THE INNOVATOR’S DILEMMA, The Revolutionary Book That Will Change the Way You Do Business, by Clayton M. Christensen, DBA, HarperBusiness, New York, © 2000, ISBN-10: 0-06-052199-6; ISBN-13: 978-0-06-052199-8, 286 pp, $17.99. Hardcover edition was published in 1997 by Harvard Business School Press.
book ought to chill any executive who feels bulletproof—and inspired
entrepreneurs aiming their guns.” –Forbes
Clayton M. Christensen is the architect of and the world’s foremost authority on disruptive innovation, a framework which describes the process by which a product or service takes root initially in simple applications at the bottom of a market and then relentlessly moves ‘up market’, eventually displacing established competitors. Consistently acknowledged in rankings and surveys as one of the world’s leading thinkers on innovation, Christensen is widely sought after as a speaker, advisor and board member. His research has been applied to national economies, start-up and Fortune 50 companies, as well as to early and late stage investing.
His seminal book The Innovator’s Dilemma (1997), which first outlined his disruptive innovation frameworks, received the Global Business Book Award for the Best Business Book of the Year in 1997, was a New York Times bestseller, has been translated into over 10 languages, and is sold in over 25 countries. He is also a four-time recipient of the McKinsey Award for the Harvard Business Review’s best article. See entire bio . . .
first heard Dr. Christensen speak at the sixth World Health Care Congress in
Washington DC in 2008. Amongst a faculty of hundreds speaking to thousands of
the business and professional health care leaders of the world, he was the
towering speaker that singularly put hope and confidence in the future of health
care. He was totally out of sync with the other speakers who talked about
patches to the current system. He showed those participants that there would be
serious disruption in health care before any new direction would be realized.
Using free enterprise and market efficiency to reduce costs is not well
understood or taught in today’s educational environment.
book, as Christensen states in his introduction, is about the failure of
companies to stay atop their industries when they confront certain types of
marked and technological change. It’s not simply about the failure of any
company, but of good companies—the kinds that many managers have admired and
tried to emulate; the companies known for their abilities to innovate and
execute. Companies stumble for many reasons, of course, among them bureaucracy,
arrogance, tired executive blood, poor planning, short-term investment horizons,
inadequate skills and resources, and just plain bad luck. But this book, he
continues, it not about companies with such weaknesses. It is about well-managed
companies that have their competitive antennae up, listen astutely to their
customers, invest aggressively in new technologies, and yet still lose market
seemingly unaccountable failure happens in industries that move quickly and in
those that move slowly; in those built on electronics technology and those built
on chemical and mechanical technology; in manufacturing and in service
industries. Dr. Christensen in illustrating the Innovator’s Dilemma takes on a
tour of several industries.
Roebuck, for example, was regarded for decades as one of the most astutely
managed retailers in the world. It pioneered several innovations critical to the
success of today’s most admired retailers: for example, supply chain
management, store brands, catalogue retailing, and credit card sales. Yet no one
speaks about Sears that way today. Somehow, it completely missed the advent of
discount retailing and home centers. In the midst of today’s catalogue
retailing boom, Sears has been driven from that business. Indeed, the very
viability of its retailing operations has been questioned.
the computer industry. IBM dominated the mainframe market but missed by years
the emergence of minicomputers, which were technologically much simpler than
mainframes. In fact, no other major manufacturer of mainframe computers became a
significant player in the minicomputer business. Digital Equipment Corporation
created the minicomputer market and was joined by a set of other aggressively
managed companies. But each of these companies in turn missed the desktop
personal computer market. It was left to Apple Computer, together with
Commodore, Tandy, and IBM’s stand-alone PC division, to create the personal
computing market. But Apple and IBM lagged five years behind the leaders in
bringing portable computers to market. In 1980s, Digital Equipment was the most
prominently featured company.
