TheInnovatorsDilemma

byClaytonM.Christensen

LoganBuchanan
October6,2005

Thesis
Wellmanagedcompaniesoftenfailbecause
becausetheverymanagementpracticesthat
haveallowedthemtobecomeindustry
leadersalsomakeitextremelydifficultfor
themtodevelopthedisruptivetechnologies
thatultimatelystealawaytheirmarkets.
p.265

Overview

Characteristicsofgoodscompanies
Whytheyfailanyway
Casestudies
Howtosucceed
RelatedKMIssues

Whatdogoodcompaniesdo
well?
Listenresponsivelytotheircustomers
Investaggressivelyinthetechnology,
products,andmanufacturingcapabilities
thatsatisfiedtheircustomersfutureneeds
Seekhighermargins
Targetlargermarketsratherthansmaller
ones

Whydogoodcompaniesfail?
Goodmanagement
TheDilemma:Thelogical,competent
decisionsofmanagementthatarecriticalto
thesuccessoftheircompaniesarealsothe
reasonswhytheylosetheirpositionsof
leadership.

Whygoodmanagementcanlead
tofailure
1. Differencebetweensustainingand
disruptivetechnologies
2. Thepaceoftechnologicalprogressoften
outstripstheneedsofthemarket.
3. Customersandfinancialstructuresof
successfulcompaniesheavilyinfluence
thetypesofinvestmentsthatappear
attractive.

TwoTypesofInnovations

Sustaining
Improveperformanceof
establishedproducts
Meetdemandsof
mainstreamcustomersin
majormarkets
Varyindifficulty,cost,
time,etc.
Establishedfirms

Disruptive
Generallyunderperform
establishedproductsin
mainstreammarkets
Havenewfeaturesthat
fringe/newcustomers
value
Cheaper,simpler,smaller,
moreconvenienttouse
Entrantfirms

Whygoodmanagementcanlead
tofailure
1. Differencebetweensustainingand
disruptivetechnologies
2. Thepaceoftechnologicalprogressoften
outstripstheneedsofthemarket.
3. Customersandfinancialstructuresof
successfulcompaniesheavilyinfluence
thetypesofinvestmentsthatappear
attractive.

MarketNeedv.Technology
Improvement
Technologiescanprogressfasterthan
demand
Suppliersgivecustomersmorethanthey
needorarewillingtopay
Allowsroomforunderperforming
disruptivetechnologies

Whygoodmanagementcanlead
tofailure
1. Differencebetweensustainingand
disruptivetechnologies
2. Thepaceoftechnologicalprogressoften
outstripstheneedsofthemarket.
3. Customersandfinancialstructuresof
successfulcompaniesheavilyinfluence
thetypesofinvestmentsthatappear
attractive.

DisruptiveTechnologiesv.
RationalInvestments
Disruptiveproductsaresimplerand
cheaper,andpromiselowermargins
Disruptivetechnologiesarefirst
commercializedinemergingorinsignificant
markets
Mostprofitablecurrentcustomersarenot
interestedintheproduct

CaseStudies
Primarytakesexamplesfromthediskdrive
industry.Equatesthistostudyingfruit
flies
Steelminimills
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

Principlesofdisruptive
innovation
1. Companiesdependoncustomersandinvestors
forresources
2. Smallmarketsdontsolvethegrowthneedsof
largecompanies
3. Marketsthatdonotexistcannotbeanalyzed
4. Anorganizationscapabilitiesdefineits
disabilities
5. Technologysupplymaynotequalmarket
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 organizations 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

RelatedKMIssues
Values&Beliefs
Valuesandbeliefsareintegraltoknowledge,
determininginlargepartwhattheknowersees,absorbs,
andconcludesfromhisobservations[]Thepowerof
knowledgetoorganize,select,learn,andjudgecomes
fromvaluesandbeliefsasmuchas,andprobablymore
than,frominformationandlogic. DavenportandPrusak,p12

Lostinnovation
SteveJobs,XeroxPARC&thegraphicalinterface
computerDavenportandPrusak,p59

MoreKMSIssues
Knowledgeistheprincipleadvantage,technology
eventuallyevensout.(Butcanknowledgeand
organizationalexperiencealsobeahindrance?)
Autonomousgroups
Managementsupportisessential,creativityshould
beencouraged
Organizationsizelargev.small
Spaceandtimearelessofaconstraintforsharing