The Innovator's Dilemma

 Book Review: 5/5 Impact On Me (Clayton M. Christensen)

Read more about the book here

I rate the impact of this book on me 5 out of 5. I was seeing some of these challenges at work when I read this. I have also referenced this book over the last 5 to 10 years many times even though I had not finished reading it before. Now that I have completed it with notes I can refer back to, I expect to use it even more in business and startup decisions.

The author's examples of Honda, Intel DRAM, hydraulic excavators, and Apple's multiple product launches were helpful.

Successful organizations

The same skills that make an organization succeed are also what hold it back. Its management and middle management layers are customer-centric. They only invest resources in what their customers want. They have a culture where everyone can make incremental decisions and incremental investments in products or features that current customers want. Disruptive innovations are usually lower quality for the current use case and serve a small market. A one-million-dollar company needs to find twenty million dollars of new revenue next year to grow by 20%. A one-billion-dollar company needs twenty billion dollars of growth to grow by 20%. So it gets harder and harder to focus on small emerging markets as a company grows if the same value structure applies.

Leans on hard disks

I used to wonder why The Innovator's Dilemma focused so much on hard disk and semiconductor improvements. Now I get it. You would rather study the reproduction of fruit flies than of elephants. Fruit flies reproduce fast so you can study variations faster. Similarly there was a lot of variation and quick innovation in the hard disk industry. There was also solid data. An independent analyst the author cited had collected and analyzed data from every hard disk on many technical specifications and business metrics.

Sustaining vs. disruptive innovation

When a technological innovation increases performance on the characteristics that existing customers demand, it is a sustaining innovation. Existing companies do those very well, often better than new entrants. When you develop a disruptive technology you need not worry about cannibalization at the start. At the start it does not have sufficient performance to meet the needs of your current target market. It satisfies the needs of a different, emerging niche market. But if your organization keeps its focus on the existing technology, the new technology will keep developing. Other companies will push technical feasibility. Eventually it will reach a point where it better serves your market. Then it will eat into your sales.

Engineering vs Marketing

I like the author's example of a marketing person and an engineering person each pitching an innovative idea. The marketing person will likely propose a sustaining innovation. The engineering person may propose a disruptive one.

Resource allocation

The best resource allocation processes are designed to make products for large markets, not for markets that do not exist yet. A middle manager will not be blamed for a technically failed product. But a lot more blame and poor judgment will be attributed if there was no market for what was built.

Moving upmarket

Not only disc drive makers were moving upmarket. Their customers, computer manufacturers, were also moving upmarket. So it was hard for anyone to justify building a technology that helped move them downmarket.

First mover: when it matters

I found it surprising that for sustaining innovations you do not need to be the first mover. You are already connected to the customers. Even if you are a little late, you will get it right for your customers. For disruptive technologies it is different. The process and cost structure are new. If you are not a first mover you lose out on some benefits.

Industry leaders

I like the example of companies that had developed the disruptive technology. The author says it is very common for industry leaders to develop disruptive technologies. But because they are stuck to their existing processes and customers they cannot find a market for it.

Capital and iteration for disruptive projects

When a company starts a small project in a disruptive technology, it is crucial that they have enough capital to run trials. That means the first attempt should be low budget so there is money left for further attempts. One thing is certain: you do not know enough about the market for a disruptive technology at the start. You find out when you try, learn, and get feedback. So you need enough credibility and capital left for follow-up iterations.

Spin-outs and acquisitions

Based on the author's explanation, Cisco's spin-out strategy and sometimes acquiring companies but not integrating them into the rest of the company are strong strategies. When you are acquiring a company, understand what value the firm is bringing. Is it their processes, their people, their technology, or their customers? If it is their processes, you do not want to integrate the company into yours. That would force your process system onto them and destroy the value you wanted.

When a new performance axis matters

Using the example of smaller hard disks that were more expensive per megabyte but had other features like resilience against drops, the author explains that as disruptive technologies develop, there comes a point where the disruptive technology and your existing technology are similar enough on one performance axis. Then another performance axis starts to matter for customer purchase.