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The Innovator's Dilemma:
When New Technologies Cause Great Firms to Fail (1997)

By Clayton Christensen

Why do the most successful, seemingly well-managed firms sometimes find themselves all of a sudden in the midst of a financial disaster? How can it be that the most lucrative companies admired by everyone could in one moment be as successful as can be then a few years later be struggling to keep their place in the market or simply disappear off the grid? These are the kind of questions that the book "The Innovator's Dilemma" by a Harvard professor named Clayton Christensen, seeks to answer.




The Innovator's Dilemma
Christensen argues that a 'disruptive technology' is what leads to this shocking downfall. This term describes innovations that improve a product or service in ways that the market does not expect.

Christensen uses the disk-drive industry as one example to illustrate his point. He observes how the companies that produced 14-inch drives were driven out of business by those that produced 8-inch drives who, in turn, were driven out of business by companies that made 5.25-inch for drives PCs. What is most peculiar, though, was that the eight-inch drives were not as good as the fourteen-inch drives and the 5.25-inch drives were inferior to the eight-inch drives. In fact, all these new technologies that have caused the downfall of the biggest companies are much worse than the ones before.

Thus, the new products that emerge are very much inferior to the products that are already in the market. However, these 'low-end' products are cheaper, simpler, easier to use and are usually tailored to 'regular' people as opposed to a richer, more sophisticated audience.

Large companies usually steer clear of such 'disruptive innovations' because they feel it may not be profitable enough and because their development can take scarce resources away from that of sustaining innovations, which are needed to compete against current competitors. Sustaining innovations, unlike disruptive innovations, usually evolve existing markets with better value. Big companies are more focused on what their existing consumer wants right now that they fail to anticipate future needs. They are more focused on what it is 'safe' in the market than taking the plunge with a big-bang change.

Consequently, disruptive technology provides an example of when the approach of focusing on the customer can sometimes be counterproductive. This is one of the innovator's dilemmas: Blindly following the rule that good managers should keep close to their customers which can sometimes be a fatal mistake.

Christensen also offers a solution to this dilemma which is for these firms' managers to create a small organization that would make the new low-end product and be independent enough to operate differently from the 'mother' firm.

This is a 'must read' book for any senior executive or marketing manager or simply anyone interested in gaining insight as to why some great businesses fail.