This book will give you a different perspective to look at disruptive technologies. Despite having greatest resources, why does great companies fail when they encounter a disruptive technology? And for new companies, what kind of vacuums are created by larger companies when any disruptive technology is invented? Are these disruptive technologies complex? Who create these technologies? You will get answers to these fundamental questions and many other questions you might be having regarding the process of innovation.

This book can be said as a complete case study book.
It is not just a perspective of the author that he has described, but anything that has been mentioned, is supported by evidences. Its a Great book!

Outstanding documentation on how many businesses don't have a clue of how to maintain success.

A must read theory for anyone who is into Problem Identification. Basically everyone :)

I started this book 3 years back, read 25-30 pages and gave up as I did not found it interesting. I started it again last month, but now I already read 2 other books by the same author, just to realize that the language in this book was too tough for me to understand 3 years ago mainly because of my level of understanding.

As I have mentioned in the reviews of other books by Clayton Christensen, the theory in this book is a very fundamental one which deals with WHY-of-X. While reading, I was applying this to other areas of my life apart from Business (which is the context of the book), like communication skills, relationships, personal learning etc and they are so true! If you want a full grasp of Clayton's theory, read his all three books and you will feel the dots-are-connecting effect, giving you a 360-degree view of looking at a situation in every aspect of your life.

The central claim is that companies that are undone by disruptive players were not undone because of poor management. Instead the managers made logical decisions. The problems is the disruptive tech often start with poor performance that can only fit in niche market. An established firm can not handle such a small market with poor margins. Although they can wait and enter at a better time, it's tricky to do so -- it's much more difficult to move down-market. The best bet is spin off an entity to pursue it.

Most of the argument was made while mining the data the author collected about the disk industry. I was increasingly convinced that it's overgeneralization of a single example. Then he gave another example (excavators) with a very different profile. So he's got a stronger case. Nevertheless, it is now abundantly clear to me why business books can be condensed so easily.

Notes from Clayton Christenson, The Innovator’s Dilemma

It pays to be a leader in a disruptive innovation
•tLeadership in sustaining innovations gives little advantage
•tLeadership in disruptive innovation creates enormous value

But established companies typically fail in the face of disruptive change
•tCompanies get organized to satisfy current customer’s needs and to facilitate design and production of current products. This organization can then prevent the organization most conducive to developing a disruptive product (Henderson and Clark).
•tCompetencies developed for improving the current product may not be applicable for developing a disruptive product (Clark)
•tAbove two theories don’t adequately describe what happened in disk drive and excavator industries. Value Networks explanation: Companies tend to invest in innovations that fit the needs of their “value network,” which defines the hierarchy of importance of characteristics for current customers. Current customers reinforce this by not needing the innovation. (Christenson)
•tNew entrants find markets with different value networks for innovations
•tCompanies are more likely to seek additional markets upward rather than downward because up-markets are defined and promise larger margins and the investment the companies have gotten used to making for product improvements demand higher margins. Also existing customers move up-market and take their suppliers with them. This leaves a vacuum below, e.g., flash memory instead of disk drives. [Basecamp instead of MS Project:]
•tNew entrants also move up-market which brings them into competition with established companies. New entrants tend to improve faster than established companies and so they will eventually disrupt.
•tMiddle managers avoid career risk of backing innovations for which no market or a down-market is identified. They screen out these opportunities so senior managers don’t even see them as an option. Even if a senior manager decides to pursue a potentially disruptive innovation, there will be resistance if not outright thwarting at the middle management layer (most likely passively through reluctance to allocate resources [see HBS case on Kodak).

What established companies need to do
•tBe able to recognize and enter different value networks
•tAlign disruptive innovation with the “right” customers by embedding the innovative project in a part of the organization (new if necessary) that serves the customers for the innovation and doesn’t have to meet same revenue/margin demands as incremental/sustaining innovation
•tBe prepared to go through an iterative process that is failure tolerant because forecasting the market is impossible. This process should be a learning process that goes beyond focus groups to actual observation of new customers and new applications.
•tUse the resources of the big organization but not its culture and processes
•tDon’t try to push the growth of an emerging market (Apple Newton) and don’t wait until the market is large enough to be interesting. Instead match the organization size to the growing market so that its goals are satisfied by the organically growing market and so it’s cycles match the rhythm of the market. Acquisition may be the solution.
•tAssess the capabilities of your organization and set up a structure (existing organization, lightweight teams, or heavyweight teams) that makes up for the deficiencies in the existing situation.


