Book Summary of The Innovator's Dilemma: The Revolutionary Book That Will Change The Way You Do Business

Introduction Part 1 Why Great Companies Can Fail 1. How Can Great Firms Fail? Insights from the Hard Disk Drive Industry 2. Value Networks and the Impetus to Innovate 3. Disruptive Technological Change in the Mechanical Excavator Industry 4. What Goes Up, Can't Go Down

Part 2 Managing Disruptive Technological Change 5. Give Responsibility for Disruptive Technologies to Organizations Whose Customers Need Them 6. Match the Size of the Organization to the Size of the Market 7. Discovering New and Emerging Markets 8. How to Appraise Your Organization's Capabilities and Disabilities 9. Performance Provided, Market Demand, and the Product Life Cycle 10. Managing Disruptive Technological Change: A Case Study 11. The Dilemmas of Innovation: A Summary

In this revolutionary bestseller, 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 example -- Christensen shows why most companies miss "the next great wave." Whether in electronics or retailing, a successful company with established products will get pushed aside unless managers know when to abandon traditional business practices. Using the lessons of successes and failures from leading companies, The Innovator's Dilemma presents a set of rules for capitalizing on the phenomenon of disruptive innovation. Find out:

When it is right not to listen to customers.

When to invest in developing lower-performance products that promise lower margins. When to pursue small markets at the expense of seemingly larger and more lucrative ones. About the Author Clayton M. Christensen, an associate professor of business administration at the Harvard Business School, is the coauthor of numerous articles in journals such as Research Policy, Strategic Management Journal, Industrial and Corporate Change, Business History Review, and Harvard Business Review.

The Innovator's Dilemma: The Revolutionary Book that Will Change the Way You Do Business (Collins Business Essentials)
Key Points

Disruptive technologies or innovations are innovations that upset the existing order of things in a particular industry. The usual process is a lower-end innovation that appeals to customers who are not served by the current market. With time, because the capacity/performance of the innovation exceeds the markets needs, the innovation comes to displace the market incumbents. Incumbents generally dont react to disruptive innovations until its too late, because they dont represent an interesting market, being low end and often low cost. One successful strategy might be to hive off a separate company within a company that is responsible for the firms response to the disruptive technology. A smaller, more nimble organization is better placed to work in the initially smaller and less lucrative market that the innovation is creating.

1st review Initially, Christensen examines why firms fail despite being leaders in their market, willing and able to compete with the best, and capable of continuous innovations within their industry. Sustaining technological changes are not the problem for leaders in an industry. Time and time again, they showed their ability to compete in the high end of their market, innovating and at times dealing with radical technological

changes. Yet, because these are sustaining innovations, they are almost always best utilized by the firms that already have the best position in an industry. These are changes that follow an s-curve, increasing performance as their customers come to expect. New market entrants attempting to compete by means of these sorts of innovations often fail, because the established firms nearly always have more money, more established relationships with clients, a better reputation, and more technological prowess in the market. The leaders did not fail because they became passive, arrogant, or risk-averse or because they couldnt keep up with the stunning rate of technological change. However, the story changes radically when it comes to what are called disruptive innovations - these are the changes that toppled the industry leaders. These are not radical improvements - quite the contrary, disruptive innovations are usually an innovation that are either so much cheaper that they open a new market, or start in a niche that the industry doesnt care about because its too small. However, often the performance of the disruptive technology grows faster than users needs, with time catching up to, and surpassing the more high-end or mainstream technologies that are the domain of industry leaders. An example that has nothing to do with high tech comes from the mechanical excavator industry. This industry was dominated by steam shovels until the 1920s, when gasoline powered engines began to replace them. This was, however, not a disruptive innovation, but a sustaining one, even though the design of the machines changed radically from that of a steam-powered system of cables, to that of a gasoline engine driving a system to extend and retract the cable connected to the bucket. The new engines were more capable than the old ones, and were better at doing more work more reliably, and cheaper than the old system. Despite the radical change in the industry, the same firms that were strongest in steam shovels stayed on top. The disruptive change came with the introduction of hydraulic-actuated systems after World War II - a change that eliminated nearly all of the established players by about 1970, in favor of companies that entered the market with hydraulics. The first hydraulic-based excavators were less capable than the cable systems that were in existence, and certainly couldnt compete with them. However, they were small enough that they could be deployed for jobs previously done by hand, opening up a new market, in which the desired attributes were quite different from the big jobs that the cable actuated excavators were used for. The technology involved in hydraulics continued to improve, however, and with time eventually equaled and then surpassed the needs formerly filled by cable-based systems. In the meantime, though, the established firms were still going strong, and didnt do much, if anything, to deal with the new competitor (because it wasnt really seen as a competitor, not being sufficient for their existing clients demands) until the new arrivals were in the midst of their mainstream market. By the time the established companies introduced their own hydraulics, however, it

