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About Clayton Christensen
Clayton Christensen was the Kim B. Clark Professor of Business Administration at the Harvard Business School. He taught one of the most popular elective classes for second-year students, Building and Sustaining a Successful Enterprise. Professor Clayton received his BA in economics from Brigham Young University and an M. Phil. in applied econometrics from Oxford University. At Oxford he studied as a Rhodes Scholar. He subsequently received an MBA with High Distinction from the Harvard Business School in 1979, graduating as a George F. Baker Scholar. Christensen is the best-selling author of nine books and has published more than a hundred articles. His first book, The Innovator’s Dilemma, received the Global Business Book Award as the best business book of the year (1997). In 2011, The Economist named it one of the six most important books about business ever written.
Introduction
The Innovator’s Dilemma is the decision of when company leaders should choose to switch towards disruptive technologies within emerging markets. As companies grow, it becomes more challenging to engage with disruptive technologies due to shareholders’ increased influence. Christen explains that you need to learn which technologies are worth switching to and when you should make this switch. He also explains why most companies miss out on new waves of innovation. A successful company with established products will get pushed aside unless managers know how and when to abandon traditional business practices.
“First, disruptive products are simpler and cheaper; they generally promise lower margins, not greater profits. Second, disruptive technologies typically are first commercialized in emerging or insignificant markets. And third, leading firms’ most profitable customers generally don’t want, and indeed initially can’t use, products based on disruptive technologies.” – Clayton Christensen
Sustaining and Disruptive Technologies
“Disruptive technologies bring to a market a very different value proposition than had been available previously. 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.” – Clayton Christensen
Clayton Christensen outlines two types of technology that an innovator may utilize: sustaining and disruptive. Understanding which technologies fall into which category is key to organizational leaders’ success.
Sustaining Technologies
Sustaining technologies are often already accepted by society. They have high utility and worth. Clear examples of sustaining technologies are smartphones or computers. These technologies are integral to modern society. Society also understands what is expected of these technologies. Without using a specific smartphone, almost everybody in society will understand that the smartphone would be expected to make calls, text and take photos.
As a leader, entering the markets of sustaining technologies is extremely difficult. This is due to the greater competition. That said, by entering into the sustaining technology market, you mitigate some risk. These technologies are already understood and accepted within society. Suppose you want to be successful in sustaining technology. In that case, you have to shake up the market by doing something disruptive or interesting.
Typical Sustaining Company Practices
Christensen breaks the standard sustaining company down into four company practices. These are:
- Listening to customers’ opinions
- Improving the features of technologies that are already working
- Trying to satisfy investors by meeting their expectations
- Targeting big markets rather than niche and small markets
Disruptive Technologies
Disruptive technologies tackle the status quo. These technologies belong to the innovation market and generally emerge from already established markets. Disruptive technologies are generally a simpler investment due to their lack of competition. That said, disruptive technologies are generally less fine-tuned and sit within a small market.
Disruptive technologies are far more likely to fail. But, they also have the potential to skyrocket. Sometimes these technologies will fail with their first few iterations and almost hit bankruptcy before society accepts this type of technology. For example, although the mobile phone is not a sustaining technology, it would have been disruptive in the past. Christensen describes disruptive technologies as being future-driven. They have significantly more potential and have basically no competition. There is no guarantee that society will accept these technologies, though.
Typical Disruptive Company Practices
Christensen also breaks the standard disruptive company down into four company practices. These are:
- Watching what customers do rather than what they say
- Trying to find new and interesting ways of doing things
- Being driven by the company’s core values
- Pursuing smaller and nonexistent markets with the hope of creating their own market
Big Companies Struggle to Adjust
When an organization grows, it becomes more difficult for them to adjust to changes in the world. Although they can adjust, small innovators are more readily able to capitalize on potential opportunities in the market. One of the primary reasons for this is that big firms struggle to identify emerging investment-worthy trends.
Christensen provides an outline of four factors that lead to big firms struggling to identify these trends:
- Companies are dependent on customers and investors. So, large firms cannot enter an emerging and potentially risky market unless their investors and customers agree. The investors and customers form the country’s backbone. Without them, the big firm would no longer be big. The influence of investors grows significantly as a firm scales up, as bureaucracy and meetings take over.
- The largest companies in the world are not interested in obtaining a slice of a small market. Big companies require substantial amounts of money to maintain their workflow. So, because disruptive technologies are higher risk and longer-term investment-wise, big companies generally avoid them.
- As a company becomes large, there is a shift towards making decisions based on data. It is impossible to measure nonexistent markets, though. This means the board of investors will not have the required data to invest in disruptive technologies.
- Technological innovation will never match market demand. So, as big companies rely on market demand, they will not be interested in a disruptive technology currently considered a bit weird.
Technological Transitions are Crucial
“This is one of the innovator’s dilemmas: Blindly following the maxim that good managers should keep close to their customers can sometimes be a fatal mistake.” – Clayton Christensen
This part of the book introduces why innovators have a dilemma. Business leaders are successful because they listened to their customers and invested heavily in new products and machines. That said, this is a paradox because these are the same reasons that several powerful companies go bankrupt.
