The Innovator's Dilemma Summary
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The Innovator’s Dilemma Summary | Clayton Christensen

The Innovator's Dilemma Summary

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Introduction

Most companies miss out on new waves of innovation. Don’t be left behind because you can’t decide whether to embrace new technology.

The Innovator’s Dilemma is the hard choice leaders face when faced with switching to new technologies in emerging markets.

You need to learn which technologies are worth switching to and when to make this switch. A successful company will get pushed aside unless managers know how and when to abandon embedded business practices.

About Clayton Christensen

Clayton Christensen, author of The Innovator’s Dilemma
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Clayton Christensen was the Kim B. Clark Professor of Business Administration at Harvard Business School. He taught one of the most popular second-year classes: Building and Sustaining a Successful Enterprise. Christensen 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 received an MBA with High Distinction from the Harvard Business School in 1979, graduating as a George F. Baker Scholar. Christensen has written nine best-selling books and has published more than one 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. 

StoryShot 1: Sustaining Technologies Are Already Accepted by Society

There are two types of technology an innovator may use: sustaining and disruptive. Understanding which category technologies fall into is key to organizational leaders’ success.

Sustaining technologies are usually already accepted by society. They have high utility (customers derive great satisfaction from using them) and worth. Clear examples of sustaining technologies are smartphones and computers. These technologies are integral to modern society. Society also understands what to expect from these technologies. No matter which smartphone someone buys, they expect it to make calls, text and take photos.

Hand holding iPhone, showing home screen icons
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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. If you want to be successful in sustaining technology, you must shake up the market by doing something disruptive or interesting.

Typical Sustaining Company Practices

Christensen breaks down the standard sustaining company into four company practices:

  • 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

“Blindly following the maxim that good managers should keep close to their customers can sometimes be a fatal mistake.” — Clayton Christensen

StoryShot 2: Disruptive Technologies Are New and More Likely to Fail

“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

Disruptive technologies tackle the status quo. They belong to the innovation market and generally emerge from already-established markets. Disruptive technologies are generally a simpler investment due to the lack of competition. However, they are generally less fine-tuned and sit within a small market. 

Although disruptive technologies are more likely to fail, they may also skyrocket. Sometimes, they will fail and almost hit bankruptcy before society accepts the 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 virtually no competition. However, there is no guarantee that society will accept these technologies. 

Typical Disruptive Company Practices

We can break down the standard disruptive company into four company practices:

  • 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

StoryShot 3: Big Companies Struggle to Adjust

“Creating an independent organization, with a cost structure honed to achieve profitability at the low margins characteristic of most disruptive technologies, is the only viable way for established firms to harness this principle.” — Clayton Christensen

When an organization grows, it becomes more difficult for them to adjust to changes in the world. Small innovators are more able to capitalize on potential opportunities in the market. One of the primary reasons for this is that big firms struggle to identify emerging trends worthy of investment.

Buildings of large companies in Manhattan from Hudson River
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There are four factors that lead to big firms struggling to identify these trends:

  • Companies are dependent on customers and investors. Large firms cannot enter an emerging, 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 as a firm scales up and 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. As disruptive technologies are higher risk and need more investment for longer, big companies tend to avoid them.
  • As a company grows, its leaders make more decisions based on data. There isn’t enough data on disruptive technologies, so a board of investors won’t want to invest in them.
  • Technological innovation will never match market demand. As big companies rely on market demand, they will not be interested in a disruptive technology currently considered a bit weird.

StoryShot 4: 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

So, why do innovators have a dilemma? Successful business leaders listen to their customers and invest heavily in new products and machines. However, powerful companies can go bankrupt by doing just that.

Listening to customers won’t always work because they don’t know what they want. Customers generally focus on more powerful, faster, or advanced versions of what they already have. They do not think in terms of innovation. Business owners should be looking for radical technological changes and investing 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

StoryShot 5: Create an RPV Framework

RPV stands for resources, processes, and values. You should be aware of these factors to better understand your company’s capabilities. This knowledge will influence what you can and cannot do to sustain the company’s success.

Understanding the RPV framework will help your company avoid avenues that are not a good fit. The RPV framework is an audit of your business. Take time to create your own framework to remind your team why they do what they do. This will also put you in a better position to make decisions about the future.

Resources

Your company’s resources are employees, equipment, information, data, money, relationships, and technology. Generally, companies make decisions about the future based on their current resources, but this is the wrong approach. If you don’t have the knowledge for a specific task, you can outsource the work to another firm. Don’t let your lack of resources stop you from investing in something remarkable.

Processes

Your company’s processes are a set of actions that transform resources into products. Common examples of processes include internal and external communication, market research, and budgeting. A common mistake 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. They should be available for everybody to see. A customer should think of these values when your company comes up in conversation.

Your values should also influence the markets you decide to join. For example, a sustainable brand should not consider entering the oil industry.

StoryShot 6: New Markets Are More Likely to Spell Failure

If you are entering an emerging market, you are more likely to fail than succeed. It might take several attempts within emerging markets before you have any success. Plan for this failure so it does not impact your long-term goals. If you expect to fail, your approach with your company will be healthier and more effective. You will better manage your resources and will see setbacks as inevitable, not disastrous.

Also, don’t put all your resources into one product when you start. Because of the high chance of failure, keep some resources back for an alternative course. Finally, learn from your failures and iterate.

circuit board in disruptive technology
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StoryShot 7: 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 to be the first mover in the market. Essentially, you want to be the first company in a market to offer a specific product. That said, being the first mover is only an advantage when developing disruptive innovation. It has little effect in an established market. 

An important decision for a manager of innovation to make is whether to be a leader or a follower. The first-mover advantage seems to apply to leaders who are introducing disruptive products. These leaders are creating new markets in which these products will be sold. Therefore, try not to be a first mover unless you are providing truly disruptive products.

Christensen provides evidence of the effectiveness of being a first mover within disruptive markets. Firms launching disruptive products made a 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 be the first mover.

StoryShot 8: How to Identify Disruptive Technologies

To identify disruptive technologies, create a graph. One axis will show ‘performance improvement demanded in the market’. The other axis plots ‘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, it is unlikely the technology will merge with the mainstream market. If the technology progresses faster than the market demand for improvement, it might be a disruptive technology.

Final Summary and Review

The Innovator’s Dilemma shows doing everything ‘right’ isn’t enough to maintain market leadership. Competitors can emerge overnight and take over your market. To prevent this, identify disruptive technologies that offer great value in emerging markets. To achieve this goal, consider the following principles:

  • 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 its workers
  • Certain qualities of disruptive technologies make them unattractive in established markets. These qualities can make them high value in emerging markets
  • Learn the RPV (resources, processes, and values) framework to work out your company’s capabilities
  • Customers do not know what they want, so you need to be one step ahead of the game

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