Digital’s case, as in Sears, the very decisions that led to its decline were
made at the time it was so widely regarded as being an astutely managed firm. It
was praised as a paragon of managerial excellence at the very time it was
ignoring the arrival of the desktop computers that besieged it a few years
list of leading companies that failed when confronted with disruptive changes in
technology and market structure is a long one. At first glance, there seems to
be no pattern in the changes that overtook them. In some cases, the new
technologies swept through quickly; in others, the transition took decades. In
some, the new technologies were complex and expensive to develop. In others, the
deadly technologies were simple extensions of what the leading companies already
did better than anyone else. One theme common to all of these failures, however,
is that the decisions that led to failure were made when the leaders in question
were widely regarded as being among the best companies in the world.
to resolve this paradox? Christensen excluded poor management and hard luck
because good fortune ran out. These failed firms were as well run as one could
expect from firms managed by mortals. From the research reported in this book,
he proposed that there is something about the way decisions get made in
successful organizations that sows the seeds of eventual failure.
management was the most powerful reason these firms failed to stay atop their
industries. Precisely because these
firms listened to their customers and 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 position of leadership.
a deeper level is that many of what are now widely accepted principles of good
management are, in fact, only situationally appropriate. There are times at
which it is right not to listen to
customers, right to invest in developing lower-performance products that promise
lower margins, and right to
aggressively pursue small, rather than substantial, markets.
Innovator’s Dilemma helps executives understand how logical and competent
decisions of management critical to the success of their companies in the near
term can undermine them in the long term if they don’t focus adequate
resources on the disruptive technologies that are surfacing below that could
lead to their down fall.
spends the first two chapters recounting in some detail the history of the disk
drive industry, where the saga of “good-companies-hitting-hard-times” has
been played out over and over again. This industry is an ideal field for
studying failure because rich data about it exists and because, in the words of
Harvard Business School Dean Kim B. Clark, it is “fast history.” In just a
few years, market segments, companies and technologies have emerged, matured and
declined. Only twice in the six times that new architectural technologies have
emerged in this field has the industry’s dominant firm maintained its lead in
the subsequent generation.
that study genetics avoid studying humans,” as Christensen analogizes his
research to genetics. “Because new generations come along only every thirty
years or so, it takes a long time to understand the cause and effect of any
changes. Instead, they study fruit flies, because they are conceived, born,
mature, and die all within a single day.” If you want to understand why
something happens in business, study the disk drive industry. Those companies
are the closest things to fruit flies that the business world will ever see.
in the history of business has there been an industry like disk drives, where
changes in technology, market structure, global scope and vertical integration
have been so pervasive, rapid, and unrelenting. While this pace and complexity
might be a nightmare for managers, it is a fertile ground for research. Few
industries offer researchers the same opportunities for developing theories
about how different types of change cause certain types of firms to succeed or
fail or for testing those theories as the industry repeats its cycles of change.
the best firms succeeded, they did so because they listened responsively to
their customers and invested aggressively in the technology, products and
manufacturing capabilities that satisfied their customers’ next-generation
needs. But, paradoxically, when the best firms subsequently failed, it was for
the same reasons. Blindly following the maxim that good managers should keep
close to their customers can sometimes be a fatal mistake. This provided the
framework for Christensen to understand when “keeping close to your
customers” is good advice—and when it is not. At this point Christensen
gives the basics of the disk drive industry in two chapters, which is a tour de force.
DISK DRIVES WORK
Disk drives write and read information that computers use. They comprise read-write heads mounted at the end of an arm that swings over the surface of a rotating disk in much the same way that a phonograph needle and arm reach over a record; aluminum or glass disks coated with magnetic material; at least two electric motors, a spin motor that drives the rotation of the disks and an actuator motor that moves the head to the desired position over the disk; and a variety of electric circuits that control the drive’s operation and its interface with the computer.
