The Innovator's Dilemma: Disruptive Innovation Strategies for Companies Preparing for the Future (Revised Edition)

Author Clayton M. Christensen · Publisher Sejong Books · Published 2020-03-02 · ISBN 9788984077850

About the Book

Why have even the world's leading companies lost market dominance?
The impact and influence of this book

When the first edition of "The Innovator's Dilemma" was published in 1997, the idea of "disruptive innovation," which executives had never considered, caused a huge stir in the business world. The idea that only disruptive innovation, which breaks with the past and seeks new opportunities, would be the breakthrough for future growth was valid then and has become even more urgent 20 years later. This is because the instability of the real economy, stemming from the financial markets, shows no sign of resolution, and no one can predict what kind of innovation strategy should be adopted to overcome the current crisis.

This book is a guide that explores the dilemma faced by successful companies, who believe that innovation and technological advancement are essential for survival, but then reveals that this may not always be the case. It also teaches how to cope with rapidly changing technology.
History does not repeat itself. Only those who fail to learn from past experiences will continue to fail. We must be able to properly use what we have learned from the failures and successes of disruptive technologies in existing companies. Innovation should not be something done only when a crisis looms or when a sense of crisis is felt; rather, it should be a normal activity of the company.

The Birth of Disruptive Innovation: The Most Widely Known, Yet Often Misunderstood Concept

All previous innovations were sustaining innovations. They were strategies strictly focused on meeting the needs of existing customers, satisfying and impressing them. However, disruptive innovation, as discussed in this book, is a strategy that uses technology with much lower performance than what existing customers demand but shines in entirely different areas, attracting new segments of customers. Disruptive innovation occurs in both the rapidly changing disk drive industry and the relatively slower-changing excavator industry. The specific example of disk drives is given because, like fruit flies in a laboratory, generations change rapidly, allowing for "scientific" hypothesis testing.

When disruptive innovations first emerge, they almost always offer lower performance in features that mainstream consumers care about. However, companies with disruptive technologies ultimately uncover "hidden" customers and come to dominate the existing market. This book explains the process by which disruptive technology replaces past technologies and the difficulties companies face in developing such technologies. It deeply examines the innovator's dilemma, where companies aggressively invest in products and services desired by loyal customers yet ultimately fall into failure.

Customers don't even know what they want.
"Disruptive Innovation Strategies for Companies Preparing for the Future"

Several commonalities are found in the excellent companies that have lost market dominance. They lost their leading position precisely because they listened intently to the voices of existing customers, actively invested in developing new technologies that customers wanted, and only invested capital in innovations that promised better profits. The hidden meaning in this statement is that widely accepted good management principles today may actually be inappropriate depending on the situation. In other words, there are times when it is right to not listen to customers, to invest in developing lower-performing products, and to target niche markets.

This book demonstrates that the cause of failure for excellent companies was their executives' disregard for the principles of disruptive technology. Furthermore, to ensure comprehensive utility for the past, present, and future, the theory is developed in two parts. Part 1, chapters 1 to 4, presents an analysis of "why sound decisions by great managers lead companies to failure." Part 2 then proposes a disruptive innovation strategy to resolve this dilemma by concentrating appropriate resources on disruptive technologies that, in the short term, strengthen the company but ultimately lead to its downfall. The core of that strategy is as follows:

1. Don't depend on customers and investors.
For survival, companies listen to customers and investors and provide the products and services they want. However, the speed of technological development in companies is qualitatively different from the speed of market demand. That is, the rate of development that the market demands or can absorb may differ from the rate of development provided by technology. Products made using disruptive technology, which may seem useless to customers today, might perfectly satisfy consumers' needs tomorrow. Therefore, companies must recognize that customers cannot lead innovation. However, in a corporate culture that emphasizes customers and investors, it is difficult to invest appropriate resources in discarded ideas until customers want them. And by the time they do invest, it may be too late. A company's success or failure may depend on ideas discarded in its trash can. Therefore, technologies considered disruptive should be managed separately by establishing a dedicated organization. Managers should also remember that the biggest barrier to innovation was not technology or management ability, but management methods themselves.

2. Focus on small markets.
As companies grow larger, it becomes increasingly difficult to maintain the same growth rate as before. To sustain that growth rate, they must further increase their revenue. Therefore, it is difficult for them to enter current small markets that will become large markets in the future. This is because they must focus on large markets to maintain their growth rate. Even waiting for emerging markets to grow is too late. A separate organization created for disruptive technology should focus on small markets where even small contracts can create significant excitement, rather than large markets that require substantial profits. Small, independent organizations also have a higher chance of failure. However, they need the flexibility to fail on a small scale so they can try again. With less capital, the pressure on the organization to generate substantial profits for the mainstream market is also reduced. Instead, they will focus more on finding core customers who can maintain profitability.