[Note: these “recommendations are repeated by Govindarajan in 10 Rules for Strategic Innovators]

This is deservedly a classic work in the business and technology area because it highlights an interesting problem: When disruptive innovation occurs, the best management practices are likely to cause your company to fail. Christensen uses several industries, such a hard disk drive manufacturing and excavation equipment to make his point.

He first distinguishes between two types of innovation, sustaining and disruptive. In short, sustaining innovation is making incremental improvements in the existing technology, such as adding more capacity to existing disk drives. And in those cases firms can do well using standard management practices, by evaluating the cost of innovation versus the return on the investment, and choosing any innovation where the metrics are favorable.

In contrast, a disruptive innovation frequently looks like a development no one needs, and possibly even a step backwards. But it can lay the groundwork for overturning the established dominant firms and remaking the industry. And the dilemma is that in the vast majority of cases, the existing dominant companies will be incapable of even following, let alone leading, in the new technology.

One reason I was eager to read this book is the Eric S. Raymond has been making the argument that Apple is vulnerable to disruption from below in the mobile market, and that interests me. I don't know that I am entirely ready to buy Eric's argument yet, though I will note that his forecasts have so far been pretty accurate.

One last note: I read this on my phone using the Kindle app. I do not recommend this to anyone else. The book uses a number of graphs and charts that are rendered unreadable on a small screen. I suspect this sort of thing will get better, but for now I would get the paper book or use a larger screen

Muito porrada

Had to quit. Written like an academic paper. Not engaging.

A must read, still relevant after many years. If you are into technology, innovation and new business models (and you like a little bit of history), you will enjoy this book. Consider reading "crossing the chasm" to complement this book.

Why do well-managed companies fail?


They fail because they are well- managed (that's the dilemma)

Chances are, you’re reading this review on an example of disruptive technology. An iPhone or other smartphone. An iPad or a notebook computer. Or simply a laptop. Every one of these devices turned its industry upside down when it was introduced, driving established companies to the brink of insolvency, or even into oblivion, and paving the way for new actors to enter the landscape.

Today, almost instinctively, we understand the concept of disruptive technology. But it wasn’t until after the publication in 1995 of an article by Clayton Christensen in the Harvard Business Review entitled “Disruptive technologies: catching the wave” that the term entered the language. That seminal article was followed in 1997 by Christensen’s pathfinding book, The Innovator’s Dilemma – one of the most influential business books of all time.

Christensen, a long-time professor of business administration at the Harvard Business School, had found an answer to a question that had long mystified the business community: why had such iconic, well-managed firms as Digital Equipment Corporation, Xerox, and dozens of others that had long led their industries fallen by the wayside? The professor’s answer was not that they had simply gotten behind technologically but that they had done everything right — listening carefully to their best customers and catering to their needs by investing in sustaining technologies that offered customers added value. The problem was that the dictates of prudent business practice prevented them from investing in the sort of innovation that could turn their own industries upside down: disruptive technologies. In fact, Christensen wrote, “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 . . . There is something about the way decisions get made in successful organizations that sows the seeds of eventual failure.”

A decade and a half ago this was a shattering insight and it explains the acclaim that Christensen’s work has received throughout the world of business. However, if you turn to his book, The Innovator’s Dilemma, in search of deeper understanding of these concepts, you may be disappointed. I was.

Sadly, this book is organized and written in a style that reeks of old-fashioned academia. Chapter One, an introduction of sorts, sums up the book as a whole — in 26 tedious pages, explaining in detail what the reader will find, chapter by chapter. First, Chapter One briefly outlines what the book will reveal, then proceeds to repeat each point in detail. Then, as though that isn’t enough, each chapter repeats the same points, adding considerably more detail. The final chapter repeats each of the major points — again. The repetition is maddening. And so is the overuse of the passive tense, which abounds throughout. Compounding the problem are the long-winded explanations of such things as how disk drives work and the distinction between thin-film technology and ferrite-oxide technology in disk drives’ read/write heads. All this material, no doubt necessary to “prove” Christensen’s thesis to his academic peers (some of whom are still not convinced), gives the book the charm and box-office appeal of a PhD dissertation about the influence of the Greek concept of the soul in 13th Century French literature.

