An Enduring Dilemma

The enduring context of Clayton Christensen’s The Innovator’s Dilemma is, in essence, its endurance. Appearing on May 1, 1997, as an outgrowth of Christensen’s teaching at Harvard Business School and his seminal 1995 article Disruptive Technologies, it remains canonical business literature and a must-read for students, executives, entrepreneurs and would-be innovators in any field.

Christensen wielded broad influence. For example, Steve Jobs told his biographer that Christensen profoundly shaped his thinking – high praise, since Jobs seldom credited others, especially regarding his philosophies. In his bestseller Zero to One, another tech leader, Peter Thiel, explores one of Christensen’s primary theories: that innovation works differently for disruptive versus sustaining technology. This may sound trivial, but it has huge implications for established companies.

Good Companies Going Bad

Christensen’s somewhat dry and academic, but highly intriguing book begins with a paradox: Great companies fail because they focus on improving what made them great: listening to customers, investing in the highest return opportunities, improving products, studying market trends and striving to surpass the competition. What’s wrong with that? Christensen’s answer lies in his discovery of this insidious, repeating pattern: First, established businesses develop something new. Then, existing customers don’t respond – because existing offerings serve them. Finally, upstart companies will develop new technologies and take market share.

Sears Roebuck, for decades the preeminent American retailer, can serve as an example of what Christensen outlines. The company pioneered innovations, including its catalog, supply chain management and store brands. It failed, Christensen argues, because it discounted threats from big-box stores, low-cost retailers and credit card companies. Another example would be IBM, which was disrupted by Digital Equipment Corporation (DEC) in minicomputers. Ironically – no one is safe from the innovator’s dilemma – DEC itself later foundered with personal computers.

Value networks strongly define and delimit what companies within them can and cannot do.Clayton Christensen

While exploring the dilemma that productive behaviors ultimately become counterproductive, Christensen didn’t offer in-depth solutions to it. Those would come later, in his books The Innovator’s Solution: Creating and Maintaining Successful Growth (2013) and The Innovator’s DNA: Mastering the 5 Skills of Disruptive Innovators (2011). Though these are worthy additions, Christensen’s first book remains his strongest. For him, as for so many managers, it proves easier to identify a problem than to solve it. So, what it the problem exactly?

Sustaining and Disruptive Innovation

Christensen defines two forms of innovations. Sustaining innovations, as he calls them, improve on established products. Disruptive innovations, on the other hand, disrupt the value proposition. Less sophisticated, less powerful and of lower quality, they are also less expensive, more user-friendly and sufficient to the task. A modern-day example of this would be the shift from traditional television to web-based video streaming platforms.

Christensen holds that established companies inevitably offer more quality than customers need, want or can afford. They sacrifice the low end. Thus, disruptive innovations debut at the market’s bottom among new consumers.

When he wrote his instant classic in 1997, Christensen used examples from hardware manufacturing. Some of today’s critics hold that his examples cannot sufficiently account for the behavior of software and/or Internet-driven companies. This discounts Christensen’s regularly updated editions and subsequent books. As the rise of video streaming demonstrates, contemporary developments prove that Christensen’s theories apply to companies created yesterday as well as to those created in the 1990s and before. He codifies primary truths of contemporary business – and manages to deliver them with the elegance and power of a Zen koan.

Opportunity at the Bottom

The appeal of his book owes a lot to a surprising discovery: the fact that disruptive innovations typically appeal to the least desirable customers. Steel mini-mills, for example, made steel suitable only for reinforcing rods. This was the low end of the market in quality, price and margins. Established steel companies couldn’t profit in this market, so they abandoned it to mini-mills, which could. They went on to improve the quality of their steel and to add bars and iron angles as additional products.

The established companies, Christensen notes with a shake of his head you can see as you read, again abandoned those products and sacrificed the lion’s share of the market. As he shows, their high-cost structures meant they could not compete with upstarts. Over and over, in industry after industry, established companies focused on the top of the market and created opportunity at the bottom.

Blindly following the maxim that good managers should keep close to their customers can sometimes be a fatal mistake.Clayton Christensen

Christensen offers another provocative insight: Listening to your clients is dangerous. He explains that by establishing the concept of “value networks”: A firm that serves the customers in its particular value network may find it hard to satisfy them in a different one. Christensen draws a logical, but sobering conclusion: Customers can’t lead a company to disruptive innovations. And he makes a fine, worthy distinction: Disruptive technology investment is a marketing initiative, not a technological initiative.

Disruption Isn’t for Everyone

Christensen – arguably too pessimistically – asserts that established companies invariably lack the information to justify an investment in disruptive technology. He warns that risk is high, while he insists that failure and learning from failure are the path to disruptive technology success. Interestingly, it’s exactly this insight from more than two decades ago that has not just become a cornerstone of disruptive companies’ practices, but that also appears in most contemporary management advice books. No one does it better than Christensen himself, though. He presents his idea with so much common sense that companies going back to his classic may yet learn more from it.

As with its innately paradoxical theory, the sustained dominance of The Innovator’s Dilemma thus provides an ironic paradox: Its author maintains that all those who disrupt will suffer eventual disruption. Yet, in more than two decades, no book has disrupted The Innovator’s Dilemma’s dominance or necessity.