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The Innovator's Dilemma, When New Technologies Cause Great Firms to Fail (Paperback)
by Clayton M. Christensen
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Strategy, Innovation, Change, Business |
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In-depth analysis, excellent examples, actionable recommendations, a great book about business strategies, must read for managers. |
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Author: Clayton M. Christensen
Publisher: Collins
Pub. in: January, 2003
ISBN: 0060521996
Pages: 320
Measurements: 8.0 x 5.3 x 0.8 inches
Origin of product: USA
Order code: BA00037
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- Awards & Credential -
National Bestseller (in North America) |
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- MSL Picks -
Having just re-read this book, I admire it even more now than I did when it was first published. In his Introduction, Christensen makes his objective crystal clear: "This book is about the failure of companies to remain competitive when they confront certain types of market and technological change... the good companies - the kinds that many managers have admired for years and tried to emulate, the companies known for their abilities to innovate and execute... It is about well-managed companies that have their competitive antennae up, listen astutely to their customers... invest aggressively in new technologies, and yet they still lose market dominance." Why? For Christensen, the answer is revealed in what he calls "the innovator's dilemma": the logical, competent decisions of management which are critical to the success of their companies are also the reasons why they lose their positions of leadership.
In Part One, Chapters 1-4, Christensen builds a framework that explains why sound decisions by great managers can lead to failure. In Part Two, Chapters 5-10, he attempts to resolve the dilemma by examining why and under what circumstances new technologies have caused great firms to fail. He makes an important distinction between sustaining technologies and those which are disruptive. He offers four "laws or principles" of disruptive technology:
#1: Companies depend on customers and investors for resources (Chapter 5)
#2: Small markets don't solve the growth needs of large companies (Chapter 6)
#3: Markets that don't exist can't be analyzed (Chapter 7)
#4: Technology supply may not equal market demand (Chapter 8)
Actually, these four could also be viewed as guidelines as well as check-points by which to detect early-warning danger signs. Unless and until, however, it becomes obvious that a given technology will create sustaining rather than only temporary disruption. One of the book's most important points seems to confirm what Pogo the Possum once said: "We have met the enemy and he is us." Nearly all of the corporate wounds which Christensen examines are self-inflicted. If not in all instances avoidable, at least the damage done could at least have been reduced.
For example, Christensen examines companies in which (a) disruptive technologies were first developed internally, (b) marketing personnel then sought reactions from lead customers, (c) the pace of sustaining technological development was accelerated, (d) disaffected employees created new companies and (by trial and error) located markets for disruptive technology, (e) moved upmarket in direct competition, and (f) caused established firms to respond in defense of their own customer base. In essence, well-established companies ("incumbents") thus become threatened by "entrants" and a disruptive technology change. In response, they re-allocate resources away from those technologies which address their customers' needs.
When reading this book, note in particular Christensen's detailed analysis of a disruptive technological change in the mechanical excavator industry (Chapter Three) and the correlations between value networks and characteristic cost structures (Chapter Four). Once again, he reveals how and why sound management decisions can often be "at the very root of [a 'good' company's] impending fall from industry leadership."
In Part Two, Christensen describes in detail HOW managers can address and harness four principles by which to prevail against disruptive technologies. Once again, he asserts that a company's customers effectively control what it can and cannot do. Managers who deny or ignore this do so at great peril. To support his assertion, Christensen examines several quite different companies: Quantum, Plus Development, Control Data, Micropolis, DEC, IBM, Kresge, Woolworth, and Hewlett-Packard. In some of these companies, the innovating managers who were faced with disruptive technologies created organizations whose cost structures enabled them to make money in the value network where the disruptive technology was taking root, and where customers' power and the managers' intentions were aligned. The emphasis is on alignment. In Chapter Six, Christensen insists that managers must be leaders, not followers, in commercializing disruptive change. Hence the importance of a strategic decision: To be a leader or a follower? It is often prudent for "incumbents" to be followers, resisting pressure from customers, until opportunities to commercialize disruptive technologies are sufficient and appropriate. As Christensen suggests, "In sustaining technologies, in fact, evidence strongly suggests that companies which focus on extending the performance of conventional technologies, and choose to be followers in adopting new ones, can remain strong and competitive."
Chapter Ten summarizes various key points. By now Christensen has offered dozens of examples of "some very capable executives in some extraordinarily successful companies, using the best managerial techniques, who have led their firms toward failure." Lest this brief commentary suggest otherwise, managers in every organization (regardless of size or nature) eventually must resolve "the innovator's dilemma." Christensen's book provides invaluable assistance to completing that immensely difficult process. It remains for each of his readers to answer questions such as these: Which customers do we want? Which technologies will help us to get and then keep them? For each technology, which strategies will be most effective to sustain it? Should we attack competitors with disruptive technology? How can we best defend ourselves against it? How should our resources be allocated? What about timing? Should we lead or follow? If we follow, should we prepare to lead later?
Finding the correct (i.e. most appropriate) answers to questions such as these will obviously help to clarify today's realities and to suggest strategies for an uncertain future. But beware of taking anyone or anything for granted. As Christensen explains so eloquently and compellingly, the process of resolving one major dilemma may well reveal others. Hence the importance of alertness, speed, flexibility, and (yes) passion. (From quoting Robert Morris, USA)
Target readers:
Executives, managers, entrepreneurs, strategists, product/brand Managers, professionals, academics, and MBAs.