If all you want is to get to the meat of this book and avoid slogging through endless detail about matters only an engineer could love, read the first chapter and the last one. Forget the rest. You’ll thank me.

A pretty convincing argument for why large, established companies struggle to keep up with disruptive innovations. It turns out that the very things that make those companies dominant in an existing market work against them when considering new markets. As the pace of disruption accelerates, the lessons in this book become more and more important.

Less convincing are the solutions the book proposes and, at an even more basic level, how to distinguish between what the book calls "sustaining innovations" and "disruptive innovations". It seems that the definitions rely on hindsight (ie, a disruptive innovation is one that turns out to, uh, disrupt the leaders) and are not particularly predictive. And since the solutions the book proposes only work for the disruptive ones, this is a rather big weakness.

Still, the book is worth reading for building your awareness and vocabulary around these issues. The writing is a bit dry and academic-sounding, but there are plenty of good examples that, if you've ever worked at a large company, will feel all-too-familiar.



Some good quotes from the book:


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.

While 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. The highest-performing companies, in fact, are those that are the best at this, that is, they have well-developed systems for killing ideas that their customers don’t want. As a result, these companies find it very difficult to invest adequate resources in disruptive technologies—lower-margin opportunities that their customers don’t want—until their customers want them. And by then it is too late.

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. Such organizations, free of the power of the customers of the mainstream company, ensconce themselves among a different set of customers—those who want the products of the disruptive technology.

In dealing with disruptive technologies leading to new markets, however, market researchers and business planners have consistently dismal records. In fact, based upon the evidence from the disk drive, motorcycle, and microprocessor industries, reviewed in chapter 7, the only thing we may know for sure when we read experts’ forecasts about how large emerging markets will become is that they are wrong.

Simply put, when the best firms succeeded, they did so because they listened responsively to their customers and invested aggressively in the technology, products, and manufacturing capabilities that satisfied their customers’ next-generation needs. But, paradoxically, when the best firms subsequently failed, it was for the same reasons—they listened responsively to their customers and invested aggressively in the technology, products, and manufacturing capabilities that satisfied their customers’ next-generation needs. 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.

My findings consistently showed that established firms confronted with disruptive technology change did not have trouble developing the requisite technology [...] Rather, disruptive projects stalled when it came to allocating scarce resources among competing product and technology development proposals [...] Sustaining projects addressing the needs of the firms’ most powerful customers [...] almost always preempted resources from disruptive technologies with small markets and poorly defined customer needs.

Successful companies want their resources to be focused on activities that address customers’ needs, that promise higher profits, that are technologically feasible, and that help them play in substantial markets. Yet, to expect the processes that accomplish these things also to do something like nurturing disruptive technologies—to focus resources on proposals that customers reject, that offer lower profit, that underperform existing technologies and can only be sold in insignificant markets—is akin to flapping one’s arms with wings strapped to them in an attempt to fly. Such expectations involve fighting some fundamental tendencies about the way successful organizations work and about how their performance is evaluated.

One of the dilemmas of management is that, by their very nature, processes are established so that employees perform recurrent tasks in a consistent way, time after time. To ensure consistency, they are meant not to change—or if they must change, to change through tightly controlled procedures. This means that the very mechanisms through which organizations create value are intrinsically inimical to change.

In order for a $40 million company to grow 25 percent, it needs to find $10 million in new business the next year. For a $40 billion company to grow 25 percent, it needs to find $10 billion in new business the next year. The size of market opportunity that will solve each of these companies’ needs for growth is very different. As noted in chapter 6, an opportunity that excites a small organization isn’t big enough to be interesting to a very large one. 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.

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

A summary of the more complete review at my homepage:

The most elegant, and the most scary part of Disruption Theory presented by Prof. Christensen in this book is the ease of application. Any theory is just a theory, but the contrarian, almost oversimplified approach disruption presents to the question of success of an enterprise is bound to give many managers, and most consultants in the technology world some sleepless nights. The author's presentation of his case on how one-time underdogs can beat industry leaders, and how industry leaders are powerless to stop them is eye-opening.

The author's makes powerful use of culture and values of a company as the mechanism of his theory, and this is an argument that is very difficult to dispute. I read this book directly before I read "In search of Excellence", and many of the ideas resounded strongly. The product-champion approach of "In search of Excellence" is probably the only approach that leaders can take to save themselves from disruption.

A must read for any MBA who thinks sound management is the key to the kingdom :)