“The Innovator’s Dilemma”: Insightful Inputs-II

If you are  an Entrepreneur, at some point in your entrepreneurial journey, you’re bound to have some apprehensions about your new venture, and you need oodles of confidence and faith to continue with your idea .  WITS Zen helps you enlighten your rigmarole of  entrepreneurial journey with quotes, passages, anecdotes from  books’ passages, entrepreneurs’ stories,  etc.

Continuing with its  initiative  to post series of insightful inputs and wisdom nuggets from the book “The Innovator’s Dilemma“, by Clayton M. Christensen, who has been awarded with the Thinkers50,the global ranking of business thinkers, this is second in the series of insightful inputs from the seminal book. For previous post, click here.

Why Good Management Can Lead To Failure?

Discussing about why good companies fail. Clayton writes,“The first that there is strategically important distinction between what I call sustaining technologies and those that are disruptive…Some sustaining technologies can be discontinuous or radical in character, while others are of an incremental nature. What all sustaining technologies have in common is that they improve the performance of established products,…”

He further adds, “Occasionally, however, disruptive technologies emerge: innovations that result in worse product performance, at least in the near-term…Disrutpive technologies  bring to a market a very different values 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.” Christensen reflects it through the following graph:

The above graph reflects how disruptive technologies cause problems because they do not initially satisfy the demands of even the high end of the market.

Further, Christensen explains why  it  is not a rational financial decision for established companies to invest in disruptive technologies, he says ” ….Investing aggressively in disruptive technologies is not a financial decision for them to make….First, disruptive products are simpler and cheaper; they generally promise lower margins; not greater profits. Second, disruptive technologies typically are first commercialized in emerging markets. And, third, leading firms’ most profitable customers are 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. Disruptive technologies, however, eventually surpass sustaining technologies in satisfying market demand with lower costs.  When this happens, large companies who did not invest in the disruptive technology sooner are left behind.  This, according to Christensen, is the “Innovator’s Dilemma.”

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