Listening to customers won’t always work because customers don’t know what they want. Customers generally focus on more powerful, faster, or advanced versions of the concepts they already have. They do not think in terms of innovation. This means business owners should be looking for radical technological transitions and invest accordingly.
“The reason is that good management itself was the root cause. Managers played the game the way it was supposed to be played. The very decision-making and resource-allocation processes that are key to the success of established companies are the very processes that reject disruptive technologies: listening carefully to customers; tracking competitors’ actions carefully; and investing resources to design and build higher-performance, higher-quality products that will yield greater profit. These are the reasons why great firms stumbled or failed when confronted with disruptive technological change.” – Clayton Christensen
Create an RPV Framework
Christensen presents the RPV framework. RPV stands for resources, processes and values. Companies should be aware of each of these factors so they can be better positioned to understand the company’s capabilities. This knowledge will significantly influence what you can and cannot do if you want to sustain the company’s success.
Understanding the RPV framework will help your company avoid going down avenues that are not a good fit for the business. Christensen describes the RPV framework as an audit of your business. He recommends your company takes some time to create its own framework to work by. This means your team will be reminded of why they do what they do. They will also be in a better position to make decisions about the future.
Resources
Your company’s resources consist of the employees, equipment, information, data, money, relationships and technology. Generally, companies make decisions about the future based on their current resources. Christensen explains that this is the wrong approach. Suppose you do not have the knowledge for a specific task. In that case, you can always outsource this work to another firm. Do not let your lack of resources stop you from investing in something remarkable.
Processes
Your company’s processes are a set of actions that are adopted to transform resources into products. Common examples of processes include internal and external communication, market research and budgeting. One of the most frequently made mistakes is adopting processes for specific products and not changing them for new products.
Values
Your company’s values are what the company stands for and why it exists. Ideally, your company’s values are there for everybody to see. A customer should think of these values whenever your company comes up in conversation. Your values should also influence the markets you decide to join. For example, a sustainable brand should not be deciding to enter the oil industry.
New Markets Will Bring Failure
“Large companies often surrender emerging growth markets because smaller, disruptive companies are actually more capable of pursuing them.” – Clayton Christensen
If you are entering an emerging market, you must understand that you are more likely to fail than succeed. It might take several attempts within emerging markets before you have any success. Christensen recommends you plan for this failure so it does not impact your long-term goals. If you expect to fail, then your approach with your company will be healthier and more effective. You will better manage your resources and will take setbacks as inevitabilities rather than disasters.
Another key lesson to learn is you should not put all your resources into one product when you start. Due to the high chance of failure, you always want to hold back resources allocated to an alternative upon failure. Finally, learn from your failures and iterate.
First Moving Only Counts in Disruptive Markets
“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.” – Clayton Christensen
One of the most common pieces of advice given to companies is that you want to be the first mover in the market. Essentially, you want to be the first person in a market to offer a specific product. That said, Christensen explains that first-mover is only an advantage when developing disruptive innovation. It has little effect when acting in an established market. So, an important decision to make when working as a manager of innovation is whether you should be a leader or follower. Christensen points out that the first-mover advantage seems to apply to leaders who are introducing disruptive products. These leaders are creating new markets in which they will be sold. This means you should not try to adopt the first-mover advantage unless you are introducing truly disruptive products.
Christensen provides evidence of the effectiveness of being a first-mover within disruptive markets. Specifically, the firms that led in launching disruptive products together logged a cumulative total of 62 billion dollars in revenues between 1976 and 1994. Those that followed into the markets later logged only 3.3 billion dollars in total revenue. The average company that led in disruptive technology generated 1.9 billion dollars in revenues. So, if you aim to engage with disruptive markets, try to use the first-mover advantage.
How to Identify Disruptive Technologies
Christensen provides an outline of how you can identify disruptive technologies. Specifically, he suggests creating a graph with ‘performance improvement demanded in the market’ against ‘performance improvement supplied by the technology.’ Ask yourself whether the technology provides an opportunity for profitable growth. To do this, consider whether the trajectories on the graph are parallel. If they are parallel, then it is unlikely this technology will be able to integrate into the mainstream market. But, if the technology progresses faster than the pace of improvement is demanded by the market, you might have a disruptive technology.
Final Summary
In The Innovator’s Dilemma, Christensen explains that doing everything ‘right’ isn’t enough to maintain market leadership. Competitors can emerge overnight and take over your market. So, Christensen suggests identifying disruptive technologies that can offer great value in emerging markets. To achieve this goal, he provides the following principles to consider:
- Current customers drive a company’s use of resources
- It is not possible to pinpoint the market a disruptive technology will influence
- A disruptive organization’s processes and core capabilities are as important as their workers
- The attributes that make disruptive technologies unattractive in established markets makes them high-value in emerging markets
- Understand the RPV (Resources, Processes and Values) framework to identify your company’s capabilities
- Customers do not know what they want, so you need to be one step ahead of the game
Comment below and let others know what you have learned or if you have any other thoughts.
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