Transcript The Innovator’s Dilemma by Clayton M. Christensen

The Innovator’s Dilemma
by Clayton M. Christensen
Logan Buchanan
October 6, 2005
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
Overview
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Characteristics of goods companies
Why they fail anyway
Case studies
How to succeed
Related KM Issues
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
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.
Why good management can lead
to failure
1. Difference between sustaining and
disruptive technologies
2. The pace of technological progress often
outstrips the needs of the market.
3. Customers and financial structures of
successful companies heavily influence
the types of investments that appear
attractive.
Two Types of Innovations
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•
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Sustaining
Improve performance of
established products
Meet demands of
mainstream customers in
major markets
Vary in difficulty, cost,
time, etc.
Established firms
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•
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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
Why good management can lead
to failure
1. Difference between sustaining and
disruptive technologies
2. The pace of technological progress often
outstrips the needs of the market.
3. Customers and financial structures of
successful companies heavily influence
the types of investments that appear
attractive.
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
Why good management can lead
to failure
1. Difference between sustaining and
disruptive technologies
2. The pace of technological progress often
outstrips the needs of the market.
3. Customers and financial structures of
successful companies heavily influence
the types of investments that appear
attractive.
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
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
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
Principles of disruptive
innovation
1. Companies depend on customers and investors
for resources
2. Small markets don’t solve the growth needs of
large companies
3. Markets that do not exist cannot be analyzed
4. An organization’s capabilities define its
disabilities
5. Technology supply may not equal market
demand
How did the successful managers harness
these principles to their advantage?
1. Embedded projects to develop and
commercialize disruptive technologies within
an organization whose customers needed
them
2. Projects in organizations small enough to get
excited about small opportunities and wins
3. Planned to fail early and inexpensively in the
search for the markets for a disruptive
technology
4. Utilized the organization’s resources, but
maintained independent values and processes
5. Found or developed new markets that valued
the attributes of the disruptive products, rather
than search for a technological breakthrough
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
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