Innovators Dilemma By Clayton M.

Christensen
Presented By Rutu Shah Khushboo Kothari

Innovation
The word innovation derives from the Latin word innovatus, which is the noun form of innovare to renew or change.

Innovation is the creation of better or more effective products, processes, services, technologies, or ideas that are accepted by markets, governments, and society. Innovation differs from invention in that innovation refers to the use of a new idea or method, whereas invention refers more directly to the creation of the idea or method itself. The act of introducing something new (the american heritage dictionary)
A new idea, method or device (Webster online)

Change that creates a new dimension of performance (Peter Drucker)

Innovation
The ability to deliver new value to a customer (Jose Campos) Innovation is the way of transforming the resources of an enterprise through the creativity of people into new resources and wealth (Paul Schumann) Seminal researcher Gabriel Tarde defined the innovation-decision process as a series of steps that includes: First knowledge Forming an attitude A decision to adopt or reject Implementation and use Confirmation of the decision

Types of Innovation
Sustaining Innovation An innovation that does not affect existing markets.

Evolutionary Innovation An innovation that improves a product in an existing market in ways that customers are expecting. (E.g., fuel injection) Revolutionary Innovation - (discontinuous, radical) An innovation that is unexpected, but nevertheless does not affect existing markets. (E.g., the automobile) Disruptive Innovation An innovation that creates a new market by applying a different set of values, which ultimately (and unexpectedly) overtakes an existing market. (E.g., the lower priced Ford Model T)

Disruptive Innovation
Christensen argues that disruptive innovations can hurt successful, well managed companies that are responsive to their customers and have excellent research and development. These companies tend to ignore the markets most susceptible to disruptive innovations, because the markets have very tight profit margins and are too small to provide a good growth rate to and established (sizable) firm. Thus disruptive technology provides an example of when the common business-world advice to "focus on the customer" ("stay close to the customer", "listen to the customer") can sometimes be strategically counterproductive. Christensen distinguishes between "low-end disruption" which targets customers who do not need the full performance valued by customers at the high end of the market and "new-market disruption" which targets customers who have needs that were previously unserved by existing incumbents.

Disruptive Innovation
Low-End Disruption At the low end of the market, are the customers who would want to purchase a product with less, but good enough, performance if they could pay a lower price? Can a business model be created which allows for attractive profits at the price needed to win the business of these customers? New-Market Disruption Is there a large group of potential customers who have not historically had the resources to do this thing for themselves and have gone without it or have needed to pay someone else to provide it to them? To use the current product or service, do customers need to go to an inconvenient, centralized location?

How low end disruption occurs over time

How low end disruption occurs over timeat which products improve exceeds "Low-end disruption" occurs when the rate
the rate at which customers can adopt the new performance. Therefore, at some point the performance of the product overshoots the needs of certain customer segments. At this point, a disruptive technology may enter the market and provide a product which has lower performance than the incumbent but which exceeds the requirements of certain segments, thereby gaining a foothold in the market. In low-end disruption, the disruptor is focused initially on serving the least profitable customer, who is happy with a good enough product. This type of customer is not willing to pay premium for enhancements in product functionality. Once the disruptor has gained foot hold in this customer segment, it seeks to improve its profit margin. To get higher profit margins, the disruptor needs to enter the segment where the customer is willing to pay a little more for higher quality.

How low end disruption occurs over time

To ensure this quality in its product, the disruptor needs to innovate. The incumbent will not do much to retain its share in a not so profitable segment, and will move up-market and focus on its more attractive customers. After a number of such encounters, the incumbent is squeezed into smaller markets than it was previously serving. And then finally the disruptive technology meets the demands of the most profitable segment and drives the established company out of the market. "New market disruption" occurs when a product fits a new or emerging market segment that is not being served by existing incumbents in the industry.

Example
Innovation Disrupted Market 8 inch 14 inch floppy disk floppy drive disk drive Notes The floppy disk drive market has had unusually large changes in market share over the past fifty years. According to Clayton M. Christensen's research, the cause of this instability was a repeating pattern of disruptive innovations. For example, in 1981, the old 8 inch drives (used in mini computers) were "vastly superior" to the new 5.25 inch drives (used in desktop computers).However, 8 inch drives were not affordable for the new desktop machines. The simple 5.25 inch drive, assembled from technologically inferior "off-theshelf" components, was an "innovation" only in the sense that it was new. However, as this market grew and the drives improved, the companies that manufactured them eventually triumphed while many of the existing manufacturers of eight inch drives fell behind.

