Clayton Christensen Innovator's Dilemma Quotes

Disruptive technologies typically enable new markets to emerge.

disruptive technology should be framed as a marketing challenge, not a technological one.

To succeed consistently, good managers need to be skilled not just in choosing, training, and motivating the right people for the right job, but in choosing, building, and preparing the right organization for the job as well.

Three classes of factors affect what an organization can and cannot do: its resources, its processes, and its values.

The techniques that worked so extraordinarily well when applied to sustaining technologies, however, clearly failed badly when applied to markets or applications that did not yet exist.

In contrast, investing time and energy in your relationship with your spouse and children typically doesn’t offer that same immediate sense of achievement. Kids misbehave every day. It’s really not until 20 years down the road that you can put your hands on your hips and say, “I raised a good son or a good daughter.” You can neglect your relationship with your spouse, and on a day-to-day basis, it doesn’t seem as if things are deteriorating. People who are driven to excel have this unconscious propensity to underinvest in their families and overinvest in their careers—even though intimate and loving relationships with their families are the most powerful and enduring source of happiness.

First, disruptive products are simpler and cheaper; they generally promise lower margins, not greater profits. Second, disruptive technologies typically are first commercialized in emerging or insignificant markets. And third, leading firms’ most profitable customers generally don’t want, and indeed initially can’t use, products based on disruptive technologies.

The reason is that good management itself was the root cause. Managers played the game the way it was supposed to be played. The very decision-making and resource-allocation processes that are key to the success of established companies are the very processes that reject disruptive technologies: listening carefully to customers; tracking competitors’ actions carefully; and investing resources to design and build higher-performance, higher-quality products that will yield greater profit. These are the reasons why great firms stumbled or failed when confronted with disruptive technological change.

This is one of the innovator’s dilemmas: Blindly following the maxim that good managers should keep close to their customers can sometimes be a fatal mistake.

When commercializing disruptive technologies, they found or developed new markets that valued the attributes of the disruptive products, rather than search for a technological breakthrough so that the disruptive product could compete as a sustaining technology in mainstream markets.

Sound managerial decisions are at the very root of their impending fall from industry leadership.

Watching how customers actually use a product provides much more reliable information than can be gleaned from a verbal interview or a focus group.

With few exceptions, the only instances in which mainstream firms have successfully established a timely position in a disruptive technology were those in which the firms’ managers set up an autonomous organization charged with building a new and independent business around the disruptive technology.

They must be plans for learning rather than plans for implementation.

An organization’s capabilities reside in two places. The first is in its processes—the methods by which people have learned to transform inputs of labor, energy, materials, information, cash, and technology into outputs of higher value. The second is in the organization’s values, which are the criteria that managers and employees in the organization use when making prioritization decisions.

If good management practice drives the failure of successful firms faced with disruptive technological change, then the usual answers to companies, problems—planning better, working harder, becoming more customer- driven, and taking a longer-term perspective—all exacerbate the problem.

They must be plans for learning rather than plans for implementation. By approaching a disruptive business with the mindset that they can’t know where the market is, managers would identify what critical information about new markets is most necessary and in what sequence that information is needed.

But differentiation loses its meaning when the features and functionality have exceeded what the market demands.

It is very difficult for a company whose cost structure is tailored to compete in high-end markets to be profitable in low-end markets as well.

Disruptive technologies bring to a market a very different value proposition than had been available previously. Generally, disruptive technologies underperform established products in mainstream markets. But they have other features that a few fringe (and generally new) customers value. Products based on disruptive technologies are typically cheaper, simpler, smaller, and, frequently, more convenient to use. There

Will flash cards invade the disk drive makers’ core markets and supplant magnetic memory? If they do, what will happen to the disk drive makers? Will they stay atop their markets, catching this new technological wave? Or will they be driven out?

At a more serious level, the desirability of aligning our actions with the more powerful laws of nature, society, and psychology, in order to lead a productive life, is a central theme in many works, particularly the ancient Chinese classic, Tao te Ching.