was too late, and the later entrants were by then better positioned with the new technology. 2nd review Notes from Clayton Christenson, The Innovators 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 customers 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 dont 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 dont 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 doesnt 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 Dont try to push the growth of an emerging market (Apple Newton) and dont 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 its 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. 3rd review The central argument is that companies miss important new markets because they are structured to serve the needs of their most profitable customers where new 'disruptive' technologies often emerge from smaller markets who's customers needs are quite different. Eventually the smaller market catches up to the demands of the profitable customers and by that time has developed an insurmountable lead in the utility that its original customers demanded. The prime example of this kind of 'disruptive technology' is seen in disk drives where smaller low-cost, low-power technologies have consistently replaced larger more efficient disks. The new disks appealed to customers who needed less power and values the lower cost and size. As Christensen points out, existing companies have consistently missed these changes because their top customers continued to demand storage / $ until the 'disruptive' new technology eventually caught up with that demand. The same general pattern repeats itself in the steel industry and computer markets. It also repeats itself in Christensen's book which could easily have been 70% shorter w/o loosing any of its message. Still the basic point is great and it leads to some interesting ideas and recommendations: 1. Well structured companies will work to please their top customers regardless of executive orders. 2. Top customers might have different needs from smaller customers. 3. Smaller markets require nimbler company structures to enter. Big companies will find the benefits too small to justify their entry. The potential profitability of emerging markets is nearly impossible to assess correctly and so big companies can easily miss these waves. 4. As smaller markets grow their is the risk that they will overwhelm bigger

markets once the big market's performance needs are met. This is usually because they provide a cheaper, and easier to use product. 5. Often engineers are the only people in a company who anticipate the emergence of 'disruptive' technologies. In many cases their fights with marketing have led them to form new companies that end up usurping the companies they came from. If these engineers were funded by the company they came from and given the degree of independence necessary to succeed they might benefit the companies who cultivated their success This is a great book on innovation and how start-up and entrepreneurs ought to fashion their company to go against entrenched incumbents. 4th review 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. 5th review This was an interesting book and it was written in such a way that the conclusions were almost too obvioius. The author described two basic problems that he observed in a number of industries and successful companies. Successful companies pay attention to their customers, have a number of continuous improvement efforts and run their businesses in order to make as much money as possible. When new technologies arrive, these businesses evaluate them and incorporate them into their products if they are appropriate to their business strategy. The vast majority of improvements fit the "sustaining technology" framework. It is when the new technology is disruptive that there are problems. Disruptive technologies have a number of characteristics, but the main feature is that the new technology has advantages that cannot be measured by the current metrics. The hard drive industry went from measuring areal storage capacity to volume of the unit to power consumption. Each of these changes displaced manufacturers, who were not thinking about selling those aspects of their products. The same effect is shown in a number of industries. The other aspect of this is that the new technologies are in markets that are not profitable to the large, established companies for a number of reasons: low margins, unknown market, cannabillize sales. Or the profits of the new technology are "not enough" for the large companies with larger overhead. The obvious solution at this point is that the established companies should form a new company or new division that is separate from the rest of the organization to focus on the new technology. The best example of this is the IBM PC development house in Florida.

Another feature of how companies behave is that they tend to move into markets with higher margins so they can make more profits on their products. As this happens, they are more than willing to give away their "lower profit" centers in markets with lower margins. This is fine until there are no more markets to move into, and the companies that have moved into the lower markets establish themselves and develop their technology to the point that it fits in the higher markets. On the technology end, the author noted that technology generally progresses faster than the needs of customers. This allows the behavior noted above. It also creates situations where new products become commodities over time as their features extend beyond what the customer base needs and the customers begin to make purchase decisions on things like reliability and eventually price.

5th review Brilliant book about how certain kind of innovations can unseat the best companies, no matter how well-run and resource-rich they are. Noting that geneticists study fruit flies because of how quickly they reproduce, he bases his study in disk-drive manufacturers--the fruit flies of the business world. The book details how good companies are extremely successful at responding to "sustaining" innovations that are desired by their existing customers by taking extremely risky, long-term investments to bring these innovations to fruition even if they cannibalize current business. However, when faced with "disruptive" innovations that do not meet needs of their existing customers (though they may in the future), good management techniques lead companies away from developing these innovations. The results when the disruptive innovation finally meets the needs of the company's customers can be to unseat the company from market leadership with stunning speed.