When New Technologies Cause Great Firms to Fail
How can great companies fail when they get everything right? That’s the question Clayton Christensen attempts to answer in The Innovator’s Dilemma.
Managers, usually those from big, serious companies, should read some Douglas Adams before answering, or put their reports and assessment results in files with covers that have “Don’t Panic” printed in large, friendly letters on them.
Our book summary will guide you throughout the “Dilemma Process.”
Initially, Christensen explains why certain companies collapse despite having an important role in their market. Many of them simply rely on the production and operational activities which is a dangerous strategy.
That is not enough! The best firms must be able to compete in the stock market as well.
“The Innovator’s Dilemma” is promoting a continuous innovation process within any industry.
The world is evolving; the customers are constantly changing their needs, wants and demands. This happens due to the vast technological changes that occur daily in today’s society. Never blame technology for your failure, a brand must be one step ahead at any time!
How can you become a capable innovator if you cannot foresee what the technology future has in store for us? This book summary clearly indicates the connection between innovation and success; be a part of it!
Who Should Read “The Innovator’s Dilemma”? and Why?
“The Innovator’s Dilemma” is an unusual work intended to answer questions, clarify business mysteries and deal with the uncertainty that exists in today’s market.
Students known for their wild behavior especially those studying economy would find this book motivating and challenging that would test their knowledge to the limit.
This book is also adapted for all industries and businesspeople; it challenges the idea that a passive behavior(regarding innovation) from a company is unacceptable.
And who is this author that tries to enforce methods that can reduce cash deficiency and ultimately achieve long-term stability for small, medium and large companies, and what is his expertise?
Scroll down to find out.
About Clayton M. Christensen
Clayton Magleby Christensen was born on April 6, 1952, in Utah. He is an American-born scholar, author, economist, consultant that presently works as a professor at Harvard Business School that is an integral part of the Harvard University.
Above all Mr. Clayton M. Christensen is a professor and expert in joint appointments related to Management Operations, General Management and Technologies.
As a business administration – Doctor, Christensen advises companies and business to adapt to different business environments and fluctuating economies that are a severe threat to the business community.
According to many his “disruptive innovation” theory is currently on the pedestal as his best work which is often described as one of the most influencing business ideas of the 21st century.
The author used his expertise to write his book “The Innovator’s Dilemma” which has enjoyed a huge success worldwide. Stay with us, next, we present you the book’s summary.
“The Innovator’s Dilemma PDF Summary”
How can I, a big successful company, avoid extinction due to the rise of new, slick technologies that do everything I do better, faster, more reliable, and cheaper? Especially when these technologies start as timid, insecure, and doubtful teenagers?
Disruptive technologies typically are first commercialized in emerging or insignificant markets.
This is the question (well not this exactly, but you get the point) The Innovator’s Dilemma answers, using very succinct language.
It presents things in a scientific manner with a thorough analysis of the market, the products, and the managerial decision process. The conclusions are drawn on the basis of data analysis and graph plotting.
DISRUPTIVE TECHNOLOGIES / THE INNOVATOR’S DILEMMA
Innovator’s dilemma: the logical, competent decisions of management that are critical to the success of their companies are also the reasons why they lose their positions of leadership.
The basic idea is to construct a framework that’ll be valid for all types of industries at any given time. This framework describes the behavioral and decisional processes needed to survive disruptive changes.
Established companies have a hard time keeping up with the recent trends because they fail to acknowledge the necessity for revolution. Even if you dominate the market, you have to rely on innovations as a way of staying afloat.
This is not the 20th century! Profit-based organizations cannot outmaneuver nor overshadow customer-centric companies. Technological evolution demands your ingenuity and creativeness to solve problems.
Always being on the lookout for improvement, can give you the upper hand in a full-competitive battle. Outdated technologies are obstructing sales, production, management, marketing, you name it.
Any niche is in desperate need of modification, which can only be brought by minds who think alike. Goal-oriented individuals driven by forward-looking vision have no intentions in pursuing higher profit margins without planning.
The trick is that intuitive decisions and market planning only work for sustaining products or services – the ones based on an already existing basis.
