The Innovator’s Dilemma: 10 Sweaty Take-Aways

The subtitle to Clayton Christensen’s 1997 book, The Innovator’s Dilemma, is The Revolutionary Book that Will Change the Way You Do Business. That may be true. But might I offer an alternative?

The Innovator’s Dilemma: The Revolutionary Book that Will Give You the Shakes and Make You Sweat and Keep You Up at Night. Honest-to-goodness, for a business book, this one is a nail-biter.

Christensen’s beautifully researched, articulate argument is that there are bad things out there called “disruptive technologies” that are completely and totally inferior to whatever it is you are already selling to your customers. So inferior, in fact, that they can eat your lunch. And they have eaten the lunches of more than a few well-heeled companies.

But it gets worse, cause there’s a catch: The better you are at being close to your customers, and the better you are at dreaming up “sustaining technologies” that make things better and faster, the more at risk you are of being blindsided by a disruptive technology.

Proving again, as one of my business school professors used to say, that there is no God. And he was not talking religion.

What’s great about Christensen, however, is that he actually gives us a set of steps to determine whether what we are seeing competitively in the market is a disruptive--or just a lousy--technology, and some very clear guidelines on how to respond. His industry illustrations are powerful, and his case study on determining if the electric car is a disruptive technology or not is instructive, if a bit dated.

Here are my 10 take-aways, none of which relieve you from having to purchase and read the book:

1. There are times at which it is right not to listen to customers, right to invest in developing lower-performance products that promise lower margins, and right to aggressively pursue small, rather than substantial markets.

2. Generally, disruptive technologies underperform established products in mainstream markets. But they have other features that a few fringe (and generally new) customers value. Products based on disruptive technologies are typically cheaper, simpler, smaller, and, frequently, more convenient to use. Christiansen sights small off-road motorcycles from Honda relative to Harley-Davidson, HMOs to conventional health insurers, transistors relative to vacuum tubes and, perhaps in the future, internet appliances over PCs.

3. This one is important for good companies to understand: Technologies can progress faster than market demand, meaning that market leaders sometimes, in their drive for better product and competitive advantage, inadvertently over-deliver to their customers. As disruptive technologies improve, these technologies can meet the “real” demand for product functionality better than the leading technologies do, or at least more accurately and at a lower price point. When this happens, the market leader can have a clearly superior technology and still lose large segments of its customer base.

4. Strong established companies rarely invest in disruptive technologies because they offer lower margins and profits, serve small or even insignificant markets, and are rarely embraced by leading customers. In essence, they meet none of the investment criteria commonly applied, criteria used to rack and stack investment choices in a firm. And, the corollary is: Your best customers never lead you to disruptive technologies, nor will they understand why you are investing in them.

5. This is really important to hear: “The only instances in which mainstream firms have successfully established a timely position in a disruptive technology were those in which the firms’ managers set up an autonomous organization charged with building a new and independent business around the disruptive technology. Such organizations, free of the power of the customers of the mainstream company, ensconce themselves among a different set of customers—those who want the products of the disruptive technology.”

6. The size of this autonomous organization tends to match the size of the smaller markets initially targeted for the disruptive technology. Holding this organization to the same financial standards as the mainstream organization will inevitably eliminate its funding.

7. Since markets for disruptive technology are small, often unmeasured, and sometimes don’t exist, traditional planning and marketing techniques don’t work. Christensen suggests a technique called “discovery-based planning” in which managers assume their forecasts and strategy are wrong, and develop what “needs to be known” rather than what “can be known.” The emphasis is on fast, flexible forays into the market, and interactive learning.

8. Trajectory maps (I told you you’d have to buy the book) are the best way to help analyze conditions and assess whether a company is facing a truly disruptive technology.

9. It is suicidal to adopt a blanket technology strategy to be always the leader or always the follower. Companies need to adapt their philosophy around the type of technology being addressed.

10. 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 leader to do. . .Conventional managerial wisdom at established firms constitutes an entry and mobility barrier that entrepreneurs and investors can bank on. It is powerful and pervasive.