Using data from various industries, this book discusses dilemma between sustaining and disruptive innovation.
Most technological companies drift up-market, improving technology for increasingly high-margin customers. This is sustaining innovation. It can be hard, but if you continue to serve the same market, return on investment is predictable. Sustaining innovation creates vacuum at the low end, and entrants fill it with new technologies, not as capable but better in other ways - simpler, more reliable, suitable in different environments, and typically cheaper up-front. This is disruptive innovation. When a working low-end business model is found, products start to improve until they meet demands of mainstream customers. At this point, being cheaper, or simpler, or more reliable, new technologies win.
The entrants often fail, but the wins can be huge. For sustaining innovation, being the first with new technology is not very important - you can serve the same market with incremental improvements to the previous technological generations for a while. For disruptive innovation, the first companies often take it all. They fly below the radar for a while, polishing the processes, and as soon as product is ready for mainstream, they can win overnight. So with more risk of failure, and more to gain, disruptive innovation might be attractive, statistically.
Sure smart management will invest in disruptive innovation, then? In fact, engineers at big companies often do have prototypes of disruptive technologies done before anybody else, it just must be marketed. But then, CEO has to decide between sure increase of bottom line next year using sustaining innovation, or betting on a project that might fail, and even if it succeeds, bringing very small revenue initially. Even if top management decides to bet, it is middle managers and sales people who determine resource allocation on a daily basis, and they also prefer sure bonus this year to uncertain huge win 5 years from now, so disruptive projects usually don't get much attention. Everybody waits until disruptive technology matures enough to serve existing markets, while new companies at eating into those existing markets. There were big companies that successfully brought disruptive products to market, but it requires constant attention of CEO for months. In a sense, the capabilities that allow big companies to operate in their current established markets are liabilities when trying to find new markets.
The solution suggested in the book is creating independent organizations. It can be a complete new company, or it can be a different office, but that organization must be "independent from normal resource allocation process" of mother company, and be judged on how well it can find and grow new market for the disruptive technology. It also suggests that all plans must be plans for discovery of market ("experts' forecasts will be wrong") and therefore be based about inexpensive experiments into new markets and provide for quick change of course if necessary.
The biggest concern about this book is that despite having charts everywhere, it is still more about intuitions rather than any mathematical models. It does mention that company profits can increase as competitions grab low-end market, and it does mention companies that continue to hold nice high-end market after middle-end is occupied by new technology, so decisions are not obvious. There is also a case study of one possible innovation, electric cars, but it only say that their performance is not suitable for mainstream on all metrics (it was before Tesla made it to 60 in 4 seconds) and is increasing faster than market demands. By that criteria, every company should invest in pretty much any new technology. I would have hoped for a more detailed analysis here, but it could be too much to ask from a book that was first to even bring up the innovators dilemma.
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Creating an independent organization, with a cost structure honed to achieve profitability at the low margins characteristic of most disruptive technologies, is the only viable way for established firms to harness this principle.Highlighted by 2,824 Kindle readers- 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.Highlighted by 2,605 Kindle readers
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Top reviews from other countries
Maulik
Great insights on managing disruptive technology!
Reviewed in India on January 19, 2024
Monica
Consegna puntualissima, condizione ottime
Reviewed in Italy on August 5, 2021Fernando Hernandez
A must read for anyone that leads a firm in the new economy
Reviewed in Mexico on February 28, 2019