First, disruptive products are simpler and cheaper; they generally promise lower margins, not greater profits. Second, disruptive technologies typically are first commercialized in emerging or insignificant markets. And third, leading firms’ most profitable customers generally don’t want, and indeed initially can’t use, products based on disruptive technologies. By and large, a disruptive technology is initially embraced by the least profitable customers in a market. Hence, most companies with a practiced discipline of listening to their best customers and identifying new products that promise greater profitability and growth are rarely able to build a case for investing in disruptive technologies until it is too late.

But was the Newton a failure? The timing of Newton’s entry into the handheld market was akin to the timing of the Apple II into the desktop market. It was a market-creating, disruptive product targeted at an undefinable set of users whose needs were unknown to either themselves or Apple. On that basis, Newton’s sales should have been a pleasant surprise to Apple’s executives: It outsold the Apple II in its first two years by a factor of more than three to one. But while selling 43,000 units was viewed as an IPO-qualifying triumph in the smaller Apple of 1979, selling 140,000 Newtons was viewed as a failure in the giant Apple of 1994.

As successful companies mature, employees gradually come to assume that the priorities they have learned to accept, and the ways of doing things and methods of making decisions that they have employed so successfully, are the right way to work. Once members of the organization begin to adopt ways of working and criteria for making decisions by assumption, rather than by conscious decision, then those processes and values come to constitute the organization’s culture. 7 As companies grow from a few employees to hundreds and thousands, the challenge of getting all employees to agree on what needs to be done and how it should be done so that the right jobs are done repeatedly and consistently can be daunting for even the best managers. Culture is a powerful management tool in these situations. Culture enables employees to act autonomously and causes them to act consistently. Hence, the location of the

By that time, Bezos and his executives had devoured and raptly discussed another book that would significantly affect the company’s strategy: The Innovator’s Dilemma, by Harvard professor Clayton Christensen. Christensen wrote that great companies fail not because they want to avoid disruptive change but because they are reluctant to embrace promising new markets that might undermine their traditional businesses and that do not appear to satisfy their short-term growth requirements. Sears, for example, failed to move from department stores to discount retailing; IBM couldn’t shift from mainframe to minicomputers. The companies that solved the innovator’s dilemma, Christensen wrote, succeeded when they “set up autonomous organizations charged with building new and independent businesses around the disruptive technology.”9 Drawing lessons directly from the book, Bezos unshackled Kessel from Amazon’s traditional media organization. “Your job is to kill your own business,” he told him. “I want you to proceed as if your goal is to put everyone selling physical books out of a job.” Bezos underscored the urgency of the effort. He believed that if Amazon didn’t lead the world into the age of digital reading, then Apple or Google would. When Kessel asked Bezos what his deadline was on developing the company’s first piece of hardware, an electronic reading

The most vexing managerial aspect of this problem of asymmetry, where the easiest path to growth and profit is up, and the most deadly attacks come from below, is that “good” management—working harder and smarter and being more visionary—doesn’t solve the problem. The resource allocation process involves thousands of decisions, some subtle and some explicit, made every day by hundreds of people, about how their time and the company’s money ought to be spent. Even when a senior manager decides to pursue a disruptive technology, the people in the organization are likely to ignore it or, at best, cooperate reluctantly if it doesn’t fit their model of what it takes to succeed as an organization and as individuals within an organization. Well-run companies are not populated by yes-people who have been taught to carry out mindlessly the directives of management. Rather, their employees have been trained to understand what is good for the company and what it takes to build a successful career within the company. Employees of great companies exercise initiative to serve customers and meet budgeted sales and profits. It is very difficult for a manager to motivate competent people to energetically and persistently pursue a course of action that they think makes no sense.

is embedded in an organization in which most people are continually questioning why the project is being done at all. Projects make sense to people if they address the needs of important customers, if they positively impact the organization’s needs for profit and growth, and if participating in the project enhances the career opportunities of talented employees. When a project doesn’t have these characteristics, its manager spends much time and energy justifying why it merits resources and cannot manage the project as effectively. Frequently

