The Innovator’s Dilema
by Clayton M. Christensen
The Innovator’s Dilema is a book about businesses that did all the right things, became prominent, and still found themselves being pushed out of competition/business. The primary focus confronts an alternative approach that “the right thing to do, isn’t always the right thing to do”…..according to business plans. When these companies began, they followed ideal & correct business plans. They found a product or need in a given market and filled it. These companies focused all their money and efforts on improving their existing products to satisfy their existing customer needs. While this does have sound logic, they lost sight of future growth due to technology. Instead of placing time & money into R&D of future products, they chose to improve the current product to its utmost. Although once that product reaches its peak (and often before), other smaller and often entry level companies began producing a product to replace it. Once the larger company sees the change in the market, it’s often too late for the large company to refocus and stay competitive. The book is a two part examination. The first part shows how disruptive technology and the logical business choices spell eventual failure for companies.
Executive Summary This business plan details the launch of a start-up company known as the Import Export Company (IEC). The company functions as a 'middleman' in purchasing housewares from manufacturers in China and reselling the products to retail buyers in the US and Canada. The Import Export Company is primarily an independent import / export business. The products we import from China are ...
The first part looks at the causation of established firms/companies to fail when faced with “Disruptive Technology” (new technology goods or services).
There are several reasons for this to occur, technology advances, manager’s choices, customer need/demand, and large scale company growth expectations.
Technology in itself is always advancing. They key for companies are to evolve their product to its utmost potential while ensuring the product is meeting the needs of its customer base. An S curve show the life trends of new and old technology. When the life cycle of new and old technology intersect, then it clearly shows when it is time to adopt the new technology. Companies eventually fail when they choose not to explore, fund, and produce new technologies. The excavator industry is a prime example. This industry began using steam, then cables on their excavating machines. Another disruptive technology of hydraulics’ emerged, but the small contractors & builder customer base was uninterested as it could not be used for their needs. Hydraulics’ were only applicable in the large earth moving equipment. The small contractors & builder customers based their needs on the reach and the amount of dirt. However when technology improved to the point where the reach and scoop improved beyond the cable machines, the customers now demanded the disruptive technology…..which now becomes the sustaining technology.
Companies choose not to fund Disruptive technology projects for very simple and logical reasons. First, the middle manager in the company has the choice of proposing the company fund a disruptive technology project (that usually has no current customer need/market) or fund a project that will improve a current “sustaining” technology (current technology that already has a customer base) that will more assuredly increase company revenues, company growth, etc. As manager’s raises and promotions are based on their performance & company performance, the managers almost always choose to present the project with the highest possibility of return. Therefore, the executives are usually unaware of a possible Disruptive Technology that may be on the horizon.
Bringing Information Technology into a Small Business Information technology has changed our lives greatly. Novelties such as television, internet, radio, cellular phones, etc., have affected the way we instruct, the way we buy, the way we keep ourselves knowledgeable, and also the way we view sports. Nowadays information technologies penetrate more and more fields of small business. That gives ...
Why do managers & companies follow customer demand? The answer is easy; it’s where the money comes from. Every company needs to meet the customer’s needs in order to stay in business. While this is the ideal philosophy to follow, it may not always be the right one. If a disruptive technology arises, the current customer base may have no need for it. But what isn’t considered is what the customer may need in the future. The author cites the disk drive industry as a prime example as its life cycle was as quick as a lightning flash compared to other industries.
The company also has more interest in funding advances in the current product as the company has expected growth to attain. Disruptive technology at best may have a small growth potential at the beginning. This small growth is not desirable to an established company. This is why most disruptive technology is brought to the market by entrant (beginning) companies…that are happy and satisfied with small returns and small growth.
The second half of the book focuses on how to avoid failures pointed out in the first half of the book. There are two choices a manager can make. First is he can fight the logical trend of allocating money towards future product expansion and company growth, where by re-allocating company resources (labor & money) toward possible upcoming disruptive technology. The major flaw with this is that it forces the company to abandon or under fund their successful (to date) product model. The second option is to create another division or company that will research, produce, and sell the potential disruptive technology. This second choice is preferred since the other division/company will almost always be smaller…..and have smaller growth & sales expectations. This also allows the company to invest in the disruptive technology while continuing to sell the customers what they currently need today. And if the disruptive technology takes over, then the company is prepared to transfer over to it and they don’t lose R&D time trying to beat competitors. The book lists Hewlett Packard ink jet & laser jet printing as an example. They created a separate company to produce and sell ink jet in case it became the dominant technology. The only thing to keep in mind is that the other company could put the original company out of business one day (if one technology replaces the other).
Research Article I. Title: Drain Brain II. Author: Scott Woolley III. Article Summary: There has been a talent exodus from AT&T, even though AT&T is one of the best and largest companies in the United States. There are several problems at AT&T they are: a: AT&T is no longer the regulated monopoly that it has thirty years ago, but it has a similar dilemma: a massive pile of assets ...
Disruptive technology is not always predictable, but will always be a part of business. While there are multiple causes for failure due to disruptive technology, the author cannot stress enough that the underlying theme is that the managers and companies were not flawed, irresponsible or wrong in their choices. They simply lost the initial vision that the company probably began with. If a company can maintain its initial vision, then they can facilitate ways to encourage large company growth while promoting disruptive technology to stay competitive.