An interesting book, not just because it uses the HDD industry as a case study to analyse why only certain firms succeed at each technology change but because it expalins why great companies can't really do both sustaining and disruptive innovation inside the same organisation.
How the internal politics of good companies means that they are very good a focussing on what their customers want and killing ideas that distract from that goal. This leads them to an ever upward technology improvement at a rate faster than the bulk of the market needs. In turn this creates space below them for entrants with often simpler, cheaper technology that actually performs worse in eth established measures of performance but creates a new market segment that will eventually surpass teh original one.
It ends with a look at the electric vehicle market and prodicts that existing car firms will fail to promote the technology but a new start-up or a spin-off just might succeed.
Resource dependence: Customers effectively control the patterns of resource allocation in well-run companies. Small markets don’t solve the growth needs of large companies. The ultimate uses or applications for disruptive technologies are unknowable in advance. Failure is an intrinsic step toward success. Organizations have capabilities that exist independently of the capabilities of the people who work within them. Organizations’ capabilities reside in their processes and their values—and the very processes and values that constitute their core capabilities within the current business model also define their disabilities when confronted with disruption. Technology supply may not equal market demand. The attributes that make disruptive technologies unattractive in established markets often are the very ones that constitute their greatest value in emerging markets.Read more at location 2062 •
They placed projects to develop disruptive technologies in organizations small enough to get excited about small opportunities and small wins.Read more at location 2074 •
those who made the day-to-day resource allocation decisions in the company never saw the sense in investing the necessary money, time, and energy in low-margin products that their customers didn’t want. Higher-performance initiatives that promised up-scale margins, such as DEC’s super-fast Alpha microprocessor and its adventure into mainframe computers, captured the resources instead.Read more at location 2259 •
DEC was forced to straddle the two different cost structures intrinsic to two different value networks. It simply couldn’t hack away enough overhead cost to be competitive in low-end personal computers because it needed those costs to remain competitive in its higher-performance products.Read more at location 2263 •
It seems to be very difficult to manage the peaceful, unambiguous coexistence of two cost structures, and two models for how to make money, within a single company.Read more at location 2271 •
Managers who confront disruptive technological change must be leaders, not followers, in commercializing disruptive technologies. Doing so requires implanting the projects that are to develop such technologies in commercial organizations that match in size the market they are to address.Read more at location 2446 •
The evidence from the disk drive industry shows that creating new markets is significantly less risky and more rewarding than entering established markets against entrenched competition. But as companies become larger and more successful, it becomes even more difficult to enter emerging markets early enough.Read more at location 2451 •
It is, indeed, an innovator’s dilemma. Firms that sought growth by entering small, emerging markets logged twenty times the revenues of the firms pursuing growth in larger markets.Read more at location 2543 •
The firms on the left side seem to have made a sour bargain. They exchanged a market risk, the risk that an emerging market for the disruptive technology might not develop after all, for a competitive risk, the risk of entering markets against entrenched competition.Read more at location 2546 •
This problem is particularly vexing for big companies confronting disruptive technologies. Disruptive technologies facilitate the emergence of new markets, and there are no $800 million emerging markets. But it is precisely when emerging markets are small—when they are least attractive to large companies in search of big chunks of new revenue—that entry into them is so critical.Read more at location 2573 •
Because emerging markets are small by definition, the organizations competing in them must be able to become profitable at small scale. This is crucial because organizations or projects that are perceived as being profitable and successful can continue to attract financial and human resources both from their corporate parents and from capital markets. Initiatives perceived as failures have a difficult time attracting either.Read more at location 2625 •
Every innovation is difficult. That difficulty is compounded immeasurably, however, when a project is embedded in an organization in which most people are continually questioning why the project is being done at all. Projects make sense to people if they address the needs of important customers, if they positively impact the organization’s needs for profit and growth, and if participating in the project enhances the career opportunities of talented employees. When a project doesn’t have these characteristics, its manager spends much time and energy justifying why it merits resources and cannot manage the project as effectively. Frequently in such circumstances, the best people do not want to be associated with the project—and when things get tight, projects viewed as nonessential are the first to be canceled or postponed.Read more at location 2667 •
The reaction of some managers to the difficulty of correctly planning the markets for disruptive technologies is to work harder and plan smarter. While this approach works for sustaining innovations, it denies the evidence about the nature of disruptive ones. Amid all the uncertainty surrounding disruptive technologies, managers can always count on one anchor: Experts’ forecasts will always be wrong. It is simply impossible to predict with any useful degree of precision how disruptive products will be used or how large their markets will be. An important corollary is that, because markets for disruptive technologies are unpredictable, companies’ initial strategies for entering these markets will generally be wrong.Read more at location 3030 •
Rightly or wrongly, individual managers in most organizations believe that they cannot fail: If they champion a project that fails because the initial marketing plan was wrong, it will constitute a blotch on their track record, blocking their rise through the organization. Because failure is intrinsic to the process of finding new markets for disruptive technologies, the inability or unwillingness of individual managers to put their careers at risk acts as a powerful deterrent to the movement of established firms into the value networks created by those technologies.Read more at location 3058 •
opportunity. The notion that organizations have “core competencies” has been a popular one for much of the last decade. 1 In practice, however, most managers have found that the concept is sufficiently vague that some supposed “competence” can be cited in support of a bewildering variety of innovation proposals.Read more at location 3158 •
an opportunity that excites a small organization isn’t big enough to be interesting to a very large one. 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 is because their values change.Read more at location 3237 •