One of the most vexing dilemmas that stable corporations face when they seek to rekindle growth by launching new businesses is that their internal schools of experience have offered precious few courses in which managers could have learned how to launch new disruptive businesses. In many ways, the managers that corporate executives have come to trust the most because they have consistently delivered the needed results in the core businesses cannot be trusted to shepherd the creation of new growth. Human resources executives in this situation need to shoulder a major burden. They need to monitor where in the corporation’s schools of experience the needed courses might be created, and ensure that promising managers have the opportunity to be appropriately schooled before they are asked to take the helm of a new-growth business. When managers with the requisite education cannot be found internally, they need to ensure that the management team, as a balanced composite, has within it the requisite perspectives from the right schools of experience.

In fact, the prospects for growth and improved profitability in upmarket value networks often appear to be so much more attractive than the prospect of staying within the current value network, that it is not unusual to see well-managed companies leaving (or becoming uncompetitive with) their original customers as they search for customers at higher price points.

In a small, independent organization, these small wins will generate energy and enthusiasm. In the mainstream, they would generate skepticism about whether we should even be in the business. I want my organization’s customers to answer the question of whether we should be in the business. I don’t want to spend my precious managerial energy constantly defending our existence to efficiency analysts in the mainstream.

In dealing with disruptive technologies leading to new markets, however, market researchers and business planners have consistently dismal records.

Clayton Christensen, the Harvard business professor and author of The Innovator’s Dilemma, was once asked to make just such a sacrifice. At the time, he was working for a management consulting firm, and one of the partners came to him and told him he needed to come in on Saturday to help work on a project. Clay simply responded: “Oh, I am so sorry. I have made the commitment that every Saturday is a day to be with my wife and children.” The partner, displeased, stormed off, but later he returned and he said: “Clay, fine. I have talked with everyone on the team and they said they will come in on Sunday instead. So I will expect you to be there.” Clay sighed and said: “I appreciate you trying to do that. But Sunday will not work. I have given Sunday to God and so I won’t be able to come in.” If the partner was frustrated before, he was much more so now. Still, Clay was not fired for standing his ground, and while his choice was not popular in the moment, ultimately he was respected for it. The boundaries paid off.

Just as Clayton Christensen had predicted in The Innovator’s Dilemma, technological innovation caused wrenching pain to the company and the broader industry

Those who study innovation know this as the innovator’s dilemma, a term coined by the Harvard professor Clayton Christensen. “This is a very strong force,” Mayo points out. “It’s in me. And in everybody.” Strangely enough, however, it may not have been in Mervin Kelly or in some of his disciples—perhaps because the monopoly, at least for a time, guaranteed that the phone company’s business would remain sturdy even in the face of drastic technological upheaval.

He was a ravenous reader, leading senior executives in discussion of books like Clayton Christensen’s The Innovator’s Dilemma, and he had an utter aversion to doing anything conventionally. Employees were instructed to model his fourteen leadership principles, such as customer obsession, high bar for talent, and frugality, and they were trained to consider them daily when making decisions about things like new hires, promotions, and even trivial changes to products.

They planned to fail early and inexpensively in the search for the market for a disruptive technology. They found that their markets generally coalesced through an iterative process of trial, learning, and trial again.

The theory posits that in the early stages of a technology, the rate of progress in performance will be relatively slow. As the technology becomes better understood, controlled, and diffused, the rate of technological improvement will accelerate. 12 But in its mature stages, the technology will asymptotically approach a natural or physical limit such that ever greater periods of time or inputs of engineering effort will be required to achieve improvements. Figure 2.5 illustrates the resulting pattern.

In reality, spinning out is an appropriate step only when confronting disruptive innovation.

But this book is not about companies with such weaknesses: It is about well-managed companies that have their competitive antennae up, listen astutely to their customers, invest aggressively in new technologies, and yet still lose market dominance.

The fear of cannibalizing sales of existing products is often cited as a reason why established firms delay the introduction of new technologies.

understand and harness the principles of disruptive innovation.

managers may think they control the flow of resources in their firms, in the end it is really customers and investors who dictate how money will be spent because companies with investment patterns that don’t satisfy their customers and investors don’t survive.