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Clayton M. Christensen, an associate professor of business administration at the Harvard Business School, is the coauthor of numerous articles in journals such as Research Policy, Strategic Management Journal, Industrial and Corporate Change, Business History Review, and Harvard Business Review.
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From the Publisher:
In this revolutionary bestseller, Harvard professor Clayton M. Christensen says outstanding companies can do everything right and still lose their market leadership, or worse, disappear completely. And he not only proves what he says, he tells others how to avoid a similar fate.
Focusing on "disruptive technology" of the Honda Supercub, Intel's 8088 processor, and the hydraulic excavator, Christensen shows why most companies miss "the next great wave." Whether in electronics or retailing, a successful company with established products will get pushed aside unless managers know when to abandon traditional business practices. Using the lessons of successes and failures from leading companies, The Innovator's Dilemma presents a set of rules for capitalizing on the phenomenon of disruptive innovation.
You'll find out:
- When it is right not to listen to customers
- When to invest in developing lower-performance products that promise lower margins
- When to pursue small markets at the expense of seemingly larger and more lucrative ones
Sharp, cogent, and provocative, is one of the most talked-about books of our time and no one savvy manager or entrepreneur should be without.
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How Can Great Firms Fail? Insights from the Hard Disk Drive
When I began my search for an answer to the puzzle of why the best firms can fail, a friend offered some sage advice. "Those who study genetics avoid studying humans," he noted. "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."
Indeed, nowhere 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, my friend was right about its being 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.
This chapter summarizes the history of the disk drive industry in all its complexity. Some readers will be interested in it for the sake of history itself. But the value of understanding this history is that out of its complexity emerge a few stunningly simple and consistent factors that have repeatedly determined the success and failure of the industry's best firms. Simply put, when 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 - they listened responsively to their customers and invested aggressively in the technology, products, and manufacturing capabilities that satisfied their customers' next-generation needs. This is one of the innovator's dilemmas: Blindly following the maxim that good managers should keep close to their customers can sometimes be a fatal mistake.
The history of the disk drive industry provides a framework for understanding when "keeping close to your customers" is good advice - and when it is not. The robustness of this framework could only be explored by researching the industry's history in careful detail. Some of that detail is recounted here, and elsewhere in this book, in the hope that readers who are immersed in the detail of their own industries will be better able to recognize how similar patterns have affected their own fortunes and those of their competitors.
How Disk Drivers 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 electronic circuits that control the drive's operation and its interface with the computer. See Figure 1.1 for an illustration of a typical disk drive.
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 the 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.
EMERGENCE OF THE EARLIEST DISK DRIVES
A team of researchers at IBM's San Jose research laboratories developed the first disk drive between 1952 and 1956. Named RAMAC (for Random Access Method for Accounting and Control), this drive was the size of a large refrigerator, incorporated fifty twenty-four-inch disks, and could store 5 megabytes (MB) of information (see Figure 1.2). Most of the fundamental architectural concepts and component technologies that defined today's dominant disk drive design were also developed at IBM. These include its removable packs of rigid disks (introduced in 1961); the floppy disk drive (1971); and the Winchester architecture (1973). All had a powerful, defining influence on the way engineers in the rest of the industry defined what disk drives were and what they could do.
As 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, Control Data, Burroughs, and Univac) were integrated vertically into the manufacture of their own disk drives, the emergence in the 1970s of smaller, nonintegrated computer makers such as Nixdorf, Wang, and Prime 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 next dozen years unfolded a remarkable story of rapid growth, market turbulence, and technology-driven performance improvements. 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 such as Diablo, Ampex, Memorex, EMM, and Control Data - 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.
Some have attributed the high mortality rate among the integrated firms that created the industry to its nearly unfathomable pace of technological change. Indeed, the pace of change has been breathtaking. The number of megabits (Mb) of information that the industry's engineers have been able to pack into a square inch of disk surface has 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..sup.3]) in 1978 to 1.4 [in..sup.3] by 1993 - a 35 percent annual rate of reduction.
Figure 1.3 shows that the slope of the industry's experience curve (which correlates the cumulative number of terabytes (one thousand gigabytes) of disk storage capacity shipped in the industry's history to the constant- dollar price per megabyte of memory) was 53 percent - meaning that with each doubling of cumulative terabytes shipped, cost per megabyte fell 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 micro- electronics products. The price per megabyte has declined at about 5 percent per quarter for more than twenty years.
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| View all 15 comments |
Michael Bloomberg (MSL quote), USA
<2006-12-26 00:00>
Absolutely brilliant. Clayton Christensen provides an insightful analysis of changing technology and its importance to a company's future success. |
Jon Hughes (Supply Management) (MSL quote), USA
<2006-12-26 00:00>
This is a compelling argument, thoroughly researched and superbly written, which challenges conventional theory. |
Martin Fakley (Information Access) (MSL quote), USA
<2006-12-26 00:00>
I cannot recommend this book strongly enough - ignore it at your peril. |
George Gilder (Gilder Technology Report), USA
<2006-12-26 00:00>
[A] masterpiece...The most profound and useful business book ever written about innovation. |
View all 15 comments |
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