Despite beliefs spawned by popular change-management and reengineering programs, processes are not nearly as flexible or “trainable” as are resources—and values are even less so. The processes that make an organization good at outsourcing components cannot simultaneously make it good at developing and manufacturing components in-house. Values that focus an organization’s priorities on high-margin products cannot simultaneously focus priorities on low-margin products. This is why focused organizations perform so much better than unfocused ones: their processes and values are matched carefully with the set of tasks that need to be done.Read more at location 3344 •
Generally, once the performance level demanded of a particular attribute has been achieved, customers indicate their satiation by being less willing to pay a premium price for continued improvement in that attribute. Hence, performance oversupply triggers a shift in the basis of competition, and the criteria used by customers to choose one product over another changes to attributes for which market demands are not yet satisfied.Read more at location 3610 •
In the instances studied in this book, established firms confronted with disruptive technology typically viewed their primary development challenge as a technological one: to improve the disruptive technology enough that it suits known markets. In contrast, the firms that were most successful in commercializing a disruptive technology were those framing their primary development challenge as a marketing one: to build or find a market where product competition occurred along dimensions that favored the disruptive attributes of the product.Read more at location 3688 •
say. Watching how customers actually use a product provides much more reliable information than can be gleaned from a verbal interview or a focus group.Read more at location 3919 •
I would be careful to keep asking the right question: Will the trajectory of electric vehicle performance ever intersect the trajectory of market demands (as revealed in the way customers use cars)? Industry experts may contend that electric vehicles will never perform as well as gasoline-powered cars, in effect comparing the trajectories of the two technologies. They are probably correct. But, recalling the experience of their counterparts in the disk drive industry, they will have the right answer to the wrong question.Read more at location 3954 •
I would direct my marketers to focus on uncovering somewhere a group of buyers who have an undiscovered need for a vehicle that accelerates relatively slowly and can’t be driven farther than 100 miles!Read more at location 3982 •
I must therefore plan to be wrong and to learn what is right as fast as possible. 9 I cannot spend all of my resources or all of my organizational credibility on an all-or-nothing first-time bet,Read more at location 3994 •
dependence work for us rather than against us, but it would also address the principle that small markets cannot solve the growth or profit problems of large companies. For many years into the future, the market for electric vehicles will be so small that this business is unlikely to contribute significantly to the top or bottom lines of a major automaker’s income statement. Thus, since senior managers at these companies cannot be expected to focus either their priority attention or their priority resources on electric vehicles, the most talented managers and engineers would be unlikely to want to be associated with our project, which must inevitably be seen as a financially insignificant effort: To secure their own futures within the company, they naturally will want to work on mainstream programs, not peripheral ones.Read more at location 4138 •
If, on the other hand, my program is viewed by key people as nonessential to the organization’s growth and profitability, or even worse, is viewed as an idea that might erode profits, then even if the technology is simple, the project will fail.Read more at location 4152 •
We have learned in this book that in their straightforward search for profit and growth, some very capable executives in some extraordinarily successful companies, using the best managerial techniques, have led their firms toward failure. Yet companies must not throw out the capabilities, organizational structures, and decision-making processes that have made them successful in their mainstream markets just because they don’t work in the face of disruptive technological change. The vast majority of the innovation challenges they will face are sustaining in character, and these are just the sorts of innovations that these capabilities are designed to tackle.Read more at location 4265 •
I have found that many of life’s most useful insights are often quite simple. In retrospect, many of the findings of this book fit that mold: Initially they seemed somewhat counterintuitive, but as I came to understand them, the insights were revealed as simple and sensible. I review them here, in the hope that they will prove useful to those readers who may be wrestling with the innovator’s dilemmas.Read more at location 4271 •
First, the pace of progress that markets demand or can absorb may be different from the progress offered by technology. This means that products that do not appear to be useful to our customers today (that is, disruptive technologies) may squarely address their needs tomorrow.Read more at location 4275 •
Second, managing innovation mirrors the resource allocation process: Innovation proposals that get the funding and manpower they require may succeed; those given lower priority, whether formally or de facto, will starve for lack of resources and have little chance of success.Read more at location 4280 •
Third, just as there is a resource allocation side to every innovation problem, matching the market to the technology is another.Read more at location 4287 •
Disruptive technology should be framed as a marketing challenge, not a technological one.Read more at location 4293 •
Fourth, the capabilities of most organizations are far more specialized and context-specific than most managers are inclined to believe.Read more at location 4294 •
Fifth, in many instances, the information required to make large and decisive investments in the face of disruptive technology simply does not exist. It needs to be created through fast, inexpensive, and flexible forays into the market and the product.Read more at location 4304 •
Although the mortality rate for ideas about disruptive technologies is high, the overall business of creating new markets for disruptive technologies need not be inordinately risky. Managers who don’t bet the farm on their first idea, who leave room to try, fail, learn quickly, and try again, can succeed at developing the understanding of customers, markets, and technology needed to commercialize disruptive innovations.Read more at location 4310 •
Sixth, it is not wise to adopt a blanket technology strategy to be always a leader or always a follower. Companies need to take distinctly different postures depending on whether they are addressing a disruptive or a sustaining technology. Disruptive innovations entail significant first-mover advantages: Leadership is important. Sustaining situations, however, very often do not.Read more at location 4313 •
Seventh, and last, the research summarized in this book suggests that there are powerful barriers to entry and mobilityRead more at location 4318 •
Perhaps the most powerful protection that small entrant firms enjoy as they build the emerging markets for disruptive technologies is that they are doing something that it simply does not make sense for the established leaders to do.Read more at location 4321 •
Because disruptive technologies rarely make sense during the years when investing in them is most important, conventional managerial wisdom at established firms constitutes an entry and mobility barrier that entrepreneurs and investors can bank on. It is powerful and pervasive.Read more at location 4325 •
The summary and questions in this guide are designed to stimulate thinking and discussion about The Innovator’s Dilemma, how its findings are manifest in many industries today, and the implications of those findings for the future
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