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Innovator's Dilemma

Tags: #🌲evergreen
Links: Innovation Process | Innovation in Established Firms | Innovation
Sources:

  1. https://en.wikipedia.org/wiki/The_Innovator%27s_Dilemma
  2. https://www.reddit.com/r/TheMotte/comments/c1hz3m/disruptive_innovation_clayton_christensen_and_the/

The argument that even well-run companies that listen to competition and their customers and invest in new technologies eventually lose market dominance because they fail to disrupt themselves and offer new value.

Created by @Clayton Christensen.

Sustaining Innovation strenghtens old values, while disruptive innovations offer new values (often worse in the beginning compared to old values) (Categories of Innovation).

The incumbent focus on optimizing revenue and seeking bigger markets. A new entrant focus on a niche market with an inferior product on traditional metrics but having an important appeal to Innovators and Early Adopters Technology Adoption Lifecycle. This product is a greater fit regarding some latent need (e.g. portability) and lower unit price.

When the disruptive innovation gets good enough and starts to capture the incumbent's customers it is too late for them to compete.

The perceptions of an organization's Value Network shape the rewards it expects to maintain.

Blockbuster was disrupted because internet services did not add value to their value network. Their world was about quality of service, variety of movies and distribution of physical stores.

Incumbents don't fail for lack of inventiveness

Incumbents develop innovations well-before competitors. But the market for these inventions is small at the time of the discovery and it represent their worst customers.

Using Kodak's example, the first digital camera customers didn't care about picture quality.

Companies can perform at their best as they're being disrupted

This can happen because the entrant's product appeal to the worst, less profitable customers. When the competition takes them away, the incumbent is left only with the highest performing customers.

The incumbent has the illusion that it's own best interest is to let the lower markets get disrupted.

What can the incumbent do?

Christensen recommends that you buy out your competitor.