steel mills -- but it was good enough for one type of steel: rebar. It could make rebar about 10x cheaper than the integrated steel mills, and it didn't matter that it was ugly.

    The integrated mills could not compete with the mini-mill due to costs. But, more importantly, they did not *want* to compete. Rebar was the lowest quality of steel, the most commoditized, and the customers were the least loyal and most price-sensitive (read: difficult). They were happy to walk away from that business...they really made no money in that market anyway. So the mini-mills experienced almost no competition from the incumbant.

    After a few years the mini-mills all experienced decreasing profits due to more mini-mills entering the market. Soon, someone discovered how to make the next level of steel -- I forget what it was, elbow joints or something. The same cycle happened...the integrated mills walked away from a fight and the mini-mills saw huge profits for a few years until they all caught up.

    Slowly, innovation after innovation ended up eating away all of the business from the integrated mills -- who never once tried to compete for the business they were losing. Today there are no integrated mills in existence.

    This is the gist of the book: if you are going to create a new company, you ought to learn from history and fashion a product that will have the existing leaders gladly walking away from the business you are fighting for.

    Anyway, this is a long review. Great book, very thought provoking.

  • Nico Macdonald

    This is one of the best books on innovation in the last 20 years. I read it in 2000 and still refer to it. Christensen's core insight/argument is that businesses fight shy of developing innovations that will 1: produce limit profits initially; 2: cannibalise core, high cashflow/profit lines. But that what look like niche technologies - Winchester drives, hydraulic backhoes, etc - improve in capability, reliability and reduce in price to the point that they entirely cannibalise the existing marke

    This is one of the best books on innovation in the last 20 years. I read it in 2000 and still refer to it. Christensen's core insight/argument is that businesses fight shy of developing innovations that will 1: produce limit profits initially; 2: cannibalise core, high cashflow/profit lines. But that what look like niche technologies - Winchester drives, hydraulic backhoes, etc - improve in capability, reliability and reduce in price to the point that they entirely cannibalise the existing market, leaving the established players high and dry, with no new product lines. (In a way he is reposing the falling rate of profit thesis.) He suggests some rather less convincing solutions in the book, and expounded further in The Innovator's Solution: Creating and Sustaining Successful Growth. I would argue that Apple presents an interesting solution to this challenge, with its creation of new product lines that complement and build on - but, largely, don't cannibalise - its existing product lines.

  • Jeff Yoak

    This is one of those books that becomes an instant classic. Everyone talks about it until you think you know most of what it has to say without reading it shortly after it comes out. You can barely carry on a conversation about technology without someone using the term "disruptive." It deserves that reception and as with most cases, there is much more to gain by reading the book than just the popular representation.

    The book defined disruptive technologies vs. sustaining technologies

    This is one of those books that becomes an instant classic. Everyone talks about it until you think you know most of what it has to say without reading it shortly after it comes out. You can barely carry on a conversation about technology without someone using the term "disruptive." It deserves that reception and as with most cases, there is much more to gain by reading the book than just the popular representation.

    The book defined disruptive technologies vs. sustaining technologies and addresses why good, established companies usually dominate and prosper with new sustaining technologies and often fail or are even displaced because of disruptive technologies. It shows how such companies can cope with the challenge to maximize their chances even though there are systemic biases against it given how an established company must approach resource allocation.

    In my own career, I'm generally in the place of the smaller companies that effectively utilize disruptive technologies rather than with large, established firms with that problem. It is equally valuable from that perspective because it sheds light on some of the advantages that are felt but perhaps not fully identified and guidance on how you might better exploit them.

    This book ought to be read by most people interested in business and certainly everyone occupied with computer technology.

  • Martti

    Clayton M. Christensen writes clearly and analytically, with lot's of examples and research, pleasure to read. Thoughts so logical you wonder how the managers/CXO's he talks about didn't figure this out by themselves already yesterday. A thought provoking read no doubt, even for those not in executive positions.

    It's not a 100%, but gets some future predictions right - fun to discover them 18 years later. And it's also interesting to use the frameworks described to think about new tec

    Clayton M. Christensen writes clearly and analytically, with lot's of examples and research, pleasure to read. Thoughts so logical you wonder how the managers/CXO's he talks about didn't figure this out by themselves already yesterday. A thought provoking read no doubt, even for those not in executive positions.

    It's not a 100%, but gets some future predictions right - fun to discover them 18 years later. And it's also interesting to use the frameworks described to think about new technologies that constantly keep surfacing on this Information Age we live in.