Hence, because flash cards are being used in markets completely different from those Quantum and Seagate typically engage—palmtop computers, electronic clipboards, cash registers, electronic cameras, and so on—the value network framework would predict that firms similar to Quantum and Seagate are not likely to build market-leading positions in flash memory. This

But in disruptive situations, action must be taken before careful plans are made. Because much less can be known about what markets need or how large they can become, plans must serve a very different purpose: They must be plans for learning rather than plans for implementation.

A product becomes a commodity within a specific market segment when the repeated changes in the basis of competition, as described above, completely play themselves out, that is, when market needs on each attribute or dimension of performance have been fully satisfied by more than one available product. The

The evidence summarized in this matrix may be of some use to venture capital investors, as a general way to frame the riskiness of proposed investments. It suggests that start-ups which propose to commercialize a breakthrough technology that is essentially sustaining in character have a far lower likelihood of success than start-ups whose vision is to use proven technology to disrupt an established industry with something that is simpler, more reliable, and more convenient.

What this implies at a deeper level is that many of what are now widely accepted principles of good management are, in fact, only situationally appropriate. There are times at which it is right not to listen to customers, right to invest in developing lower-performance products that promise lower margins, and right to aggressively pursue small, rather than substantial, markets.

At its zenith Sears accounted for more than 2 percent of all retail sales in the United States. It pioneered several innovations critical to the success of today’s most admired retailers: for example, supply chain management, store brands, catalogue retailing, and credit card sales. The esteem in which Sears’ management was held shows in this 1964 excerpt from Fortune: “How did Sears do it? In a way, the most arresting aspect of its story is that there was no gimmick. Sears opened no big bag of tricks, shot off no skyrockets. Instead, it looked as though everybody in its organization simply did the right thing, easily and naturally. And their cumulative effect was to create an extraordinary powerhouse of a company.

They are always motivated to go up-market, and almost never motivated to defend the new or low-end markets that the disruptors find attractive. We call this phenomenon asymmetric motivation. It is the core of the innovator’s dilemma, and the beginning of the innovator’s solution.

innovator’s dilemma: Should we invest to protect the least profitable end of our business, so that we can retain our least loyal, most price-sensitive customers? Or should we invest to strengthen our position in the most profitable tiers of our business, with customers who reward us with premium prices for better products?

the innovator’s dilemma: Should we invest to protect the least profitable end of our business, so that we can retain our least loyal, most price-sensitive customers? Or should we invest to strengthen our position in the most profitable tiers of our business, with customers who reward us with premium prices for better products?

One of the bittersweet rewards of success is, in fact, that as companies become large, they literally lose the capability to enter small emerging markets. This disability is not because of a change in the resources within the companies—their resources typically are vast. Rather, it is because their values change.

The patterns of success and failure we see among firms faced with sustaining and disruptive technology change are a natural or systematic result of good managerial decisions. That is, in fact, why disruptive technologies confront innovators with such a dilemma. Working harder, being smarter, investing more aggressively, and listening more astutely to customers are all solutions to the problems posed by new sustaining technologies. But these paradigms of sound management are useless—even counterproductive, in many instances—when dealing with disruptive technology.

In the instances studied in this book, established firms confronted with disruptive technology typically viewed their primary development challenge as a technological one: to improve the disruptive technology enough that it suits known markets. In contrast, the firms that were most successful in commercializing a disruptive technology were those framing their primary development challenge as a marketing one: to build or find a market where product competition occurred along dimensions that favored the disruptive attributes of the product.

In general, the successful entrants accepted the capabilities of hydraulics technology in the 1940s and 1950s as a given and cultivated new market applications in which the technology, as it existed, could create value. And as a general rule, the established firms saw the situation the other way around: They took the market’s needs as the given. They consequently sought to adapt or improve the technology in ways that would allow them to market the new technology to their existing customers as a sustaining improvement. The established firms steadfastly focused their innovative investments on their customers. Subsequent chapters will show that this strategic choice is present in most instances of disruptive innovation. Consistently, established firms attempt to push the technology into their established markets, while the successful entrants find a new market that values the technology.