Disruptive changes are the ones that hit the market from another angle, rendering the old products obsolete. They usually affect large organizations, rather ironically. But once Christensen starts presenting his case it becomes a logical, why-didn’t-I-think-of-that argument.
Large companies are handicapped by their own size. Just like the “dinosaurs” in Steven Kotler and Peter Diamandis’s Bold, these firms are slow to react, have their own procedures to follow, have their own culture and their own value system. These obstacles aren’t so easily overcome.
Usually, disruptive technologies start as promises. And like every promise, you don’t know if it can be kept until the right moment comes along.
The Innovator’s Dilemma is full of helpful examples. Honda wanted to release a small motorcycle – 50ccs – in the United States. America said they didn’t need it.
By accident, some young people saw the motorcycles and thought they seemed like perfect dirt track vehicles. So Honda had a disruptive model that initially didn’t have a market.
After the market was discovered it secured Honda’s position in the United States, and they went on to dominate the entire motorcycle market with very good management and planning.
Nobody knew that excavators – using a then-new hydraulic system – would be great for digging up small trenches that were perfect for residential buildings until someone tried selling the product and found a market for it.
Christensen structures his book into eleven chapters and two parts. The first part is dedicated to “Why Great Companies Fail”. It has examples from the disk drive and mechanical excavator industries.
The disk drive industry is a great guinea pig for studying disruptive versus sustaining technologies. The industry had an exponential growth, coupled with the similar evolution of computers and technologies that needed disk drives, and it makes for a very revealing read.
The mechanical industry suffered a slower-paced shock with the rise of hydraulics. Mechanical excavators switched technology and, after a while, the majority of mechanical excavator manufacturers ceased to exist.
Christensen proposes Five Principles of Disruptive Technologies:
- Companies depend on customers and investors for resources. Customers drive internal decision-making because companies are resource-dependent.
- Small markets don’t solve the growth needs of large companies. Large companies are not interested in small emerging markets, and they wait too long.
- Markets that don’t exist cannot be analyzed.
- An organization’s capabilities define its disabilities.
- Technology supply may NOT equal market demand.
Leading companies find it hard to explore areas of the market in which disruptive technologies are used in their respective beginnings. This is due to the lower gains they obtain using a young technology, which, on top of that, has the disadvantage of a virtually non-existing market.
While managers may think they control the flow of resources in their firms, in the end it is really customers and investors who dictate how money will be spent.
Part two is dedicated to solutions to this problem.
Managers faced with this problem should embed projects with disruptive technologies in an independent organization, which has no growth margin pressure to deal with and is happy to just sell something. This is important because it’s one of the key points in which sustaining and disruptive technologies differ.
Whereas for sustaining technologies being among the first to sell it isn’t a big priority, for disruptive changes being the first to sell is crucial.
The markets, in this case, being small, are very easily conquered. So the size of the organization should match the markets.
“The pace of technological progress can, and often does, outstrip what markets need.”
Another common mistake made by managers is when they set out sailing into the disruptive landscape, making plans and predictions and establishing growth rates.
These new markets are, by definition, unknowable. Managers should begin this kind of journey with the sense of discovery in mind. Failure should be expected, and data gathering should be the ultimate goal.
Managers also tend to think they can bypass the rule of the RPV (resource, process, value) model. For large, successful companies, resources (employees mainly) are not the main focus.
Instead, it’s all about processes and values – the means and, respectively, the goals of a company, not the people behind it. Also, another characteristic of values and processes versus resources is that the former is inflexible, whereas the latter can be easily changed.
That being said, it’s not surprising that making a big machine, with established processes and cultures that work towards a big margin gross, use the same approach it usually takes towards a small, unpredictable market is a big no-no.
Christensen then proceeds to put his knowledge and predictions to work with a thought experiment regarding a possible disruptive technology – electric cars (don’t forget the book was initially written in 1997).
He puts his framework where his mouth is to analyze the possible outcomes and a possible business strategy to approach this (then) pending technology.
