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October 25, 2012 Posted by Victor in General, Ideas, Trends

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

Clayton M. Christensen decided to write a book about the reason why established and prestigious companies fail when it comes to using new and innovative technologies. This study proves to be a textbook for all managers who want to take full advantage of technological inventions in order to guarantee the success and growth of a firm. According to the expert, numerous companies from different industries (e.g. the disk drive industry) decided to rely on the efficiency of sustaining technology, used to improve the performance of already released and manufactured products instead of exploring the benefits of disruptive technologies that bring a major innovation.

    The author also emphasizes that in this case the term 'technology' is used to define the process in which materials, the capital and energy is used to improve different services. This book will help academicians, managers and consultants in different businesses create a failure framework which allows them to avoid various decisions that can jeopardize the success of a company. However, the author offers the greatest gift to future and active managers with:  the enlisting of the Five Principles of Disruptive Technologies and the second part of the book that refers to the Managing Disruptive Technological Change.

    According to Clayton M. Christensen one of the most important principles of handling disruptive technologies is to rely on the needs of customers. It becomes obvious that, in order to succeed with a brand new and revolutionary product or service, it is important to target a new and smaller group of customers who need these products. Often, established companies just don't have the courage to take the risk and release a product that wasn't requested by its customers.

    Also, it is very important to focus on the second principle which claims that large companies often wait too long until they decide to enter a smaller market, whereas, entrant firms are willing to take the risk and try their best to come up with a technological breakthrough. Other principles included in the list created by Christensen include the fact that markets that don't exist yet can't be successfully analyzed, an organizations' capabilities are actually their greatest disabilities and market demand may not be equal with technological development.

    All these principles are illustrated through a number of case studies and examples offered by the disk drive industry. Readers are led through the major events in the development of these amazing products. Moreover, we also find out that companies who used sustaining technologies managed to stay in the market while companies that used disruptive technologies got wiped out from the competition. One of the main factors that generated the failure of entrant firms was the fact that their value network wasn't developed correctly and they decided to sell products to customers without using any marketing tricks.


   On the other hand, established and successful companies have a value network, a set of methods the firm uses to respond to the needs of numerous customers, to react to competitors and to solve various problems. These companies often use technologies adapted to their value network. However, in many cases these firms just couldn't keep the pace with technological developments which actually caused their failure.

   In order to understand the most efficient ways to use disruptive technology, it is important to pay special attention to a few principles Christensen presented in this study. First of all, it became obvious that disruptive technology was actually developed inside established companies. Furthermore, experts working at the marketing department looked for reactions from their most important customers. Established firms decided to increase the speed of sustaining technology development in order to improve their products whereas entrant firms tried to move upmarket. Finally, companies with a strong reputation in the industry tried to embrace the new technology; however, in many cases it was too late to make such a bold move.

   The study offers numerous examples to illustrate these principles from the disk drive and mechanical excavator industry. Christensen also claims that established companies had difficulties entering the low-end markets since investing in development and targeting the high-end markets seemed a more rational objective. Managers and executives considered that making full-investments in brand new ideas was dangerous.

    In the second part of the book, the author provides managers with 5 principles used by experts at successful companies who succeeded in using disruptive technology in order to guarantee the growth of their firms. According to Christensen, managers have to use different methods from the ones defined as part of a good management in the case of innovative solutions. This set of methods includes: different projects in a smaller organization with new customers who need the revolutionary and improved products, the planning of failure (trial and error) and the use of resources from the larger organization but not the firm's cost structure or values.

   Managers who want to avoid failure must keep in mind the fact that customers are who control the company's development and not executives or other experts. However, if managers want to come up with a new idea to implement disruptive technology they should convince the firm that this solution will guarantee the growth of the company on a long term. Another solution would be to find an organization and use the technology to create products for customers that want to invest in similar innovations. Other important principles would be to match the size of the organization to the actual size of the market or discover emerging markets. Moreover, Christensen claims that it is really important to define the capabilities and the disabilities of the company. According to him, disruptive technologies are less expensive, more reliable and simpler than old and established technologies. In order to succeed companies have to lead customers towards development. Before offering a full summary of the useful disruptive technology handling principles and methods presented in this book, the author presents a case study on the electric automobile.

 

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