Book Review: The Innovator’s Dilemma by Clayton Christensen
The Classic Book on Why Old Firms Don’t Do New Technology
Why do old companies rarely create new technologies? What is a “disruptive” technology? The Innovator’s Dilemma by Clayton Christensen examines these questions in detail, using compelling stories from a cross-section of industries. One of the classic business books on innovation, it describes the inevitable decline of big businesses once they lose the agility to embrace new technology.
Warning: 90s Ahead
One challenge with reading a “classic” business book on disruptive technology is the dated content of its stories and business cases. If you do venture into Innovator’s Dilemma without a fair warning that it was written in the 90s and shows it, then you may struggle with the relevance of its business cases and examples.
For instance, one of its persistent examples of a disruptive ecosystem is the hard disk drive industry. It tracks the progression from 14-inch drives down to 2.5-inches. At times, it mentions gargantuan 20-megabytes 2.5 inch hard drives. Also, it talks about flash memory being unfit for hard drives — despite the emergence of solid-state drives being standard equipment on almost all laptops and even many desktops nowadays.
The fact that the book survives in the modern age as recommended reading is more a testament to the overall analysis of how markets shift. The general observations in the book play out across not only hard drives but also mechanical excavators, retail, and steel. They are time-tested across the whole 20th century and the axioms remain true today.
Technological Disruption
The heart of the book is the fundamental model of disruption: predictable movement of the market from an incumbent technology to new technology over time. At the heart of the model is the idea that companies have gravity to constantly move up-market with existing customers while new technology starts new markets that eventually eclipse incumbents.
The key example of moving up-market in the book was hard drive companies maintaining dominance in the mainframe market while minicomputers and desktop computers were emerging. To consider life inside such a company, running on the revenue of massive investments from large firms building huge accounting systems on mainframes, I can definitely envision how hard it would seem to move to a different development and sales model.
Eventually, the mainframe market shrank as new entrants took over desktops because the new technology crossed over the threshold of cost-per-capability (the real unit of disruption). When considering if a technology — especially your own technology — is poised to take over an emerging market, it is key to focus on the notion of it replacing a more expensive and capable technology within a few years of improvement.
My Own Innovative Dilemmas
In my time at LiveTiles, I did witness this phenomenon first-hand in very practical forms. In the early days, we had a thesis that “power to the people” would be the theme of the enterprise moving forward. Enabling anyone to make a web page inside of an enterprise was a very novel concept when they made their first proof-of-concept in 2013.
By the time I came aboard in 2015 their work with early adopters made them a promising upstart. Fast forward a few years and I could see from the ground how the path toward those enlightened goals can devolve into just trying desperately to keep the platform alive and meet the various deadlines from your demanding blue-chip customers. It keeps you from having the same agility and impelled motion toward your vision; instead, you’ve got a pile of contracts and you better make sure your developer’s every semi-colon is part of the effort to dot the i’s and crosses the t’s. Yet the alternative would be a plateau in revenue as you ignore product-market fit in the reckless pursuit of more shiny new ideas — not to say that hasn’t happened either.
Tesla Disruption
The book ends with a lengthy analysis of an at-the-time emerging technology: electric cars. After spending an entire book extolling the virtues of new technology in new markets, it offered a soberingly grim appraisal of what automakers were facing making the technology work. Underpowered engines and overweight batteries, despite regulation from California adding urgency to innovation.
On reflection of that chapter, it’s hard to not think about Tesla — especially given that Elon Musk used the exact opposite strategy to disrupt a market. Instead of starting at the bottom and coming up from below to sweep the legs of the market, Tesla began with a luxury product that offered unique features and intense desirability. With each model, they’ve grown their market by offering a more accessible price point. This seems like the logical counterpoint model to any disruption requiring intense R&D investment.
In the case of the challenge with electric cars, the solution was to not use the innovator’s dilemma at all as framed in the book. Instead of Clayton’s classical “10x value for 1/10th cost” approach as in the book, Tesla was basically “10x cost for re-imagining the experience” — solving what perhaps might be called “The Luxury Innovator’s Dilemma” through massive vertical integration and taking on the herculean task of owning an ecosystem around a product, not just manufacturing the product itself.
Most likely, adherence to his own strictures is what kept Clayton Christensen from envisioning a solution to the voltaic vehicle enigma. In this case, it reveals that business models continue to evolve, and not all innovation fits into a single model. The Innovator’s Dilemma is just one perspective, informed by the 20th century and also limited by it.
Conclusion
The Innovator’s Dilemma is intellectually provocative and well-written. It provides a look into business thinking that was emergent during the rise of the internet. The concept of ideas being better if they offer superior value-per-cost rather than pure novelty is powerful. The next time I have a new “disruptive” idea, I will consider how that idea would fit into existing Value Networks and offer a route to go from the bottom of the market to a virtual monopoly like so many disruptions before.
Erik Ralston was fortunate to have had a groundbreaking amount of storage in his first hard drive — one gigabyte — and is Chief Architect at LiveTiles where he leads the team building the world’s only Intelligent Experience Platform (IXP). Erik is also co-founder of Fuse Accelerator in Tri-Cities, WA where he works on connecting people and sharing knowledge to turn new ideas into growing startups. You can find him on LinkedIn, Twitter, or the next Fuse event.
