By Clayton Christensen.
Who would have thought Innovators have a Dilemma? When I think of Innovators, I see men and women taking us to the next phase, new products and technologies.
Yet, to achieve this continuous success and remain a market leader is not a path of least resistance.
Clayton argues, with massive industry data, that companies that introduce disruptive technologies at time t are somehow incapable of introducing the next disruptive technologies at time t+1.
This is the innovator’s dilemma. Once a disruptive technology becomes main stream or dominant design, serving this big market becomes the focus of the company. Improvements to capture more market share through what Clayton terms sustaining technologies is what the best executives of leading companies do.
A contrast between sustaining technologies and disruptive technologies:
Sustaining is to grow an existing market and disruptive is to open new markets.
Sustaining has clearly identified customers and disruptive has no identified markets.
Sustaining generates enough revenue to support growth plans for a big company and disruptive is not capable of generating revenue to support a big company.
Even though big companies are capable of introducing disruptive technologies, these are the technologies that will retain them as market leaders, majority end up not introducing disruptive technologies.
It is not because they do not see it coming, however it is by focusing on going up their market through sustaining technologies that they miss out on the opportunities to introduce disruptive technologies.
As Clayton say, it is by listening to their current mainstream customers that big companies are unable to focus on disruptive technologies. It is by following notes from their MBA class that the best executives are caught up by disruptive technologies.
Disruptive technologies serve emerging markets, these markets are not attractive at the time of discovery for big companies.
An example; a R10 billion company with 20% yearly growth target, needs an additional annual revenue of R2 billion. On the other hand a R1 million company with the same yearly growth target needs an additional annual revenue R 0,2 million.
Disruptive technologies, even though they start off in emerging markets, with time the performance catches that of sustaining technologies. At that moment, a disruptive technology shifts the competition rules to its favor and soon takes over to be the market leader. Ipod over Sonny, Google over Yahoo, Facebook over the MySpace, the list can continue. What is next?
As companies get bigger, to sustain their growth targets, they require opportunities that can meet their big targets. Emerging markets, the fertile ground for disruptive technologies are not capable of big revenues, at least not yet.
In emerging markets, you can even go a few years before turning to the positive. Big companies cannot afford that. JSE will be on their case.
Big companies attempt to introduce disruptive technologies, however with low success rate. It is entrants that seem to be capable of introducing disruptive technologies and topple market leaders.
One reason why big companies fail is because a team assigned to introduce disruptive technologies competes for resources with a team delivering sustaining technologies for current customers. Current customers pay the bill. Resources, including the team for disruptive technologies end up refocused to sustaining technologies.
Clayton proposes, based on industry data, that the best route for big companies to introduce disruptive technologies is through a small company. A small company that will be excited by small wins. A small company independent of the parent company, not competing for resources with main stream paying customers.
A big company can either spin out or purchase a small company to lead the introduction of disruptive technologies. In this way, the innovator manages the dilemma.
Note: Clayton used disk drive, excavators and retail industries to put his point forward. He concluded the book by sharing his thoughts on what could happen with electric vehicle as a disruptive technology.