My Thoughts on The Innovator’s Dilemma
The first edition of this book was published on 1997 and it is still as relevant as it can be.
The Innovators Dilemma by Clayton M. Christensen goes in an in depth study of many companies, big and small, in their attempt to grow and remain relevant in a rapidly evolving business environment.
There are two key concepts that every company has to deal with while trying to evolve their current business: Sustaining Innovation and Disruptive Innovation. Sustaining innovation refers to making changes to the current product to remain relevant (tweaks). These changes are generally features that the company’s market/users ask for or other competitors are already doing. They usually affect positively the current clients, but in particular, the biggest segment of profitable clients — making these changes even more enticing for the company.
Disruptive Innovations, on the other hand, are innovations that create a new market and value network that will eventually disrupt an already existing market and replace an existing product.
I can definitely see why it’s important for companies to innovate. However, I have my fair share of seeing failures while trying to innovate or even making small contributions that are seen as disruptive to the current business.
The main reasons companies resist of fail to innovate are the following:
There isn’t enough market share/need
Small markets don’t solve the growth needs of large companies. The ultimate uses or applications for disruptive technologies are unknowable in advance.
It’s not what their most profitable customers want
it is not just the customers of an established firm that hold it captive to their needs. Established firms are also captive to the financial structure and organizational culture inherent in the value network in which they compete — a captivity that can block any rationale for timely investment in the next wave of disruptive technology.
Fear of cannibalizing sales of existing products
By Innovating, we need to think completely differently than what we are used to. But when doing this, we may realize that the new idea may cannibalize the current offerings. Rather than getting scared and ignoring the solution, it’s better to embrace it and continue evolving the new thinking as cannibalization is a characteristic and result of disruptive innovations. Also, if you don’t do it, somebody else will and there’s something to be said about the first to market strategy.
It won’t yield the profits the company needs immediately
As a company gets bigger, growing by a percentage consistently is hard if not impossible to achieve. 5% of 1M is a lot less than when you’re company is worth 100M. Hence, finding products and innovations that can yield those results, becomes a lot harder. That is to say, don’t use that quote as a excuse not to innovate.
Lastly, here are some of my favourite quotes from the book:
executives in successful companies have learned about managing innovation is not relevant to disruptive technologies
There is a big difference between the failure of an idea and the failure of a firm.
Three classes of factors affect what an organization can and cannot do: its resources, its processes, and its values. When asking what sorts of innovations their organizations are and are not likely to be able to implement successfully, managers can learn a lot about capabilities by disaggre-gating their answers into these three categories
The larger and more complex a company becomes, the more important it is for senior managers to train employees at every level to make independent decisions about priorities that are consistent with the strategic direction and the business model of the company. A key metric of good management, in fact, is whether such clear and consistent values have permeated the organization
One of the bittersweet rewards of success is, in fact, that as companies become large, they literally lose the capability to enter small emerging markets. This disability is not because of a change in the resources within the companies — their resources typically are vast. Rather, it iRather, it is because their values change.
Stay tuned for a follow up post about the follow up book: The Innovator’s Solution in which Clayton M. Christensen and Michael E. Raynor look at ways in which companies can maximize their chances at succeeding and staying relevant.