Innovator’s dilemma: the logical, competent decisions of management that are critical to the success of their companies are also the reasons why they lose their positions of leadership.
Other interesting ideas:
Good management is the most powerful reason companies fail to stay atop their industries.
Precisely because firms listened to their customers, invested aggressively in new technologies that would provide their customers more and better products of the sort they wanted, and because they carefully studied market trends and systematically allocated investment capital to innovations that promised the best returns, they lost their positions of leadership.
Sustaining vs. disruptive technologies:
What all sustaining technologies have in common is that they improve the performance of established products, along the dimensions of performance that mainstream customers in major markets have historically valued. Some sustaining technologies can be discontinuous or radical in character, while others are of an incremental nature. Most technological advances in a given industry are sustaining in character.
Disruptive technologies bring to a market a very different value 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.
The pace of technological progress can, and often does, outstrip what markets need.
Principle #1: Companies Depend on Customers and Investors for Resources.
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.
Principle #2: Small Markets Don’t Solve the Growth Needs of Large Companies.
Principle #3: Markets that Don’t Exist Can’t Be Analysed.
It is in disruptive innovations, where we know least about the market, that there are such strong first-mover advantages.
The ultimate uses or applications for disruptive technologies are unknowable in advance. Failure is an intrinsic step toward success.
Principle #4: An Organization’s Capabilities Define Its Disabilities.
Organisations have capabilities that exist independently of the capabilities of the people who work within them. Organizations’ capabilities reside in their processes and their values—and the very processes and values that constitute their core capabilities within the current business model also define their disabilities when confronted with disruption.
The value network: the context within which a firm identifies and responds to customers’ needs, solves problems, procures input, reacts to competitors, and strives for profit. While a value network is characterized by a specific rank-ordering of product attributes valued by customers, it is also characterized by a specific cost structure required to provide the valued products and services.
Good managers do what makes sense, and what makes sense is primarily shaped by their value network.
Value network mobility: There is considerable upward mobility into other value networks. However, three factors—the promise of upmarket margins, the simultaneous upmarket movement of many of a company’s customers, and the difficulty of cutting costs to move downmarket profitably—together create powerful barriers to downward mobility.
The firms that led the industry in every instance of developing and adopting disruptive technologies were entrants to the industry, not its incumbent leaders. A disruptive technology gets its commercial start in emerging value networks before invading established networks.
The technology S-curve: the magnitude of a product’s performance improvement in a given time period or due to a given amount of engineering effort is likely to differ as technologies mature.
One might expect customers to lead their suppliers toward sustaining innovations and to provide no leadership—or even to explicitly mislead—in instances of disruptive technology change.
Disruptive innovations are complex because their value and application are uncertain, according to the criteria used by incumbent firms.
Consistently, established firms attempt to push the technology into their established markets, while the successful entrants find a new market that values the technology.
Resource dependence: Customers effectively control the patterns of resource allocation in well-run companies.
It seems to be very difficult to manage the peaceful, unambiguous coexistence of two cost structures, and two models for how to make money, within a single company.
There is a big difference between the failure of an idea and the failure of a firm.
The strategies and plans that managers formulate for confronting disruptive technological change, therefore, should be plans for learning and discovery rather than plans for execution.
The dominant difference between successful ventures and failed ones, generally, is not the astuteness of their original strategy. Guessing the right strategy at the outset isn’t nearly as important to success as conserving enough resources (or having the relationships with trusting backers or investors) so that new business initiatives get a second or third stab at getting it right. Those that run out of resources or credibility before they can iterate toward a viable strategy are the ones that fail.
Managers confronting disruptive technologies need to get out of their laboratories and focus groups and directly create knowledge about new customers and new applications through discovery-driven expeditions into the marketplace.
Overall evaluation: One of the books that should not only be read, but read multiple times by everyone who is even remotely involved in marketing/strategy or business in general. While it is technology focused in the background research and examples, there is hardly an industry today that is immune to rapid disruption. Buy and read, seriously.
More: The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail