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The Innovators Dilemmaby Clayton M. Christensen

Logan BuchananOctober 6, 2005

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ThesisWell-managed companies often fail because

because the very management practices that

have allowed them to become industry

leaders also make it extremely difficult for

them to develop the disruptive technologies

that ultimately steal away their markets.p.265

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Overview Characteristics of goods companies

Why they fail anyway Case studies

How to succeed

Related KM Issues

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What do good companies do

well?Listen responsively to their customers

Invest aggressively in the technology,

products, and manufacturing capabilitiesthat satisfied their customers future needs

Seek higher margins

Target larger markets rather than smallerones

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Why do good companies fail? Good management

The Dilemma: 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.

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Why good management can lead

to failure1. Difference between sustaining and

disruptive technologies

2. The pace of technological progress oftenoutstrips the needs of the market.

3. Customers and financial structures of

successful companies heavily influencethe types of investments that appearattractive.

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Two Types of InnovationsSustaining

Improve performance ofestablished products

Meet demands ofmainstream customers inmajor markets

Vary in difficulty, cost,

time, etc. Established firms

Disruptive

Generally underperformestablished products inmainstream markets

Have new features thatfringe / new customersvalue

Cheaper, simpler, smaller,more convenient to use

Entrant firms

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Why good management can lead

to failure1. Difference between sustaining and

disruptive technologies

2. The pace of technological progress oftenoutstrips the needs of the market.

3. Customers and financial structures of

successful companies heavily influencethe types of investments that appearattractive.

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Market Need v. Technology

Improvement Technologies can progress faster than

demand

Suppliers give customers more than they

need or are willing to pay

Allows room for underperforming

disruptive technologies

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Why good management can lead

to failure1. Difference between sustaining and

disruptive technologies

2. The pace of technological progress oftenoutstrips the needs of the market.

3. Customers and financial structures of

successful companies heavily influencethe types of investments that appearattractive.

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Disruptive Technologies v.

Rational Investments Disruptive products are simpler and

cheaper, and promise lower margins

Disruptive technologies are firstcommercialized in emerging or insignificantmarkets

Most profitable current customers are notinterested in the product

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Case Studies Primary takes examples from the disk drive

industry. Equates this to studying fruit

flies Steel minimills

Mechanical excavator industry

Motorcycles Insulin

Department and discount stores

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Disruptive Technological Change in

the Mechanical Excavator Industry

Leading firms have successfully adopted a

series ofsustaininginnovations

Almost the entire population of mechanical

shovel manufacturers was wiped out by a

disruptive technology hydraulics that the

leaders customers and their economic

structure had caused them initially to ignore

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Principles of disruptive

innovation1. Companies depend on customers and investors

for resources

2. Small markets dont solve the growth needs oflarge companies

3. Markets that do not exist cannot be analyzed

4. An organizations capabilities define its

disabilities5. Technology supply may not equal market

demand

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How did the successful managers harnessthese principles to their advantage?

1. Embedded projects to develop andcommercialize disruptive technologies withinan organization whose customers neededthem

2. Projects in organizations small enough to getexcited about small opportunities and wins

3. Planned to fail early and inexpensively in thesearch for the markets for a disruptivetechnology

4. Utilized the organizations resources, butmaintained independent values and processes

5. Found or developed new markets that valuedthe attributes of the disruptive products, ratherthan search for a technological breakthrough

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Related KM Issues Values & Beliefs

Values and beliefs are integral to knowledge,

determining in large part what the knower sees,absorbs, and concludes from his observations [] The

power of knowledge to organize, select, learn, and

judge comes from values and beliefs as much as, and

probably more than, from information and logic. -Davenport and Prusak, p 12

Lost innovation

Steve Jobs, Xerox PARC & the graphical interface

computer - Davenport and Prusak, p 59

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More KMS Issues Knowledge is the principle advantage, technology

eventually evens out. (But can knowledge and

organizational experience also be a hindrance?) Autonomous groups

Management support is essential, creativity should

be encouraged

Organization size - large v. small

Space and time are less of a constraint for sharing