59 pages • 1 hour read
Clayton M. ChristensenThe Innovator's Dilemma: When New Technologies Cause Great Firms to Fail
Nonfiction | Book | Adult | Published in 1997A modern alternative to SparkNotes and CliffsNotes, SuperSummary offers high-quality Study Guides with detailed chapter summaries and analysis of major themes, characters, and more.
Themes
The Influence of Underserved Markets
One of the pervading issues that Clayton M. Christensen points out across different industries is the failure to appreciate the long-term value of an emerging market. He explains that this is, for the most part, a sensible management decision. These markets are unable to satisfy the business requirements of large companies. Likewise, these companies must obey the principle of resource dependence in order to survive. However, given the patterns that result from innovation, that survival is ultimately short-lived, and the strategy is likewise myopic. Established firms can only delay the arrival of entrant firms in their market, and by then, it will be too late for them to stay abreast of the changes. Christensen therefore suggests that one of the best investments an established firm can make is found in an undiscovered market.
By their very nature, undiscovered markets are underserved. Christensen implies this idea when he refers to the need to create a new market or value network. When he discusses Honda’s success story in the North American market, he frames it as a discovery on the part of both the supplier and the customer. Before Honda arrived, there was simply no market for off-road dirt bikes. But when customers voiced their interest in the product, they formed a community linked by their shared interest, which resonates with the cordial marketing campaign that Honda eventually adopted to characterize their bikes. With the arrival of Honda, a capable firm could finally cater to that underserved interest. The other emerging markets discussed throughout the book could be viewed through the same lens. Before the backhoe was commercialized, for example, no one was catering to the residential sewage market, which had to rely on inferior tools and methods. The same goes for the markets that would eventually benefit from the presence of smaller computers, for the very first computer models available were too big to be placed anywhere except in a laboratory. Years later, the recognition of these underserved markets would result in the personal digital assistant business, where computers were small enough to fit in the customer’s hand.
By driving the value of emerging, underserved markets, Christensen teases out a vision of the economy that offers a wide range of goods and services that cater to the interests of many rather than the interests of a few. This vision is bolstered by his observation about the passive approach that established firms adopt toward innovation. He also observes their upmarket retreat at the threat of network invasion, a pattern that firmly places the priority of companies in acquiring resources rather than in satisfying market needs. The need to invest in emerging markets to leverage disruptive technology shifts the basis of competition away from resource access and toward diversification. Companies are therefore challenged to see how well each one can activate and adapt to new customers.
The Importance of Being Agile
The overarching message of The Innovator’s Dilemma is to reject the passive approach to innovation that characterized many of the leading companies in the disk drive industry, as well as the other failed businesses discussed in the book. To survive and succeed in a disruptive economy, Christensen posits that companies must adopt a critical perspective of the conditions and opportunities that surround them. With the various recommendations that Christensen makes, it is safe to say that there is no one-size-fits-all approach in business. Just as entrant firms utilize established business processes as a foundation for their own operations, established firms can leverage a stake in one or more entrant firms to manage disruption and stay on top of the market. This ultimately stresses the need for companies to be agile, adopting a responsive approach to changes in the market.
Agile organizations typically require managers and employees to adapt their values and processes to a new market situation as soon as it emerges. However, Christensen’s framework views values and processes as inflexible capabilities, which raises the question of how companies can practice being agile in the face of such rigidity. It is clear that the methods suggested throughout Part 2 are essentially aligned with agile principles. For instance, Christensen’s recurring suggestion that companies cede certain levels of control to autonomous organizations acknowledges the fact that that companies find it difficult to shift their processes once they are established. His suggestion also builds on that fact as a given. Similarly, when Christensen discusses the three strategies for managing market demand trajectories in Chapter 9, he stresses that no one option is necessarily better than the others. The best strategy only reveals itself when the company fully understands the context in which it is operating. That context includes static qualities like organizational rigidity and dynamic factors like the rate of product improvement in competitor firms.
Early in the book, Christensen calls attention to the innovators who pioneered flight technology. Distinguishing them from early experimenters who felt the key to flight was to mimic the movement of birds’ wings, Christensen explains that the only time they were able to break through their technological challenges was when they learned to take natural obstacles like gravity as a given. In doing so, they discovered other relevant laws that they could leverage to their advantage. This metaphor, which recurs throughout the book, becomes an apt symbol for the agile mindset as Christensen interprets it.
Seeing Opportunity in Risk
By urging companies to engage with low-margin markets, Christensen advises them to accept failure as a given and to build a strategy based on learning rather than on implementation as the market develops. On its face, the advice seems antithetical to conventional business practices, which avoid engaging with risk. Christensen’s advice may strike most business leaders as foolhardy, yet his research suggests the opposite, for he proves that good, conventional management approaches are precisely what contributed to the collapse of many market leaders. His argument is not necessarily a criticism of good management practices; instead, he issues a call for companies to reassess their assumptions of how markets work and how their aversion to risk impacts that dynamic.
Tellingly, Christensen explains in Chapter 2 that established firms usually pioneer the disruptive innovation but then divert their resources to higher-priority projects that resonate with their most valuable customers. While every business action bears some level of risk, the passive innovation mindset immediately sees high-risk actions as having little to no potential for profit. Christensen argues differently, saying that high risk does not automatically equate to loss. Just as each action has some level of risk, it must also be assessed for its opportunities, and the opportunities inherent in leveraging disruptive technologies are certainly unique in relation to other market offerings. In effect, the real liability is disregarding an opportunity simply because it appears to be dangerous.
Christensen’s observations of the disk drive industry show how the prevailing assumptions of risk resulted in massive upheavals of the market hierarchy. Among the firms whose stories are told, Seagate’s story recurs across various chapters because it is such a compelling example of an entrant firm that absorbed their established competitors’ flaws. Despite the fact that Seagate had already participated in one such upheaval during the emergence of the 5.25-inch drive, the company refused to see the value of the 3.5-inch drive until the market had grown to meet its business requirements. Their capabilities were so tied upon in developing one disruptive technology that they could not invest their resources in another organization that would help them to perfect the next technology. In other words, Seagate had developed the 5.25-inch drive as an entrant, but it failed to appreciate the advantages that its competitors would have once it became a market leader. As a result, Seagate failed to see the pattern of opportunity in a project that now looked risky.
In The Innovator’s Dilemma, Christensen’s intention is not to encourage companies to embrace risk as venture capitalists might. Instead, he urges companies to be more critical in their assessment of the surrounding market context. This is precisely why he suggests learning as an objective in the early stages of marketing, for doing so gives companies the information necessary to evaluate an opportunity despite its inherent risks.
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