If you scan the Internet for the best business books, you’ll invariably find late Prof Clayton Christensen’s The Innovator’s Dilemma on almost every list.
A business classic in its own right, this book is a required reading across many business schools even today. A great testament to its timeless wisdom.
My first tryst with The Innovator’s Dilemma happened in 2004 when my business statistics professor recommended it to the class.
The heavy business writing and all the graphs and charts in the book forced me into submission back then. After a few days of lugging through it, I deposited it back in the library. Little did I know then that I would have a 2nd tryst with the book some 16 years later.
What is the Innovator’s Dilemma?
When The Innovator’s Dilemma came out in 1997, it upended the entire conventional managerial paradigm.
Prof Christensen’s thesis was that most well-managed companies flounder in the face of disruptive technology precisely because they are well-managed.
This is a cause of dilemma for those who think that age-old paradigms stand pivotal to a company’s success.
To find proof-of-concept for his thesis, Prof Christensen investigated diverse industries such as disk drives, integrated steel mills, ground excavation, computer hardware, and software.
The Innovator’s Dilemma includes several case studies from these industries, all of which support the validity of Professor Christensen’s thesis.
Disruptive Innovation
The success of established firms predicates on doing things in ways that they have grown accustomed to doing over the years.
When competition comes along, these firms up the ante by offering better products or services to their customer base. These new offerings manifest incremental and sometimes, radical improvements which their existing customers appreciate.
The problems arise when a disruptive innovation emerges on the scene.
The key characteristic of disruptive tech is its ability to change the basis of competition given the fast speed of technological improvement it possesses.
Despite being affordable and user-friendly, such technology often seems unsuitable for the current customer base.
As a result, most incumbent firms either fail to pay it the attention the disruptive tech deserves or deal with it in an ineffectual manner.
The startups or small firms, owing to the low entry barriers, pick it up, attack the mainstream competition, and gradually, overthrow it.
The critical question that Prof Christensen addresses in his book is why established firms falter in the face of disruptive technology.
Why do established firms fail at disruptive technology?
Prof Christensen declares that the guiding actions that are responsible for a company’s ascension are also instrumental in its failure.
“Sound managerial decisions are at the very root of their impending fall from industry leadership.”
Prof Clayton Christensen
The underlying reason why big firms fail is that their managers play from the existing rulebook.
The thorny issue with disruptive tech is that in its initial days, the exact market for it is hard to predict.
Let’s say a small company invents a skateboard that can fly. At first, it might seem like a toy, not something serious. Big companies, making regular skateboards, might think, “Why bother with this flying version? Who’s going to use it?” This is because predicting who will want a flying skateboard is as tricky as guessing the end of a mystery novel before you’ve finished reading it.
For big companies, chasing after a customer base that seems as real as unicorns feels like jumping into a pool without knowing how to swim.
There are other impediments, too.
If you’re the CEO of a company making a good profit from selling cakes, why would you want to gamble on venturing into exotic pizzas that you are not sure will sell?
Would you stop selling cakes that give you a 30% profit margin per unit, to chase after a vague market that might only bring in a 15% profit? It doesn’t seem like a smart move, right?
Then, there is the issue of getting resources to pursue a disruptive innovation.
When the internal jostling for resources (people, cash, equipment) happens, projects targeted at current customers beat those targeted at markets that do not exist yet. This further deters managers.
Finally, there is the risk of taking on the ire of the C-suite in case the project fails.
All these reasons dissuade managers in established firms from foraying into disruptive technology.
Is it always an Advantage for small firms?
When large firms don’t dive into the disruption space, small firms or startups – for whom the entry barriers are low – do. Unlike their bigger counterparts, the prospects of lower margins don’t deter them.
Interestingly, however, entrant firms also suffer the same fate when they become big, entrenched players.
“Small markets cannot satisfy the near-term growth requirements of big organizations.”
Prof Clayton Christensen
Prof Christensen’s example of Newton – Apple’s PDA launched in 1993 is a good case in point. Even though Newton sold 140000 units within a year of its launch, it was widely considered a failure.
He explains that if it were the smaller Apple of 1979, selling 140000 units would have been seen as a victory, but for the giant Apple of the 90s, it was a thumping defeat. After all, it was no longer an entrant operating from the playbook of a startup.
“Smallness and independence confer certain advantages in innovation.“
Prof Clayton Christensen
How can big firms avoid failure?
It may appear to the reader that there is a biased argument against large organizations in the book.
In one of the chapters, Prof Christensen even declares that as companies become large, they lose the capability to enter small emerging markets.
However, in the later part of the book, he makes some important recommendations to big firms. These ideas could help them succeed as they venture into building a disruptive product. He instructs:
- Set up an autonomous unit for the commercialization of disruptive technology. IBM after having lost out the minicomputers battle to the entrant firm DEC, chose to embed desktop innovation in an autonomous vertical.
- Acquire early-stage tech startups whose main currency is their resources (engineers).
- No market research can tell how big the market for a disruptive product can be. Therefore, plan to learn, rather than planning to execute a preconceived strategy.
- Failure is inherent to disruptive innovation. You may not get it right the first time. Hence, conserve enough resources to have a second or third go at getting it right.
Is the book relevant today?
It has been more than two decades since the first edition of The Innovator’s Dilemma was published and nearly a decade since the last updated edition was released. A lot has changed since then.
Disruption is no longer the buzzword it once was.
The phrase disruptive innovation has been bastardized. It is applied in ways that stray far from Professor Christensen’s original theory.
Today any innovation doing the rounds is often dubbed disruptive innovation in common discourse. I have heard people label some internet fads as disruptions.
In recent years, the theory of The Innovator’s Dilemma has also come in for criticism from a few authors and journalists. Most of the criticism centres around the fact that the triumphant entrant firms mentioned in the book no longer exist, which proves Prof Christensen’s thesis faulty.
In my opinion, that is a weak basis for criticism.
Those firms don’t exist because they fell victim to their own success. They metamorphosed from nimble units into entrenched companies with rigid values and processes. This is what happened with Micropolis and Kmart.
Christensen himself has stated that most people claiming to understand disruptive innovation simply don’t:
“In our experience, too many people who speak of ‘disruption’ have not read a serious book or article on the subject … Many researchers, writers, and consultants use disruptive innovation to describe any situation in which an industry is shaken up and previously successful incumbents stumble.”
Conclusion
I truly believe that The Innovator’s Dilemma is a must-read book for anyone leading a team or a company. It doesn’t matter if you’re just beginning your journey or if you’ve been navigating the business world for years.
Professor Christensen’s insights are incredibly valuable, especially now, in a world where new inventions and ideas appear almost every day.
His book doesn’t just throw complex concepts at you. Instead, it guides you through the intricate dance of staying ahead in a fast-paced business environment. It shows that creating a winning formula in today’s world of business is tough because what works today might not work tomorrow.
You can expect to finish the book with greater knowledge of the business world. Whether you dream of launching a startup or want to inject new life into an established company, this book has lessons for everyone.
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