In The Innovator's dilemma, Clayton Christensen describes the dynamics by which some of the largest, most successful companies in America fail due to "good" management. In his analysis, firms that dedicate themselves to listening to and serving their customers the best, place themselves most at risk for future failures as they are overtaken by smaller upstart competitors with innovative technologies.
The Innovator's Dilemma makes a compelling argument based on the author's study of the computer disk drive industry. Disk drive manufacturing was chosen for its frequent turnover of technology and competitors in a relatively short timespan.
Cristensen places technological innovations in two categories: sustaining and disruptive. Sustaining innovations are those that help sustain an organization's existing customer base by improving the performance, capacity, reliability, or value of an existing product technology. Disruptive innovations produce products that are technologically inferior from the perspective of a firm's existing customer base. Disruptive products, however, may include improvements that, while unimportant to the existing market, hold potential for new and emerging markets. Christensen uses the example of the introduction of small 50cc Honda motorcycles in the late 1950's. From the perspective of the existing motorcycle market at the time, the Honda was inferior compared to larger, more powerful motorcycles such as Harley Davidson and BMW. Honda found a niche, however, as a dirt bike - an emerging market that had not been explored by other manufacturers but was ideally suited for a small, inexpensive motorcycle.
Once a market is established for a disruptive technology, it can then evolve into the mainstream and become technologically improved to the point of competing with and eventually overtaking existing mainstream technologies. In the case of Honda, once a market was established, small motorcycles were technologically improved to the point of appealing to a mass market rather than just dirt bike enthusiasts.
Organizations overlook disruptive technologies for a variety of reasons. Often, larger organizations listen to their existing customers and what is important to them, overlooking small, emerging markets. The innovator's dilemma is that at the time disruptive technologies are introduced, mainstream companies are often wildly successful marketing their sustaining technology to existing customers. Investing in disruptive technology necessitates a diversion of resources away from the organization's most profitable activities that its customers are asking for, toward an unproven technology with a small, uncertain market. Disruptive technologies are often not as cost effective to manufacture or sell when they are viewed from the perspective of existing markets. Small 3.5 inch disk drives, for example, initially cost more per megabyte of capacity compared to larger 5.25 inch drives while, and they had less overall capacity Although they were not attractive to desktop computer manufactures, they represented a cost effective solution to the needs of the emerging mobile computer market where size was more important than large capacity.
Citing examples from a number of industries, Christensen makes the point that traditional business planning works well for established markets and sustaining technologies. In the case of disruptive technologies, however, he argues that strategy should be based on discovery of new opportunities and that individuals working on the development and marketing of disruptive technologies should be organizationally separate.
Overall, the Innovator's Dilemma is a concise, well written book in which the author is able to effectively convey a technically complex study on a technically complex industry. Overall, the Innovator's Dilemma should be required reading for anyone in an business planning role.