The Innovator’s Dilemma

Because of my fascination for innovation, startups and working on the idea of bRemote, I came across the book “The Innovator’s Dilemma”. This book is written by Harvard Professor and businessmen Clayton Christensen.

The book gives multiple insights that can be helpful for people dealing with innovation, and specifically the management of large companies that tend to ignore innovation. Why? The large companies have a natural way of dealing with innovation, they are led by management and existing clients/customers. This natural habit can damage the company. In this blog post, I explain the behavior and the solution proposed in this book in a nutshell. With the use of an example story mentioned in the book, I will elaborate on the best takeaways the book gave to me.

Example story: Hard Disk Drive Industry

The hard disk drive industry went through several stages of sustainable and disruptive innovation. Sustainable innovation can be seen as incremental innovation e.g. increased RPM of the motors used in the hard disks. However disruptive innovation is much more difficult to implement and results (often) in the failure of industry’s leading firms because they tend to ignore it. The ignorance gives an opportunity for entrant firms (i.e. new to the business) to thrive.

Hard Disk Drive 2.5 Inch

An example of the disruptive innovation was the miniaturization of hard disk drives, e.g. from 8 to 5.25 inches to 2.5 inches. Imagine you are a customer of a hard disk drive supplier of 5.25 inch, which you use to build Desktop PCs. The hard disk drive company asks if you are interested in using smaller 2.5 inch hard disk drives in your PCs. Your first intuitive reaction is not really because it has lower capacity, is smaller and the technology is not yet proven. So the hard disk drive supplier does not innovate because most of their customers are responding like that. However new entrant firms got investors on board to pick up this innovation. As soon as the reliability and capacity start increasing and cost per capacity lowering, you as a Desktop PC supplier see opportunities in your current business, smaller casings and possibly a new market for Notebooks. Hence you will switch to the entrant firm because your old supplier does not offer these type of hard drives. The former industry’s leading firm sees their market position deteriorating whereas the new entrant firm is flourishing. These disruptive innovations were happening more than once in the hard disk drive industry.

Takeaways

In general, established companies have a disadvantage when it comes to innovation. To get an internal budget for innovating, the management of an established company needs to conduct market analysis, write business plans, give turnaround and profit estimations. However the market that is targeted with new innovation can be non-existent and therefore the way of working and the used instruments by established companies, do not apply. Furthermore, the small market for the disruptive innovation does not solve the growth need of large established companies, therefore managers tend to steer away from investing in these innovations. This is of course driven from a short term perspective

Another approach that established companies use is to ask for advice from their existing customers, i.e. ask if they want to buy products based on new innovations, they will get risk avoiding answers. Why do we need that? The current product works fine, the current level of the innovation does not satisfy our need as customers, e.g. the capacity is too small of the new hard disks with a reduced form factor. We now use a proven technology, why should we choose for unreliable technology? And so on. This situation can best be described as the technology level, not being equal to the market demand/expectation.

Disruptive vs Sustainable Innovation

This of course holds when an innovation is in its early stage, as soon as an innovation gets traction the existing customer starts to focus on the maturing innovations. At this point in time, the established companies that followed their existing customers or relied on their known instruments of budget allocation are too late to follow up. They cannot innovate on their own strength anymore, this is where you will see large companies fail and if possible buy smaller companies with the hope that they do not miss the train.

Now the symptoms are clear, but what can we do about this? If the management identifies that a certain innovation is promising, but not considered sustainable innovation, i.e. it cannot serve the needs of current customers, do not discard, it might be a disruptive innovation! Apply intrapreneurship, which is entrepreneurship within an existing company. Place the innovation into an autonomous (small) organization. This small organization can thrive on the small wins often made in different market segments than the ones from the original company. The autonomous organization is the ideal place to fail fast and find the right approach for the disruptive technology at hand. Of course, not all innovations will flourish, however, the intrapreneurship increases the likelihood.

With the given example, you should be able to identify and distinguish sustainable from disruptive innovation. When you come across disruptive innovation you know in which direction to search for a solution. For more information I would recommend you to read the book:

The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail, Clayton Christensen

— Bob Peters (Embedded System Engineer), Embedded Systems Enthusiast

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