    "It is unclear how long the marketers at Microsoft, Intel, and Seagate can succeed in creating demand for whatever functionality their technologists can supply. Microsoft's Excel spreadsheet software, for example, required 1.2 MB of disk storage capacity in its version 1.2, released in 1987. Its version 5.0, released in 1995, required 32 MB of disk storage capacity. Some industry observers believe that if a team of developerswere to watch typical users, they would find that functionality has substantially overshot mainstream market demands. If true, this could create an opportunity for a disruptive technology - applets picked off the internet and used in simple internet appliances rather than in full-function computers, for example - to invade this market from below."

    So essentially Christensen predicted Google Docs, Zoho Docs and similar products in the year 1997. Or if we stretch a bit, cloud services not present on our own devices, but on far away server rooms.

    Tenth chapter of this book is basically the manual for approaching electric vechicles as a disruptive technology - a manual for Elon Musk to build Tesla. :)

    Although the conclusion the author arrives is not Tesla Model S (a premium product), but rather a cheap and low range Mitsubishi iMiev or Nissan Leaf. Well, that's why you don't predict, but explore and try.

    "To measure market needs, I would watch carefully what customers do, not simply listen to what they say. Watching how customers actually use a product provides much more reliable information than can be gleaned from a verbal interview or a focus group. Thus, observations indicate that auto users today require a minimum cruising range (that is, the distance that can be driven without refueling) of about 125 to 150 miles; most electric vehicles only offer a minimum cruising range of 50 to 80 miles. Similarly, drivers seem to require cars that accelerate from 0 to 60 miles per hour in less than 10 seconds (necessary primarily to merge safely into highspeed traffic from freeway entrance ramps); most electric vehicles take nearly 20 seconds to get there.

    And, finally, buyers in the mainstream market demand a wide array of options, but it would be impossible for electric vehicle manufacturers to offer a similar variety within the small initial unit volumes that will characterize that business. According to almost any definition of functionality used for the vertical axis of our proposed chart, the electric vehicle will be deficient compared to a gasolinepowered car.

    This information is not sufficient to characterize electric vehicles as disruptive, however. They will only be disruptive if we find that they are also on a trajectory of improvement that might someday make them competitive in parts of the mainstream market.

    The trajectories of performance improvement demanded in the market—whether measured in terms of required acceleration, cruising range, or top cruising speed—are relatively flat. This is because traffic laws impose a limit on the usefulness of ever-more-powerful cars, and demographic, economic, and geographic considerations limit the increase in commuting miles for the average driver to less than 1 percent per year.

    At the same time, the performance of electric vehicles is improving at a faster rate—between 2 and 4 percent per year—suggesting that sustaining technological advances might indeed carry electric vehicles from their position today, where they cannot compete in mainstream markets, to a position in the future where they might."

    ... "If present rates of improvement continue, however, we would expect the cruising range of electric cars, for example, to intersect with the average range demanded in the mainstream market by 2015, and electric vechicle acceleration to intersect with mainstream demands by 2020."

    To which one living in 2015 can chuckle - Tesla Model S came out in 2012 and it definitely beats any average acceleration and range demands. Actually any electric vehicle in production accelerates like a mad horse.

    And a last piece for my memo: the parameters by which customers compare the products on the market (from left to right) FUNCTIONALITY - RELIABILITY - CONVENIENCE - PRICE.

    In a young market, functionality is almost the same for all products, then they will start looking at reliability to differentiate the product. If that becomes the same, they will look at convenience. And if the products have become all three, the last thing basically will be a price war.

  • Athan Tolis

    The subject of this classic is disruptive technology.

    With the help of many examples from industry (disk-drives being his main workhorse) the author explains what technologies are likely to disrupt, who is likely to be disrupted, why they are likely to be disrupted and what the choices are that the established players have when presented with disruption.

    The most important point is that disruption generally comes from the practice of repackaging and marketing already existing, straigh

    The subject of this classic is disruptive technology.

    With the help of many examples from industry (disk-drives being his main workhorse) the author explains what technologies are likely to disrupt, who is likely to be disrupted, why they are likely to be disrupted and what the choices are that the established players have when presented with disruption.

    The most important point is that disruption generally comes from the practice of repackaging and marketing already existing, straightforward technology at a lower price point to a new customer base that is not economically viable for the established players.

    For example, QuickBooks was marketed to mom-and-pop stores who could not afford to pay an accountant and it was the el-cheapo version of Quicken. It is of no use to a proper corporation. JC Bamford got started with hydraulic backhoes that were good enough for small contractors looking to dig a small ditch but wholly inadequate for the purposes of a miner. 5.25 inch disk drives were marketed to the nascent market for personal computers and were of no use to minicomputer manufacturers.

