{"id":16713,"date":"2020-10-28T23:42:00","date_gmt":"2020-10-29T03:42:00","guid":{"rendered":"https:\/\/www.shortform.com\/blog\/?p=16713"},"modified":"2020-11-07T14:52:45","modified_gmt":"2020-11-07T18:52:45","slug":"the-innovators-dilemma-by-clayton-christensen","status":"publish","type":"post","link":"https:\/\/www.shortform.com\/blog\/the-innovators-dilemma-by-clayton-christensen\/","title":{"rendered":"The Innovator’s Dilemma by Clayton Christensen"},"content":{"rendered":"\n

What is The Innovator’s Dilemma<\/em> by Clayton Christensen? How does the book explain the potential benefits and challenges of innovation?<\/p>\n\n\n\n

The Innovator’s Dilemma <\/em>by Clayton Christensen is a book that presents the choice faced by companies seeking to innovate. They can continue responding to current customers’ needs or they can do something large and disruptive, changing the market completely.<\/p>\n\n\n\n

Keep reading to find out more about the key concepts in The Innovator’s Dilemma<\/em> by Clayton Christensen.<\/p>\n\n\n\n\n\n\n\n

Concepts in The Innovator’s Dilemma<\/em> by Clayton Christensen<\/h2>\n\n\n\n

Most companies achieve success by responding to what their customers want and consistently pursuing higher profits. However, when confronting certain innovations, these strategies that help companies thrive under normal circumstances instead can lead to their demise. <\/p>\n\n\n\n

These kinds of innovations\u2014called <\/strong>disruptive innovations\u2014don\u2019t come along very often, but when they do, they change how companies make and market products, the types of customers<\/a> who buy them, and how they use them. The Innovator’s Dilemma<\/em> <\/em>by Clayton Christensen explains how to recognize disruptive innovations, why they cause industry-leading organizations to fail, and how to avoid the same fate.<\/strong><\/p>\n\n\n\n

Upward Mobility and Downward Immobility<\/strong><\/h3>\n\n\n\n

Successful companies typically focus on growing and moving upmarket with higher-priced products, higher-tier customers, and larger profits. However, this upward mobility makes firms downwardly immobile\u2014it impedes them from adopting disruptive innovations, which always start downmarket. <\/strong><\/p>\n\n\n\n

Established companies face three key barriers to downward mobility<\/a> according to The Innovator’s Dilemma<\/em> by Clayton Christensen: <\/p>\n\n\n\n

  1. Cost structures <\/strong>that favor seeking higher profit margins upmarket over cutting costs to remain profitable downmarket. Large, successful companies have high overhead costs that require large profit margins. Most companies find it impossible to bring in enough profits from existing products while also trimming overhead enough to invest in low-profit disruptive products<\/a>. <\/li>
  2. Organizational cultures <\/strong>that pull efforts toward upmarket projects. Companies have processes that weed out low-profit projects\u2014but they also steer companies away from disruptive technologies, making the firms vulnerable to being overtaken by the disruption.<\/li>
  3. The upmarket drift of a company\u2019s customers and competitors<\/strong>. Companies drift upmarket when their customers are pursuing higher markets themselves\u2014they demand bigger products because they want to offer more to their own customers\u2014and when their competitors are similarly leaning upmarket to meet customers\u2019 needs. As companies move upmarket, they create openings in lower value networks<\/a> for entrants to move in with disruptive products.<\/li><\/ol>\n\n\n\n

    How to Weather Disruptive Innovations<\/strong> According to The Innovator’s Dilemma<\/em> by Clayton Christensen<\/h3>\n\n\n\n

    After Clayton Christensen’s The Innovator’s Dilemma<\/em> outlined the factors that cause established firms to fail when confronting disruptive innovations, we\u2019ll talk about how managers can avoid falling into these traps. <\/p>\n\n\n\n

    Established firms generally struggle to survive<\/a> disruptive innovations, but if managers understand the governing principles of disruptive technologies, they can weather the storm or, at best, harness them for their success.<\/strong> Companies that don\u2019t know what they\u2019re up against or how to navigate it will almost surely succumb to disruptive technology\u2019s takeover.<\/p>\n\n\n\n

    Company Resources<\/strong><\/h4>\n\n\n\n

    The theory of resource dependence<\/a> states that managers don\u2019t control how resources are spent\u2014customers and investors do, because their interests determine the company\u2019s success. <\/p>\n\n\n\n

    Problem<\/strong>: Successful companies are adept at weeding out ideas and projects that customers don\u2019t want. However, disruptive technologies are inherently unappealing<\/em> to current customers\u2014at least, initially. By the time the disruptive technology has improved enough to attract the company\u2019s customers, entrant companies have already established their dominance and expertise in making the product. <\/p>\n\n\n\n

    Solution<\/strong>: Generally, the only way for an established company to successfully invest in a disruptive technology is to create a separate operation that is independent of the company\u2019s core business and is solely focused on developing the disruptive technology.<\/strong> This separate entity must be able to develop its own cost structure, and it should have the benefit of the parent company\u2019s resources. <\/p>\n\n\n\n

    Small Markets<\/strong><\/h4>\n\n\n\n

    Companies are pressured to continually grow, and, the bigger they get, the more profits they need to cover increasing costs. If two companies both need to sustain 20 percent growth rates, but one is a $40 million company and the other is a $4 billion company, the larger company faces greater pressure to gain $800 million in new sales compared to the smaller company\u2019s $8 million.<\/p>\n\n\n\n

    Problem<\/strong>: The emerging markets for disruptive innovations are too small to support large companies\u2019 growth needs.<\/strong> But if big companies wait until the disruptive technology\u2019s market is established enough to better satisfy their growth needs, they miss the critical window for entry and are less likely to succeed with the disruptive product. <\/p>\n\n\n\n

    Solution<\/strong>: When a company creates an independent organization to lead its production of a disruptive technology, that organization must be small enough to match the small, emerging market for the new technology.<\/p>\n\n\n\n

    Unknown Markets<\/strong><\/h4>\n\n\n\n

    Most companies and managers make strategies, plans, and decisions based on analyses of market trends and projections based on those trends. Using this data, managers make detailed plans for executing new projects. <\/p>\n\n\n\n

    Problem<\/strong>: This approach doesn\u2019t work for disruptive technologies, because disruptive products sell to markets that didn\u2019t previously exist, so there are no data to measure past patterns or make projections about future needs.<\/strong> Exacerbating the problem is the fact that success in disruptive innovations favors companies that move quickly\u2014so companies must act fast, but they have little information to create a plan<\/a> of action. <\/p>\n\n\n\n

    Solution<\/strong>: When launching disruptive products, companies should make strategies and plans around <\/strong>learning<\/em><\/strong>, not <\/strong>executing<\/em><\/strong>.<\/strong> Managers must acknowledge what they don\u2019t know, identify what data they need, and in what order they need it. <\/p>\n\n\n\n

    Additionally, Clayton Christensen in The Innovator’s Dilemma<\/em> says companies should: <\/p>\n\n\n\n