The Innovators Dilemma by Clayton M' Christensen

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The Innovators Dilemmaby Clayton M. Christensen

• Logan Buchanan
• October 6, 2005

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Thesis

• Well-managed companies often fail because
  because the very management practices that have
  allowed them to become industry leaders also make
  it extremely difficult for them to develop the
  disruptive technologies that ultimately steal
  away their markets.
• p.265

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Overview

• Characteristics of goods companies
• Why they fail anyway
• Case studies
• How to succeed
• Related KM Issues

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What do good companies do well?

• Listen responsively to their customers
• Invest aggressively in the technology, products,
  and manufacturing capabilities that satisfied
  their customers future needs
• Seek higher margins
• Target larger markets rather than smaller ones

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Why do good companies fail?

• Good management
• The Dilemma The logical, competent decisions of
  management that are critical to the success of
  their companies are also the reasons why they
  lose their positions of leadership.

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Why good management can lead to failure

• Difference between sustaining and disruptive
  technologies
• The pace of technological progress often
  outstrips the needs of the market.
• Customers and financial structures of successful
  companies heavily influence the types of
  investments that appear attractive.

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Two Types of Innovations

• Sustaining
• Improve performance of established products
• Meet demands of mainstream customers in major
  markets
• Vary in difficulty, cost, time, etc.
• Established firms

• Disruptive
• Generally underperform established products in
  mainstream markets
• Have new features that fringe / new customers
  value
• Cheaper, simpler, smaller, more convenient to use
• Entrant firms

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Why good management can lead to failure

• Difference between sustaining and disruptive
  technologies
• The pace of technological progress often
  outstrips the needs of the market.
• Customers and financial structures of successful
  companies heavily influence the types of
  investments that appear attractive.

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Market Need v. Technology Improvement

• Technologies can progress faster than demand
• Suppliers give customers more than they need or
  are willing to pay
• Allows room for underperforming disruptive
  technologies

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Why good management can lead to failure

• Difference between sustaining and disruptive
  technologies
• The pace of technological progress often
  outstrips the needs of the market.
• Customers and financial structures of successful
  companies heavily influence the types of
  investments that appear attractive.

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Disruptive Technologies v. Rational Investments

• Disruptive products are simpler and cheaper, and
  promise lower margins
• Disruptive technologies are first commercialized
  in emerging or insignificant markets
• Most profitable current customers are not
  interested in the product

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Case Studies

• Primary takes examples from the disk drive
  industry. Equates this to studying fruit flies
• Steel minimills
• Mechanical excavator industry
• Motorcycles
• Insulin
• Department and discount stores

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Disruptive Technological Change in the Mechanical
Excavator Industry

• Leading firms have successfully adopted a series
  of sustaining innovations
• Almost the entire population of mechanical
  shovel manufacturers was wiped out by a
  disruptive technology hydraulics that the
  leaders customers and their economic structure
  had caused them initially to ignore

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Principles of disruptive innovation

• Companies depend on customers and investors for
  resources
• Small markets dont solve the growth needs of
  large companies
• Markets that do not exist cannot be analyzed
• An organizations capabilities define its
  disabilities
• Technology supply may not equal market demand

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• How did the successful managers harness these
  principles to their advantage?
• Embedded projects to develop and commercialize
  disruptive technologies within an organization
  whose customers needed them
• Projects in organizations small enough to get
  excited about small opportunities and wins
• Planned to fail early and inexpensively in the
  search for the markets for a disruptive
  technology
• Utilized the organizations resources, but
  maintained independent values and processes
• Found or developed new markets that valued the
  attributes of the disruptive products, rather
  than search for a technological breakthrough

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Related KM Issues

• Values Beliefs
• Values and beliefs are integral to knowledge,
  determining in large part what the knower sees,
  absorbs, and concludes from his observations
  The power of knowledge to organize, select,
  learn, and judge comes from values and beliefs as
  much as, and probably more than, from information
  and logic. - Davenport and Prusak, p 12
• Lost innovation
• Steve Jobs, Xerox PARC the graphical interface
  computer - Davenport and Prusak, p 59

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More KMS Issues

• Knowledge is the principle advantage, technology
  eventually evens out. (But can knowledge and
  organizational experience also be a hindrance?)
• Autonomous groups
• Management support is essential, creativity
  should be encouraged
• Organization size - large v. small
• Space and time are less of a constraint for
  sharing