Reading List: The Innovator's Dilemma

Clayton Christensen's classic challenge for technologists

Reading List: The Innovator's Dilemma

First published in 1997, The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail is one of the most cited business texts of recent years.

In it, (now) Harvard business professor Clayton Christensen considers the issue of why so many dominant technology companies seemingly fail to understand new technology, finding their position replaced by small start-ups.

When smart isn't enough

Part of the power of this argument - and the book's success - comes from the way it chimes with popular sentiment about how the business world works.

But Christensen is clear that this is not a case of companies getting lazy or executives being stupid. Indeed, as the full title explains, his interest is why "Great Firms ... Fail".

His reasoning is that to become dominant in any sector, a company hires highly competent engineers, managers and sales people who have a laser-like focus on improving existing products and meeting their customers' current needs.

In many cases, new technology - what he labels 'disruptive technology' - starts out offering fewer features or a lower quality of service than current products. It may even be more expensive or more complex to operate than the existing technology. 

The bottomline is, at launch, disruptive technology just doesn't offer the established company the revenue scale it requires to be profitable on its cost base.

Yet, in the long term, the new technology wins out because it becomes cheaper and enables new usage patterns and/or is more convenient, creating a new market in the process.

Coming outta left field

We've most clearly seen this sort of disruption recently in terms of Nokia's dominance in the phone market being smashed as feature phones were replaced by smartphones. This occurred even though Nokia had the all technology inhouse to make smartphones.

But it wasn't just Nokia that was impacted in this way. Palm's dominance in PDAs didn't transfer to phones, while BlackBerry's dominance of mobile messaging has been commoditised, even though these companies had excellent R&D bases.

Meanwhile the companies that now dominate the space came from outside the phone industry. Apple's iPhone 2G launched as a very expensive and rather limited device, while Android's software-only approach was a product of engineers from WebTV and cloud services.

Clean slate

In this way, Christensen argues that while innovation can be generated and launched within market-leading companies, it's also impossible for it to flourish within a corporate culture in which it has to overthrow an already profitable product line.

What could have been; Nokia's N800 wireless tablet (2007)

Companies either need to set up totally independent subsidies to develop such new innovation, or the entire management team needs to focus on changing company culture. (He only found one example of the latter happening successfully, however.)

And this is the reason that most disruptive innovation occurs when staff from market-leading companies leave to set up their own outfits, taking their experience with them but gaining the freedom operate from a leaner cost base, and make mistakes that wouldn't be tolerated at a larger company.

Ivory tower

The Innovator's Dilemma isn't without its critics, however.

Most obviously, the book arose from Christensen's deep research into the various waves of innovation in the US disk drive industry during the 1980s. Yet, this was an component-based industry; one in which manufacturers were selling drive components to PC OEMs, not to consumers.

Christensen cites other examples - the rise of hydraulics excavators, steel minimills, discount retail stores, small-engine motorcycles in the US - but there is a sense that his academic rigour limits his scope, especially when it comes to today's fast-moving consumer electronics market.

His oft-quoted opinion that Apple is doomed to follow Nokia and BlackBerry has generated its share of criticism too.

Yet, what's important to understand about the book is that one of Christensen's main concerns is informing managers how to structure their businesses. He argues it may not even be worth chasing disruptive technology if you already have a strong position in the existing market.

Chasing disruption is very expensive - typically it involves a lot of M&A activity and management time in terms of integrating new companies into the corporate structure. Alternatively, if you can manage your decline, companies can still generate very high profits even as their market is being taken from them.

I wonder how many copies of The Innovator's Dilemma are floating around the Nintendo's boardroom?

For more information, you can check out Clayton Christensen's website.

The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail is available in various physical and digital editions - Amazon UK [link], Amazon US [link]. 

You can check out other books recommended in our Reading List here.

Contributing Editor

A Pocket Gamer co-founder, Jon is Contributing Editor at PG.biz which means he acts like a slightly confused uncle who's forgotten where he's left his glasses. As well as letters and cameras, he likes imaginary numbers and legumes.