The book of the month: “The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail” by Clayton M. Christensen

News categories: the New Economy economics, managing R&D and technological / product innovation, strategic enterprise management

Although the original version of this book was published already in June 1997, the book’s topic is more actual than ever. In the New Economy success and the ability to create sustaining value for both shareholders and stakeholders is founded on three main ingredients: product/technology innovation, customer value (like a brand, a major customer base) and a unique organizational design. “The Innovator’s Dilemma” focuses on the success factor “product innovation” in a way how it was never done before. The author basically says: because businesses are customer focused and are trying to built customer value, they area failing when it comes to a special type of technology innovation, which the author calls disruptive technologies. But successful technological and product innovation will become even more important for overall corporate success in a knowledge based networked economy. Therefore, the insights this book provide can be of great value for companies involved in heavy R&D activities. But also People interested in the business issues in general should read this book and especially it should be read by top managers in large corporation because many of them are ultimately responsible for success or failure of implementing disruptive technologies. In addition everyone responsible for product and technology innovation, for designing management and management information systems and for selecting the relevant information to look at for management should read this revised and updated version of the original book.

The author starts to investigate the topic of the book with the question, why dominant firms lose out to new entrants featuring innovative technologies. Christensen writes that even the best-managed companies, in spite of their attention to customers and continual investment in new technology, are susceptible to failure no matter what the industry, because they do not understand the difference between a sustaining and a disruptive technology. For example, tradition says that everyone focuses on serving the current customers. That's where the bread and butter are. Also, the overhead structure is established to serve those current needs. Both perspectives no longer serve when a disruptive technology is involved. When a disruptive technology evolves, it usually does not fit at the start into the existing mainstream business. It does not meet sales volumes and profitability expectations of the management of a established business at all and its existing customers do not care about it. The result is, that established businesses usually walk away from these technologies when they should start to work on them. But with disruptive technologies it is very important to be first and participate especially in the early stages. That is why successful and well managed companies fail in front of disruptive technologies. The standard process that governs sound management could therefore be the same one that destroys the company. Christensen explains that through detailed case studies of technological developments – both sustaining and disruptive – in various industries. At the heart of “The Innovator's Dilemma” is how a successful company with established products keeps from being pushed aside by newer, cheaper products that will, over time, get better and become a serious threat. The author also gives recommendations how to overcome this problem by for example spinning of the new disruptive technology based business into a separate company which can operate under different rules.

The detailed analysis shows that the author has done quite a bit of research into the topic. His writing style is very easy to understand and organized. First few chapters go into how disruptive technology can destroy a company if not harnessed. His later chapters list guidelines on how to avoid the pitfalls. These guidelines are followed thoroughly by many case studies and quotes from industry leaders. While company's policies shouldn't be based on a few guidelines and the situations in a person's particular industry may find the guidelines hard to follow, the author's particular views are irrefutable and should at least be considered by managers. It's really exciting to see him link the same principles to so many varying industries from high tech to low tech. The overarching principle of sustaining technology and disruptive technology and how a company should embrace it could be applied to any large established industry.

Clayton H. Christensen, associate professor of business administration at the Harvard Business School, has written one of the best work on this subject ever. Unlike most academics, he is rigorous without being dull or irrelevant to those who must operate businesses. It is a great read for anyone interested in business and wondered about how large companies such as Montgomery Wards could go belly-up or why Digital Corporation disappeared from our vocabulary. This revised, updated edition from May 2000, complemented with a new chapter, is also worth reading by those, who already know the original edition.

The Innovator’s Dilemma: When New Technologies
Cause Great Firms to Fail
by Clayton M. Christensen
Paperback - 252 pages (May 2000)
Harperbusiness; ISBN 0066620694

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