3. Don't plan too much.
Perfect market research, good planning, and corresponding execution are typical characteristics of good management. However, companies that must quantify market size and profits during the investment process are bound to hesitate when faced with disruptive technologies. This is because market data related to disruptive technologies do not exist. Therefore, instead of focusing on who will want this product from the outset, companies should adopt a diverse exploratory and flexible approach in terms of investment in product design and manufacturing capabilities. While ideas related to disruptive technologies are often discarded, the business of creating new markets for those technologies is not just risky. Managers who can learn quickly and try again after attempting something new and failing can succeed by understanding the customers, market, and technology needed to commercialize disruptive innovation. Because there is no existing market for disruptive technologies, there is no fundamental need to take on significant challenges that would endanger the company. Therefore, a marketing challenge based on the premise of failure is absolutely necessary. If the initial direction was not correct, one can carefully proceed into the market based on what was learned during the entry process, while leaving resources to make corrections.

4. Individual capabilities and organizational capabilities are different.
Most managers try to entrust innovation to "capable" employees, believing they can successfully drive it. However, an organization has capabilities separate from the individuals working within it. Organizational capability exists in two places. One is the organization's processes, which refer to methods that enable high-value production through labor, energy, and technology. The other is the organization's values. This refers to the criteria used when setting priorities. An organization cannot think as flexibly as an individual. Therefore, to create organizational capabilities, it is necessary to create other organizations or acquire them, or to create new teams by drawing team boundaries.

5. Technology supply may not align with market demand.
Disruptive technologies usually start in small markets but ultimately enter mainstream markets. Moreover, once product performance improves beyond what customers desire, it ceases to be a significant factor. Now, the criteria for product selection shift from reliability and convenience, ultimately moving towards price. Therefore, only companies that closely understand the usage trends of mainstream customers will be able to accurately identify the point where the basis of competition changes in their operating market. Only disruptive innovation, which breaks with the past and seeks new opportunities for innovation, will be the breakthrough for future growth.

Professor Christensen points out five key points: "Don't depend on customers and investors," "Focus on small markets," "Don't plan too much," "Individual capabilities and organizational capabilities are different," and "Technology supply may not align with market demand." He demonstrates disruptive technologies that move in entirely different ways from acquisition to distribution, yet cooperate harmoniously. Through this book, you will understand the principles applicable to successful disruptive technologies and discover insights that can be used to create new markets and products.

Innovate "Innovation"
How to respond to disruptive technologies

Many companies still struggle to find disruptive technologies despite having strong technological capabilities, brands, distribution networks, and ample cash. This is because disruptive technologies rarely seem plausible during the crucial initial years of investment. Therefore, management continues to pursue sustaining technologies while erecting barriers to disruptive technologies. However, these barriers can be overcome. The dilemma faced by innovative companies due to the conflicting demands of sustaining and disruptive technologies can be resolved.

Managers must first understand the fundamental conflict between different technologies. Then, they must ensure that each organization's market position, economies of scale, and values align sufficiently with the power of customers. Disruptive innovation often requires not only the product itself but also a reorganization of the organizational structure. Now, when dealing with disruptive technologies, it is necessary to move in a completely different way from acquisition to distribution, while also having technologies that cooperate harmoniously. Only managers who understand the laws applicable to disruptive technologies leading to success and who know how to use them to create new markets and products will be able to effectively respond to the opportunities presented by disruptive technologies.

Table of Contents

Contents
Foreword

Part 1: Why Even Great Companies Fail
Chapter 1. How Great Companies Fail
Insights from the Drive Industry

Chapter 2. Value Networks and the Power of Innovation
How to Understand the Needs of Stakeholders in a Value Network

Chapter 3. Disruptive Technological Change in the Excavator Industry
Disruptive Technology in a Slow-Changing Industry

Chapter 4. Once You Go Up, You Can't Come Down
Problems That Good Management Cannot Solve

Part 2: Managing Disruptive Technological Change
Chapter 5. Give Responsibility to Organizations That Need Disruptive Technology
Coexistence of Sustaining and Disruptive Technologies

Chapter 6. Match Organizational Size to Market Size
The Correlation Between Company Size and Leadership in Disruptive Technology

Chapter 7. Discovering New Markets
Unpredictability and Inability to Move Down in Existing Companies

Chapter 8. How to Evaluate Organizational Capabilities
Creating an Organization That Adapts Well to Change

Chapter 9. Performance, Market Demand, Product Life Cycle
Key Characteristics of Disruptive Technology

Chapter 10. Managing Disruptive Technological Change: Case Studies
Creating an Organization That Achieves Disruptive Innovation

Chapter 11. Overall Summary
A Guide to The Innovator's Dilemma
Notes


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