Acquiring managers need to begin by asking, “What is it that really created the value that I just paid so dearly for? Did I justify the price because of its resources—its people, products, technology, market position, and so on? Or, was a substantial portion of its worth created by processes and values—unique ways of working and decision-making that have enabled the company to understand and satisfy customers, and develop, make, and deliver new products and services in a timely way? If the acquired company’s processes and values are the real driver of its success, then the last thing the acquiring manager wants to do is to integrate the company into the new parent organization. Integration will vaporize many of the processes and values of the acquired firm as its managers are required to adopt the buyer’s way of doing business and have their proposals to innovate evaluated according to the decision criteria of the acquiring company. If the acquiree’s processes and values were the reason for its historical success, a better strategy is to let the business stand alone, and for the parent to infuse its resources into the acquired firm’s processes and values. This strategy, in essence, truly constitutes the acquisition of new capabilities.

In the theory of classic disruption, established customers initially reject the inferior, good-enough offer, and hence create a liability for incumbents, for whom allocating resources to the disruptive offer meant going against the feedback of their best customers. This was the tension at the root of the dilemma in Clayton Christensen’s The Innovator’s Dilemma.3 In contrast, established customer relationships are an asset in introducing ecosystem disruption, as they open the door to credibility and ecosystem carryover

established firms tend to be good at improving what they have long been good at doing, and that entrant firms seem better suited for exploiting radically new technologies, often because they import the technology into one industry from another, where they had already developed and practiced it.

on—the value network framework would predict that firms similar to Quantum and Seagate are not likely to build market-leading positions in flash memory. This is not because the technology is too difficult or their organizational structures impede effective development, but because their resources will become absorbed in fighting for and defending larger chunks of business in the mainstream disk drive value networks in which they currently make their money.

while keeping close to our customers is an important management paradigm for handling sustaining innovations, it may provide misleading data for handling disruptive ones.

Managers who don’t bet the farm on their first idea, who leave room to try, fail, learn quickly, and try again, can succeed at developing the understanding of customers, markets, and technology needed to commercialize disruptive innovations.

Why do well-managed companies fail? He concludes that they often fail because the very management practices that have allowed them to become industry leaders also make it extremely difficult for them to develop the disruptive technologies that ultimately steal away their markets.

Discovery-driven planning,

Processes and values define how resources—many of which can be bought and sold, hired and fired—are combined to create value.

Managers who confront disruptive technological change must be leaders, not followers, in commercializing disruptive technologies.

that leadership is more crucial in coping with disruptive technologies than with sustaining ones, and that small, emerging markets cannot solve the near-term growth and profit requirements of large companies.

There is no evidence that any of the leaders in developing and adopting sustaining technologies developed a discernible competitive advantage over the followers

Markets that do not exist cannot be analyzed: Suppliers and customers must discover them together.

Experts’ forecasts will always be wrong. It is simply impossible to predict with any useful degree of precision how disruptive products will be used or how large their markets will be. An important corollary is that, because markets for disruptive technologies are unpredictable, companies’ initial strategies for entering these markets will generally be wrong.

raison d’e^tre

When disruptive change appears on the horizon, managers need to assemble the capabilities to confront the change before it has affected the mainstream business. In other words, they need an organization that is geared toward the new challenge before the old one, whose processes are tuned to the existing business model, has reached a crisis that demands fundamental change.

Managers whose organizations are confronting change must first determine that they have the resources required to succeed. They then need to ask a separate question: does the organization have the processes and values to succeed?

When managers assign employees to tackle a critical innovation, they instinctively work to match the requirements of the job with the capabilities of the individuals whom they charge to do it.

once the performance level demanded of a particular attribute has been achieved, customers indicate their satiation by being less willing to pay a premium price for continued improvement in that attribute.

products offering competitively superior shock resistance and mean time between failure (MTBF) were accorded a significant price premium, compared to competitive offerings.

