The Innovator’s Dilemma – Clayton M. Christensen

“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.” – The Innovator’s Dilemma

The Innovator’s Dilemma is simple. ‘Good’ companies, ones that maximize investment returns and listen to their customers, are harming their future prospects. Why? Because to stay on top, you need to innovate, but customers don’t want innovation: they want what they’ve always gotten. To innovate, you need to find new customers, try new things, take on risks, but ex-ante those risks can seem unreasonable or unwise.

The Innovator’s Dilemma argues that many business miss disruptive technologies. They do so not because they aren’t able to produce them, but because their current customers didn’t need or want the new product. When a smaller 5.5 inch hard drive was introduced, the major market for hard drives was users of supercomputers. They cared about power, not size. A well-managed firm in the traditional sense would have listed to their customers and not sold 5.5 inch drives.

It is left to a small firm to find a new market for the product, and indeed such a small market is only really profitable for a small firm. Of course, in the long run such small markets can grow, as did the one for 5.5 inch drives when it sparked the development of the laptop.

Are large firms doomed? No, says Christensen. Innovation requires focus, and it has to be essential to the existence of the organization to succeed. The answer is often to set up a small organization for whom the innovation is their core business, at let if flourish.

A challenge Christensen doesn’t address is how to identify which technologies are disruptive. A large firm can hardly set up a spinoff for every possible idea that crosses its desk, but it isn’t easy to know which will succeed in advance. That said, the book is and remains a classic on innovation, and if excessively long in some parts, it is focused on an important challenge for firms big and small.

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