The innovator's dilemma
Transcript of The innovator's dilemma
The innovator’s dilemmaWhen New Technologies Cause Great Firms to Fail
Clayton M. ChristensenProfessor of Business AdministrationHarvard Business School
About the Author:
Global Business Book Award The best business book of the year (1997)
The Innovator’s Dilemma
Li WeiTechnology commercialization managerExploit Technologies Pte Ltd (ETPL)Agency for Science, Technology and Research (A*STAR, Singapore)
Summary and presentation by
B. Eng & Ph.d (Engineering)Nanyang Technological University Singapore
M.B.A.INSEADFontainebleau, France
This is John
Say ”Hi”, John Hi˜
John is a product engineer in a well established technology company
His company has been the leader in this market for decades
But one day ...
John’s company went out of business, and he lost his job
In the past one year, his company lost almost all their customers to a competitor with a disruptive innovation
John is really sad because his company didn’t do anything wrong, somehow, they lost the competition so badly
But John doesn’t know that his company failed because
THEY DID EVERYTHING RIGHT
To understand the reason, John must know two types of innovation
Sustaining Innovation
Disruptive InnovationVS
improves product’s performance based on the features valued by mainstream customers
Sustaining Innovation
It is aiming at moving upward along certain performance metrics
Speed
power
often involved lower performancein many product features
Disruptive innovation
born in the niche market that’s neglectedby current market offering
It is for niche market
Sustaining innovationis driven by existing
market demand
But it canultimately failthe company
Disruptive innovation is an unproven
opportunity
But it can be the future of the
company
This is the core of the innovator’s dilemma
Why did John’s company, the market leader, miss the opportunity for the disruptive innovation?
Let’s find out what happened to John’s company
John had many ideas for new products and improvements
With the marketing department, the project team gathered feedback from their lead customers anddid the market analysis
They chose the best project for the product or improvement their leader customers want
Big market sizeBest profit marginCustomer validation
best project
They did everything right
Meanwhile, the competitor with disruptive innovation …
Their product was not valued by main stream market, but they found a niche market by trial and error
As their product improving, the competitor managed to grow the niche market and encroach the customer base of John’s company
John’s company belatedly jumped on the bandwagon to defend customer base
However, in the newly developed market, John’s company hadn’t developed any competitive advantage and they are too late
In the history, the same story happened to many great companies
They failed because the very management practices that made them market leader also make it extremely difficult for them to develop the disruptive innovation
To understand the difficulties, we need to firstly understand the concept of Value Network
The context within which a organization is established to get what it values
Value Network
revenue from The lead customers
For a established company, this is the value they are after
The highest performing company has a well-developed system tailored to capture the value from its lead customers
Structure Capability
Operation
Culture
Partnership Management The lead customers
Value network
Within a value network, the system and its past choices of markets, determines its perceptions of the
value of an innovation
It drives resource allocation towards sustaining innovation that is valued by the current lead customers
Funding
Manpower
And, it is extremely difficult to keep resources for a disruptive innovation for a unproven market
? Funding
Manpower
This pattern of resource allocation accounts for the well-run companies’ leadership in the sustaining innovation and their
dismal performance in the disruptive one
sustaining innovation disruptive innovation
If we can turn the time backwards, can John’s company do something different to better manage the disruptive innovation?
There are five principles of disruptive innovation
The managers can harness these principle to their advantage
1Customers effectively control the patterns of resource allocation in well-run companies
Lead customers
Well-run company
Lead customers
Well-run company
A spin-off organization
niche market
Give responsibility for disruptive innovation to organizations whose customers need them
disruptive innovation
2Small markets don’t solve the growth needs of large companies
Large company
Larger and larger and larger
Place disruptive innovation projects in organizations small enough to get excited about small market
Small organization
disruptive innovation
Small market
This is good enough for me
3Markets of disruptive innovation may not exist and can’t be analyzed
Do these before you talk to me again
Plan to fail early and inexpensively in the search for the market for disruptive innovation
4The existing process and values define the organizations’ disabilities when confronted with disruption
Utilize the resources of the mainstream organization to address disruption, but not its processes and values
I don’t need a oil truck, butI need the petrol in its tank
5Technology supply may not equal marketdemand It is not good enough, Let’s
improve its technology
When disruptiveinnovation is presented
Established firms take it asa technical challenge
Disruptive innovation is a marketing challenge
When disruptiveinnovation is presented
Disruption company take itas a marketing challenge
It isn’t valued by mainstream,Let’s find people who like it
Hi, John. Could you please give us asummary?
Hi, John. Could you please give us asummary?
OK !
Why great company can fail
The business exists in a value network that shapes leaders’ decisions. It couldblind them to the disruptive innovationand lose the future opportunity
To manage the disruptive innovation
1. Have a spin-off2. Match its size with its market3. Plan to failure4. Use the resource only5. It is a marketing challenge
Although John’s company failed, he isnot such a person who gives up easily.
He joins a start-up with a disruptiveinnovation
In a niche market, they don’t need to worrytoo much about their larger competitors
This gives them more time to fine tunetheir technology and develop a futuremass market
Like many other start-ups andentrepreneurs, they willsurprise the much largercompetitors in difference
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