    Disruptive technology is cheaper per unit, but its price / performance ratio is much worse than that of the established technology. It’s not good enough for the clients of the established players. Ergo it must be sold on its (lower) price alone, meaning that its purveyors must seek new markets. Flash memory, for example, was first used in cameras, pacemakers etc. Not in computers!

    There is a large number of reasons that established players will frown upon the new technology:

    1. Good companies listen to their clients. Their clients will tell them they don’t want it. They will demand performance and they will pay for performance.

    2. Profitability will be lower in the lower-margin disruptive technology. Profit margins will typically mirror cost structures and will thus be higher for the higher-end product. Established players will in the short term make more money if they allocate their resources toward not falling behind their immediate competition for the higher-end product. (i.e. “sustaining” their competitive edge in the higher margin / higher tech market)

    3. The processes used by the established players to sell and support the established technology may not be the right ones for the new tech.

    The main thing to realize is that the technology does not live by itself. It is embedded in a “value network.” A car serves a commuter, a digger serves a mine, a disk drive is screwed down somewhere in a computer etc.

    The seeds of disruption lie in the fact that the technology itself and its value network may not necessarily be progressing at the same speed.

    If the technology is improving much faster than the trajectory of improvement of the “value network” (for example, if the desktop PC users demand extra disk storage slower than the industry is capable of delivering extra disk storage), then

    1. The point comes when the value network of the established technology does not need the incremental improvements on which the established players are competing with one another to deliver.

    2. More importantly, a point comes when the performance of the disruptive technology becomes good enough to be embedded in the value network of the established technology. So 3.5 inch disks developed for laptops can do good enough a job for a desktop, for example, without taking up the space required for a 5.25 inch disk.

    It gets worse: sure, disruptive technology is deficient in terms of features / performance, but the price sensitive customers who do not care so much about performance often care a lot about reliability. (A small contractor who buys a single backhoe digger cannot afford a maintenance team.) Similarly, the unsophisticated customers of the disruptive technology may care a lot about ease of use. (Mom and pop using Quickbooks have no idea what double-entry book-keeping is!) What this means is that when the performance of the disruptive technology has become good enough for it to be embedded into the value network of the established technology, it often brings with it an advantage in reliability and ease of use.

    So at that point the disruptive technology is cheaper, more reliable and easier to use than the established technology, all while delivering adequate performance.

    And that’s how purveyors of the established technology (who have been at war with one another to deliver on the ever-increasing performance their customers have been demanding) find themselves at a disadvantage versus the disruptors when it comes to reliability and ease of use right about when their customers tell them they won’t pay for extra performance or features any more.

    The disadvantage of the lower-tech disruptor has created an advantage and it’s game, set and match!

    What’s an established player to do? If I’m running a super successful company and I spot a new technology what am I to do?

    One thing I should not do is listen to my underlings. The dealers who sell my cars will not want a customer who just walked into the dealership to buy a V8 to drive out in a small electric car. The salespeople will keep asking me for the most expensive product because they will be paid a commission on their margin and will keep pushing me “north-east” on the price / performance chart. Resistance to disruptive technology often comes from the rank-and-file.

    I also should not listen to my shareholders. Small markets (and all disruptive technology starts small) do not solve the growth problems of large companies.

    First and foremost, I must understand that the challenge I face is a MARKETING challenge. The tech I’ve got covered. The resources too.

    If my company’s processes and my company’s values (defined as “the standards by which employees make choices involving prioritization”) are aligned with the marketing challenge, I’m in luck: chances are that for my company this new technology will eventually become a “sustaining” technology.

    I can get my wallet out and buy EARLY a couple of the new entrants. Early enough that my money is not buying process or values or culture, but merely assets/resources and ideally walking and talking resources (the founders) who will adopt the processes and values of my organization.

    Alternatively, I can carve out some great people from my organization and:

    1. Give them responsibility for the new technology and assign to them the task of identifying the customers for this new technology

    2. Match the size of this new subdivision to the current size of the market.

    3. Allow them to “discover” the size of the opportunity, rather than burden them with having to forecast it: “the ultimate uses or applications for disruptive technologies are unknowable in advance”

    4. Let them fail small, as many times as necessary

    That’s what IBM did when they ran their PC business out of Florida and what HP did when they realized ink jets would one day compete with laser printers!

    If, on the other hand, my company’s processes or my company’s values are not aligned with the marketing challenge, then I need to buy a leader in the new technology, and have a finger in every pie. And I need to protect my acquired company from my organization. This is, obviously, a bigger challenge (and one my shareholders may not embrace, as their dollars are as good as mine, but the author stays away from this discussion!) As the succession in technologies plays out, I will then eliminate large parts of my current organization. The author cites an occasion on which this is exactly how things played out.