5.25 inch 8 inch floppy disk floppy drive disk drive

3.5 inch 5.25 inch floppy disk floppy drive disk drive CDs and USB flash drives 3.5 inch floppy disk drive

A Disruptive Technology Change : The 5.25 inch Winchester Disk Drive (1981)
Attribute 8 Inch Drives (Minicomputer Market) 60 5.25 Inch Drives (Desktop Computer Market) 10

Capacity (Megabytes)

Physical Volume (cubic inches)

Weight (pounds) Access Time (milliseconds) Cost per megabyte Unit Cost

566
21 30 $50 $3000

150
6 160 $200 $2000

Examples
Established Technology Wireline Telephony Standard textbooks Open Surgery Cardiac surgery Offset printing Printed greeting cards Graduate school of management Classroom and campus-based instruction Disruptive Technology Mobile Telephony Custom-assembled, modular digital textbooks Arthroscopic and endoscopic surgery Angioplasty Digital PRINTING Free greeting cards, downloadable over the internet Corporate universities and in-house management training programs Distance education, typically enabled by the internet

Examples
Established Technology Analogue Radio Desktop Calculators Cathod Ray Tube (CRT) Integrated Steel Mills Disruptive Technology Transistor Radio Pocket Calculators LCD TV Minimills (The minimill technology used scrap, put it in a furnace and made new steel. This was cheap and low quality steel. The integrated steel companies were more than happy to get rid of this low margin business and instead focus on high end. So they did, but slowly and steadily, the minimill technology offered better steel quality and captured segment after segment. Eventually integrated steel mills started to suffer badly.)

Principles of Disruptive Technology

Companies depend on customers and investors for resources In order to survive, companies must provide customers and investors with the products, services and the profit that require. The highest performing companies, therefore, have well-developed systems for killing ideas that their customers dont want. As a result, these companies find it very difficult to invest adequate resources in disruptive technologies lower margin opportunities that their customers dont want until their customers want them. And by then it is too late. Markets that dont exist cant be analyzed Sound market research and good planning followed by execution according to plan are the hallmarks of good management. But companies whose investment processes demand quantification of market size and financial returns before they can enter a market get paralyzed when faced with disruptive technologies because they demand data on markets that dont yet exist

Principles of Disruptive Technology

Technology supply may not equal market demand Although disruptive technologies can initially be used only in small markets, they eventually become competitive in mainstream markets. This is because the pace of technological progress often exceeds the rate of improvement that mainstream customers want or can absorb. As a result the products that are currently in the mainstream eventually will overshoot the performance that mainstream markets demand, while the disruptive technologies that underperform relative to customer expectations in the mainstream market today may become directly competitive tomorrow. Once two or more products are offering adequate performance, customers will find another criteria for choosing. There criteria tend to move toward reliability, convenience, and price, all of which are areas in which the newer technologies often have advantages.

Principles of Disruptive Technology

Small markets dont solve the growth needs of large companies To maintain share prices and create internal opportunities for their employees, successful companies need to grow. It isnt necessary that they increase their growth rates, but they must maintain them. And as they get larger, they need increasing amounts of new revenue just to maintain the same growth rate. Therefore, it becomes progressively more difficult for them to enter the newer, smaller markets that are destined to become the large markets of the future. To maintain their growth rates, they must focus on large markets.

Advice to managers faced with disruptive technologies

Give responsibility for disruptive technologies to organizations whose customers need them so that resources flow with them. Set up a separate organization small enough to get excited by small gains. Plan for failure. Dont bet all your resources on being right the first time. Think of your initial efforts at commercializing disruptive technology as learning opportunities. Make revisions as you gather data. Dont count on breakthroughs. Move ahead early and find the market for the current attributes of the technology. You will find it outside the current mainstream market. You will also find that the attributes that make disruptive technologies unattractive to mainstream markets are the attributes on which the new markets will be built