SMUG Textbook: The Innovator’s Dilemma

The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail, by Clayton Christensen.

Clayton Christensen is amazing. I got to hear him speak in person at our Mayo Clinic Transform symposium in September, but I was a fan long before that. In The Innovator’s Dilemma he lays the groundwork for a way of understanding disruptive innovation and why successful incumbent businesses and market leaders are so bad at adopting disruptive technologies.

It’s not because they’re stupid, lazy or unwilling to take risks. Christensen argues that they’re simply making decisions in keeping with sound management practices, and focusing on their most profitable lines of business.

Here’s my simplified version of the product progression Christensen describes. I will illustrate it using video cameras as the example.

  1. Incumbents develop products that are “too good” for most customers. In the case of tape-based video cameras, companies like Sony continually add new features to distinguish their products from those of competitors and to keep from having to cut prices to compete. So they improve quality with Carl Zeiss® lenses, or add night vision infrared capabilities, or 60x optical zoom, or other features that are important to the most demanding customers.
  2. Disruptive technologies arise that are much lower in quality but also much cheaper. In the video camera examples, the disruptive innovation was a camera that uses a Flash memory card instead of a tape. This “not good enough” product didn’t meet the needs of Sony’s most demanding customers, but it did make video recording available to many people who previously couldn’t afford it. Instead of chasing the low end, incumbents like Sony reasonably chose to focus on their most profitable market segment.
  3. Low-end competitors improve their product to move “up market.” Pure Digital, maker of the Flip video camera, continued to improve quality and convenience, meeting the needs of an increasing portion of the market at a much lower price. By the time the incumbents like Sony respond, they’ve lost their market leadership position. The Flip is now the most popular video camera in the U.S., and it is even available in HD for $200 or less.

This is a simplified overview, so you should read the book for a fuller explanation. But It’s amazing when you see how this same model has played itself out in countless other industries.

The Innovator’s Dilemma sets the stage for Christensen’s other books, including The Innovator’s Solution, Seeing What’s Next and The Innovator’s Prescription. I recommend all of them as SMUG Textbooks, and hope to review them here in the future.