    And there you have it! I think that’s the author’s answer to “The Innovator’s Dilemma”

    Obviously, that’s a very quick sketch. You’ll have to buy the book to see the complete story (and to be convinced, I suppose). Be warned that in the interest of keeping the various chapters self-consistent you may find some repetition, but overall this is a very quick read.

    I’m aware of people who really dislike Clayton Christensen. I’ve even come across a Twitter account that’s dedicated to trashing him. But I, for one, was convinced that he’s describing a valid concept with many applications.

    Also, as a guy who established a disruptive business within an established player I totally experienced both the dismay of my superiors when they realized that “small markets don’t solve the problems of large organizations” and the discomfort of trying to shoehorn my project into the rather baroque established processes.

    So I have lived through many of the steps the book describes and I reckon they are rendered very accurately. The research shows!

  • Glen

    Notes from Clayton Christenson, The Innovator’s Dilemma

    It pays to be a leader in a disruptive innovation

    • Leadership in sustaining innovations gives little advantage

    • Leadership in disruptive innovation creates enormous value

    But established companies typically fail in the face of disruptive change

    • Companies get organized to satisfy current customer’s needs and to facilitate design and production of current products. This organization can then prevent th

    Notes from Clayton Christenson, The Innovator’s Dilemma

    It pays to be a leader in a disruptive innovation

    • Leadership in sustaining innovations gives little advantage

    • Leadership in disruptive innovation creates enormous value

    But established companies typically fail in the face of disruptive change

    • Companies get organized to satisfy current customer’s needs and to facilitate design and production of current products. This organization can then prevent the organization most conducive to developing a disruptive product (Henderson and Clark).

    • Competencies developed for improving the current product may not be applicable for developing a disruptive product (Clark)

    • Above two theories don’t adequately describe what happened in disk drive and excavator industries. Value Networks explanation: Companies tend to invest in innovations that fit the needs of their “value network,” which defines the hierarchy of importance of characteristics for current customers. Current customers reinforce this by not needing the innovation. (Christenson)

    • New entrants find markets with different value networks for innovations

    • Companies are more likely to seek additional markets upward rather than downward because up-markets are defined and promise larger margins and the investment the companies have gotten used to making for product improvements demand higher margins. Also existing customers move up-market and take their suppliers with them. This leaves a vacuum below, e.g., flash memory instead of disk drives. [Basecamp instead of MS Project:]

    • New entrants also move up-market which brings them into competition with established companies. New entrants tend to improve faster than established companies and so they will eventually disrupt.

    • Middle managers avoid career risk of backing innovations for which no market or a down-market is identified. They screen out these opportunities so senior managers don’t even see them as an option. Even if a senior manager decides to pursue a potentially disruptive innovation, there will be resistance if not outright thwarting at the middle management layer (most likely passively through reluctance to allocate resources [see HBS case on Kodak).

    What established companies need to do

    • Be able to recognize and enter different value networks

    • Align disruptive innovation with the “right” customers by embedding the innovative project in a part of the organization (new if necessary) that serves the customers for the innovation and doesn’t have to meet same revenue/margin demands as incremental/sustaining innovation

    • Be prepared to go through an iterative process that is failure tolerant because forecasting the market is impossible. This process should be a learning process that goes beyond focus groups to actual observation of new customers and new applications.

    • Use the resources of the big organization but not its culture and processes

    • Don’t try to push the growth of an emerging market (Apple Newton) and don’t wait until the market is large enough to be interesting. Instead match the organization size to the growing market so that its goals are satisfied by the organically growing market and so it’s cycles match the rhythm of the market. Acquisition may be the solution.

    • Assess the capabilities of your organization and set up a structure (existing organization, lightweight teams, or heavyweight teams) that makes up for the deficiencies in the existing situation.

    [Note: these “recommendations are repeated by Govindarajan in 10 Rules for Strategic Innovators]

  • Nelson Zagalo

    A good book, but a bit disappointing because totally centred upon business managing. I would like to see the discussion occurring at a lower level, the creative moment, before management decisions. Leave here the five principles stated by Clayton in the book. I generally agree with all of them, being the fifth one the most subjective.

    "Principle #1: Companies Depend on Customers and Investors for Resources

    Principle #2: Small Markets Don’t Solve the Growth Needs of La

    A good book, but a bit disappointing because totally centred upon business managing. I would like to see the discussion occurring at a lower level, the creative moment, before management decisions. Leave here the five principles stated by Clayton in the book. I generally agree with all of them, being the fifth one the most subjective.

    "Principle #1: Companies Depend on Customers and Investors for Resources

    Principle #2: Small Markets Don’t Solve the Growth Needs of Large Companies

    Principle #3: Markets that Don’t Exist Can’t Be Analyzed

    Principle #4: An Organization’s Capabilities Define Its Disabilities

    Principle #5: Technology Supply May Not Equal Market Demand"

  • Mal Warwick

    Chances are, you’re reading this review on an example of disruptive technology. An iPhone or other smartphone. An iPad or a notebook computer. Or simply a laptop. Every one of these devices turned its industry upside down when it was introduced, driving established companies to the brink of insolvency, or even into oblivion, and paving the way for new actors to enter the landscape.

    Today, almost instinctively, we understand the concept of disruptive technology. But it wasn’t until aft

    Chances are, you’re reading this review on an example of disruptive technology. An iPhone or other smartphone. An iPad or a notebook computer. Or simply a laptop. Every one of these devices turned its industry upside down when it was introduced, driving established companies to the brink of insolvency, or even into oblivion, and paving the way for new actors to enter the landscape.

    Today, almost instinctively, we understand the concept of disruptive technology. But it wasn’t until after the publication in 1995 of an article by Clayton Christensen in the Harvard Business Review entitled “Disruptive technologies: catching the wave” that the term entered the language. That seminal article was followed in 1997 by Christensen’s pathfinding book, The Innovator’s Dilemma – one of the most influential business books of all time.

    Christensen, a long-time professor of business administration at the Harvard Business School, had found an answer to a question that had long mystified the business community: why had such iconic, well-managed firms as Digital Equipment Corporation, Xerox, and dozens of others that had long led their industries fallen by the wayside? The professor’s answer was not that they had simply gotten behind technologically but that they had done everything right — listening carefully to their best customers and catering to their needs by investing in sustaining technologies that offered customers added value. The problem was that the dictates of prudent business practice prevented them from investing in the sort of innovation that could turn their own industries upside down: disruptive technologies. In fact, Christensen wrote, “the only instances in which mainstream firms have successfully established a timely position in a disruptive technology were those in which the firms’ managers set up an autonomous organization charged with building a new and independent business around the disruptive technology . . . There is something about the way decisions get made in successful organizations that sows the seeds of eventual failure.”

    A decade and a half ago this was a shattering insight and it explains the acclaim that Christensen’s work has received throughout the world of business. However, if you turn to his book, The Innovator’s Dilemma, in search of deeper understanding of these concepts, you may be disappointed. I was.

    Sadly, this book is organized and written in a style that reeks of old-fashioned academia. Chapter One, an introduction of sorts, sums up the book as a whole — in 26 tedious pages, explaining in detail what the reader will find, chapter by chapter. First, Chapter One briefly outlines what the book will reveal, then proceeds to repeat each point in detail. Then, as though that isn’t enough, each chapter repeats the same points, adding considerably more detail. The final chapter repeats each of the major points — again. The repetition is maddening. And so is the overuse of the passive tense, which abounds throughout. Compounding the problem are the long-winded explanations of such things as how disk drives work and the distinction between thin-film technology and ferrite-oxide technology in disk drives’ read/write heads. All this material, no doubt necessary to “prove” Christensen’s thesis to his academic peers (some of whom are still not convinced), gives the book the charm and box-office appeal of a PhD dissertation about the influence of the Greek concept of the soul in 13th Century French literature.

    If all you want is to get to the meat of this book and avoid slogging through endless detail about matters only an engineer could love, read the first chapter and the last one. Forget the rest. You’ll thank me.

  • Calsee

    This book was on my list of "Books I should read" for a long time. Maybe this is why it was so disappointing, or maybe I've just read too many modern case studies of business models to find this engaging. It was interesting to read about the origins of many terms that I take for granted (i.e. disruptive technology), but I couldn't really relate any of the examples or theory beyond anything that's already been mentioned by other more recent authors. And its hard for a 20-something to relate to th

    This book was on my list of "Books I should read" for a long time. Maybe this is why it was so disappointing, or maybe I've just read too many modern case studies of business models to find this engaging. It was interesting to read about the origins of many terms that I take for granted (i.e. disruptive technology), but I couldn't really relate any of the examples or theory beyond anything that's already been mentioned by other more recent authors. And its hard for a 20-something to relate to the modernity of disc drives.

  • Gabriel Pinkus

    Sometimes, supply creates demand.

    That’s my summary of the book.

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