The read-write head is a
tiny electromagnet whose polarity changes whenever the direction of the
electrical current running through it changes. Because opposite magnetic poles
attract, when he polarity of the head becomes positive, the polarity of the area
on the disk beneath the head switches to negative, and Vice Versa. By rapidly
changing the direction of current flowing through the head’s electromagnet as
the disk spins beneath the head, a sequence of positively and negatively
oriented magnetic domains are created in concentric tracks on the disk’s
surface. Disk drives can use the positive and negative domains on the disk as a
binary numeric system—1 and 0—to “write” information onto disks. Drives
read information from disks in essentially the opposite process: Changes in the
magnetic flux fields on the disk surface induce changes in the micro current
flowing through the head.
at IBM’s San Jose research laboratories developed the first disk drive between
1952 and 1956. It was named RAMAC (for Random Access Method for Accounting and
Control) and was the size of a large refrigerator, incorporating fifty 24-inch
disks and storing 5 megabytes (MB) of information. Most of the fundamental
architectural concepts and component technologies that defined today’s
dominant disk drive component were also developed at IBM. These include the
removable packs of rigid disks (introduced in 1961), the floppy disk drive
(1971) and the Winchester architecture (1973).
IBM produced drives to meet its own needs, an independent disk drive industry
emerged serving two distinct markets. A few firms developed the plug-compatible
market (PCM) in the 1960s, selling souped-up copies of IBM drives directly to
IBM customers at discount prices. Although most of IBM’s competitors in
computers (for example Burroughs and Univac) were integrated vertically into the
manufacture of their own disk drives, the emergence in the 1970s of smaller,
nonintegrated computer makers spawned an original equipment market (OEM) for
disk drives as well. By 1976 about $1 billion worth of disk drives were
produced, of which captive production accounted for 50 percent and PCM and OEM
for about 25 percent each. The value of drives produced rose to about $18
billion by 1995. By the mid-1980s the PCM market had become insignificant, while
OEM output grew to represent about three-fourths of world production. Of the
seventeen firms populating the industry in 1976, all of which were relatively
large, diversified corporations, all except IBM’s disk drive operation, had
failed or had been acquired by 1995. During this period an additional 129 firms
entered the industry, and 109 of those also failed. Aside from IBM, Fujitsu,
Hitachi, and NEC, all of the producers remaining by 1996 had entered the
industry as start-ups after 1976.
number of megabits (MB) of information that the industry’s engineers have been
able to pack into a square inch of disk surface had increased by 35 percent per
year, on average, from 50 KB in 1967 to 1.7 MB in 1973, 12 MB in 1981, and 1100
MB by 1995. The physical size of the drives was reduced at a similar pace: The
smallest available 20 MB drive shrank from 800 cubic inches in 1978 to 1.4 by
1993, a 35 percent annual rate of reduction. The number of terabytes (one
thousand gigabytes) of disk storage capacity shipped in the industry’s
history, with each doubling of cumulative terabyte shipped, decreased the cost
per megabyte of memory to 53 percent of its former level. This is a much steeper
rate of price decline than the 70 percent slope observed in the markets for most
other microelectronics products.
story of the 14-inch Winchester architecture change to the small 8-inch entrants
sold their disruptive drives into new applications—minicomputers. Then the
8-inch drive penetrated the mainframe market and within a three-to-four-year
period, the 8-inch drives began to invade the market above them. Of the
established 14-inch drive makers, the few that entered the 8-inch market did so
two years belatedly. Two-thirds never entered the 8-inch market and were driven
from the industry. This story was repeated in the 5.25-inch disk drive, again
repeated in the 3.5-inch drive, then the 2.5-inch drive and finally in the
1.8-inch drive. All were disruptive forces from below the current market. All
entered new and distinctive markets.
we think this can only happen in the “fruit fly” of modern industry,
Christensen goes on exploring the mechanical excavator industry and finds that
the same factors that precipitated the failure of the leading disk drive makers
also proved to be the undoing of the leading makers of mechanical excavators, in
an industry that moves with a very different pace and technological intensity.
then concludes Part One of the volume completing the disruptive framework and
uses it to show why integrated steel companies worldwide have proven so
incapable of blunting the attacks of the minimill steel makers. Another
fascinating journey that’s worth taking.
names associated with all these studies are an excellent history of our times,
going from Honda to DaimlerChrysler, from the Sears Card to VISA and MasterCard,
and dozens more.
book begins by posing a puzzle: Why was it that firms esteemed as aggressive,
innovative, customer-sensitive organizations could ignore or attend belatedly to
technological innovations with enormous strategic importance? Purchasing,
reading and referencing this book is important for us in the healthcare
industry, an area that Christensen tackles so well in his next book, The