The Innovator's Dilemma: 
When New Technologies Cause Great Firms to Fail 

"The Innovator's Dilemma has become the book to read among mainstream managers trying to dope out an Internet strategy." - New York Times

In every industry, there are companies that exhibit an almost uncanny ability to meet the needs of their customers, embrace innovative approaches to production, marketing, and investment, and employ managerial principles that encourage consistent performance improvements in products and services. Digital Equipment Corporation, IBM, U.S. Steel, Sears, and Eli Lilly are among the well-known, highly respected firms that demonstrated these qualities and rose to the top of their respective industries. They are also companies whose downfalls some temporary, some permanent sent shock waves through the economic community. THE INNOVATOR'S DILEMMA: When New
Technologies Cause Great Firms to Fail (HarperBusiness; May 2000, updated for the first time in paperback with a new chapter discussing how to appraise your organization's capabilities and disabilities, explains why good business practices can send companies into a precipitous decline and reveals how other companies can avoid a similar fate.

Written by Clayton M. Christensen, a professor of business administration at the Harvard Business School, with a joint appointment in the Technology & Operations Management and General Management faculty groups, THE INNOVATOR'S DILEMMA focuses on the critical distinction between sustaining technologies that enhance current trends in an industry and disruptive technologies innovations that herald the wave of the future. Christensen tracks the patterns of innovation in a variety of industries and describes both the processes through which disruptive technologies supplant older technologies and the forces that prevent well-managed companies from developing disruptive technologies until it is too late. He shows why the emphasis on creating better, more expensive products, earning higher profits and margins, and expanding market reach the guiding principles of industry leadership dictates against investing aggressively in disruptive technologies, which are generally cheaper and simpler; are initially commercialized in emerging or insignificant markets; and are rejected by the most profitable customers, who are unable or unwilling to adopt unconventional products. 

How can companies win in the long-run without neglecting the realities of their day-to-day markets and the immediate needs of their customers? THE INNOVATOR'S DILEMMA identifies the five laws of disruptive technologies and reveals how managers can harness their power:

Companies Depend on Customers and Investors for Resources: 
Well-run companies find it difficult to allocate resources for products that fly in the face of mainstream demands. In order to get essential resources for disruptive technology, savvy managers align the unorthodox product with the "fringe" customers who can put it to immediate use. As customer demand increases, more resources flow toward the development of the disruptive technology. For example, when employees at Quantum Corporation, a leading maker of 8-inch drives used in the minicomputer industry, recognized an emerging market for the 3.5-inch drives that powered personal computers, a separate company was set up to commercialize the smaller drives. In 10 years time, the market for 8-inch drives had disappeared, and Quantum, through its wholly-owned spin-off venture, emerged as the largest unit-volume producer of disk drives in the world. 

Small Markets Don't Solve the Growth Needs of Large Companies: 
Influenced by the need to maintain share prices and to create opportunities for employees, most large companies adopt a strategy of waiting until new markets are "large enough to be interesting," leaving the door wide open to quick-acting start-ups. Placing responsibility in organizations small enough to get excited about small opportunities and small wins while the mainstream company is growing gives managers the best of both world. Johnson & Johnson has had great success with this strategy. Made up of 180 autonomously operating companies, it has launched products of disruptive technologies through several small enterprises acquired specifically for that purpose.

Markets that Don't Exist Can't Be Analyzed: 
Christensen writes "the only thing we may know for sure when we read experts' forecasts about how large emerging markets will become is that they're wrong." The innovator's dilemma is how to grasp the essential first-mover advantage when virtually nothing is known about the potential market. The key is planning to fail early and inexpensively in the search for a market. Honda's invasion of the North American motorcycle industry reflects this process of trial and error perfectly. Planning to introduce a fast, high-powered motorcycle in the US in 1959, Honda discovered an untapped market for small, inexpensive motorized bikes and created an ad campaign tailored to a market very different from the established network in which Harley-Davidson, BMW, and other traditional motorcycle manufacturers competed. The 50cc motorbike, a disruptive technology in the American market, fueled Honda's growth; by 1975, the company had captured a substantial share of the market with annual sales of 5,000,000 units largely with a product it had not even foreseen in its initial planning.

An Organization's Capabilities Define its Disabilities: 
When managers tackle an Innovation problem they instinctively work to assign capable people to the job. But once they've found the right people, too many managers assume that the organization in which they'll work will also be capable of succeeding at the task. And that is dangerous because organizations have capabilities that exist independently of the people who work within them. An organization's capabilities reside in two places. The first is in its processes the methods by which people have learned to transform inputs of labor, energy, materials,  information, cash and technology into outputs of higher value. The second is in the organization's values, which are the criteria that managers and employees in the organization use when making prioritization decisions. People are quite flexible, in that they can be trained to succeed at different things. An employee of IBM, for example, can readily change the way he or she works, in order to work successfully in a small start-up company. But processes and values are not flexible. A process that is effective in the design of minicomputer, for example, would be ineffective in the design of a desktop personal computer. Similarly, values that cause employees to prioritize
projects to develop high-margin products, cannot simultaneously accord priority to low-margin products. The very processes and values that constitute an organization's capabilities in one context, define its dis-abilities in another context.

Technology Supply May Not Equal Market Demand: 
The attributes that make disruptive technologies unattractive in the mainstream market are often the very ones that constitute their great value in emerging markets. In markets as diverse as disk drives, accounting software, and diabetes care, Christensen shows how the basis of competition changed when the performance of two or more products improved beyond what customers required. In these situations, convenience and price become the ultimate considerations, opening a doorway for disruptive technologies. Instead of racing toward higher performance and higher margins, companies who want to stay on top need to be aware of what their mainstream customers value at each stage of a product's life cycle, and be prepared to introduce more convenient, lower cost products into established markets when competitive environment demands them. 

A radical new approach to management, THE INNOVATOR'S DILEMMA is one of the most talked-about books in recent years. Its cogent, lucid analyses of the strengths and weaknesses of good-business practices presents vital guidelines every manager can use to judge when conventional management rules are appropriate and when it is essential to adopt the principles of disruptive innovation. To subscribe to the Innovator's Dilemma online newsletter please see www.innosight.com.

A new readers' guide is featured in the back of the revised paperback edition. 

More Praise for THE INNOVATOR'S DILEMMA:

"This book addresses a tough problem that most successful companies will face eventually. It's lucid, analytical and scary." -Dr. Andrew S. Grove, Chairman and CEO, Intel Corporation

"Absolutely brilliant. Clayton Christensen provides an insightful analysis of changing technology and its importance to a company's future success." -Michael R. Bloomberg, CEO and Founder, Bloomberg Financial Markets

ABOUT THE AUTHOR:
Clayton M. Christensen is a professor of business administration at the Harvard Business School, with a joint appointment in the Technology & Operations Management and General Management faculty groups. His research and teaching interests center on the management of technological innovation, developing organizational capabilities, and finding new markets for new technologies. Visit his website at www.claytonchristensen.com.

ABOUT THE BOOK
TITLE: THE INNOVATOR'S DILEMMA
SUBTITLE: When New Technologies Cause Great Firms to Fail
AUTHOR: Clayton M. Christensen
PUBLICATION DATE: May 2000
ISBN#: 0-06-662069-4
PRICE: $16.00 

Excerpts and ordering information are available at HarperBusiness.

   


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