At last, in the final chapter, we get the main conclusions of The Innovator’s Dilemma. Here are the main ideas of the seven “simple and sensible” insights of the book:
- First: Market progress is separate from technological progress. Customers don’t always know what they need.
- Second: Innovation requires resource allocation, which is extraordinarily difficult for disruptive technologies.
- Third: Disruptive technology needs a new market. Old customers are less relevant. Disruptive technology is a marketing problem, not a technological one.
- Fourth: Organizations have narrow capabilities. New markets enabled by disruptive technologies require very different capabilities.
- Fifth: Information required to make investment decisions doesn’t exist. Failure and iterative learning are required.
- Sixth: Disruptive innovations reward leaders.
- Seventh: Small entrant firms enjoy protection because they’re doing things that don’t make sense to the industry leaders.
Key Lessons from “The Innovator’s Dilemma”
- Innovation is not equal to the improvement
- Think Smart, don’t push too hard
- ROI is the most important concept for any Investor
Innovation is not equal to the improvement
Failure is not an obstacle; it is an indispensable part of success.
Christensen wants you to learn that your success doesn’t depend only on preparation, forecasting, marketing or effective business plan.
Your commitment and dedication are not enough to remain competitive on the market.
There are numerous occasions where a strongly developed company fails to fascinate its customers by constantly trying and pushing too hard, not realizing that even hard work doesn’t pay off all the time.
That is why “The Innovator’s Dilemma” makes you aware of the fact that even exceptional companies face failure and financial fiasco from time to time.
Sometimes the firms neglect economists and innovation experts and continue to do it in an old fashion way.
In fact, it’s quite the opposite, here you will understand that even if companies execute their activities flawlessly, have an excellent financial and operational management team and understand customer’s needs would probably increase their sales but even that doesn’t guarantee long-term prosperity.
Think Smart, don’t push too hard
Even the word Innovation cannot be explained in one or two sentences, however, according to many experts, there are several classifications, but here we are going to mention only two types of it: Sustaining and Disrupt Innovation.
The Sustaining Innovation is used by companies that wish to improve their existing, well-known and established products or services.
To do so, you must enhance customer’s experience by delivering the same product with higher value.
The Disrupt Innovation issues happen more than you can imagine.
Many businesspeople as we mentioned earlier by trying and pushing too hard somehow they find themselves in a position where their existing products have even lower value than they used to have.
ROI is the most important concept for any Investor
The people that know the company and its operations correctly are usually the managers.
However, the managers are not responsible for allocating firm’s investments, quite often that privilege belongs to the customers and their investors.
Every business is at risk from the start to the very end; even not taking a chance is a risk.
The companies must try to isolate themselves from Irreversible investments in disruptive technologies.
ROI is the core and substance to all that exists in the business world; wise investors would wait until a significant portion of the market demands specific product or service change so that they would minimize any unwanted economic failures by investing in valuable technologies.
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“The Innovator’s Dilemma” QuotesDisruptive technologies typically enable new markets to emerge. Click To Tweet To succeed consistently, good managers need to be skilled not just in choosing, training, and motivating the right people for the right job, but in choosing, building, and preparing the right organization for the job as well. Click To Tweet Disruptive technology should be framed as a marketing challenge, not a technological one. Click To Tweet When commercializing disruptive technologies, they found or developed new markets that valued the attributes of the disruptive products, rather than search for a technological breakthrough so that the disruptive product could compete… Click To Tweet Three classes of factors affect what an organization can and cannot do: its resources, its processes, and its values. Click To Tweet
Our Critical Review
The Innovator’s Dilemma is powerful; the examples also get to the point and are often amusing.
Most of the time people don’t know what it is they want until they see it. That’s why it’s so hard to develop new technologies, find a market for them, and make them a success.
The trial-and-error approach, with the mindset of “fail fast, fail early, fail often”, is risky by definition and isn’t on everyone’s menu.
Christensen’s book was a favorite of the late Steve Jobs and, whether you liked Jobs or not, that means something.
It’s one of the most important books on innovation ever written, and it has profound implications that the reader maybe not be able to see after the first read.
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