If history is any guide, companies that keep disruptive technologies bottled up in their labs, working to improve them until they suit mainstream markets, will not be nearly as successful as firms that find markets that embrace the attributes of disruptive technologies as they initially stand.

Incompetence, bureaucracy, arrogance, tired executive blood, poor planning, and short-term investment horizons obviously have played leading roles in toppling many companies.

it means that disruptive technologies that may underperform today, relative to what users in the market demand, may be fully performance-competitive in that same market tomorrow.

Figure I.1 The Impact of Sustaining and Disruptive Technological Change

Disruptive technologies bring to a market a very different value proposition than had been available previously. Generally, disruptive technologies underperform established products in mainstream markets. But they have other features that a few fringe (and generally new) customers value. Products based on disruptive technologies are typically cheaper, simpler, smaller, and, frequently, more convenient to use.

There are times at which it is right not to listen to customers, right to invest in developing lower-performance products that promise lower margins, and right to aggressively pursue small, rather than substantial, markets.

One theme common to all of these failures, however, is that the decisions that led to failure were made when the leaders in question were widely regarded as among the best companies in the world.

Principle #1: Companies Depend on Customers and Investors for Resources

As a consequence, the larger and more successful an organization becomes, the weaker the argument that emerging markets can remain useful engines for growth.

Companies stumble for many reasons, of course, among them bureaucracy, arrogance, tired executive blood, poor planning, short-term investment horizons, inadequate skills and resources, and just plain bad luck.

they reached as far upmarket as they could in each new product generation, until their drives packed the capacity to appeal to the value networks above them. It is this upward mobility that makes disruptive technologies so dangerous to established firms—and so attractive to entrants.

This is because, in fact, the best resource allocation systems are designed precisely to weed out ideas that are unlikely to find large, profitable, receptive markets.

The leading firms in the established technology remain financially strong until the disruptive technology is, in fact, in the midst of their mainstream market.

sensible resource allocation processes were at the root of companies’ upward mobility and downmarket immobility across the boundaries of the value networks in the disk drive industry.

There had, therefore, to be a reason why good managers consistently made wrong decisions when faced with disruptive technological change.

SnapTax competes directly with one of Intuit’s flagship products: the fully featured TurboTax desktop software. Usually, companies like Intuit fall into the trap described in Clayton Christensten’s The Innovator’s Dilemma: they are very good at creating incremental improvements to existing products and serving existing customers, which Christensen called sustaining innovation, but struggle to create breakthrough new products—disruptive innovation—that can create new sustainable sources of growth.

Frederick Herzberg’s assertion that the most powerful motivator isn’t money; it’s the opportunity to learn, grow in responsibilities, contribute, and be recognized.

The strategies and plans that managers formulate for confronting disruptive technological change, therefore, should be plans for learning and discovery rather than plans for execution. This is an important point to understand, because managers who believe they know a market’s future will plan and invest very differently from those who recognize the uncertainties of a developing market.

Research has shown, in fact, that the vast majority of successful new business ventures abandoned their original business strategies when they began implementing their initial plans and learned what would and would not work in the market. 9

. Rita G. McGrath and Ian C. MacMillan, “Discovery-Driven Planning,” Harvard Business Review, July–August, 1995, 4–12.

The Innovator’s Dilemma, by Harvard professor Clayton Christensen. Christensen wrote that great companies fail not because they want to avoid disruptive change but because they are reluctant to embrace promising new markets that might undermine their traditional businesses and that do not appear to satisfy their short-term growth requirements.

Given that aim, technology, as used in this book, means the processes by which an organization transforms labor, capital, materials, and information into products and services of greater value.

As such, while senior managers may think they’re making the resource allocation decisions, many of the really critical resource allocation decisions have actually been made long before senior management gets involved: Middle managers have made their decisions about which projects they’ll back and carry to senior management—and which they will allow to languish.

They generally packaged known technologies in a unique architecture and enabled the use of these products in applications where magnetic data storage and retrieval previously had not been technologically or economically feasible.