The Innovators Dilemma is a fascinating read. It’s one of those books that once you get into it, you just know the insights are going to be invaluable.
This was one of the hardest posts I have written – simply because there were so many invaluable take homes and it was difficult to think about how to structure it. But, here is my best shot:
In a nutshell, the central theme of the book is why most companies miss out on the next wave of innovation and as a result see their business disrupted by new entrants – often taking them by suprise and with disastrous results.
The scary thing is that it would be easy to jump to poor leadership or execution for the root cause. But on the contrary, in many of the case studies discussed in the book, their downfall was caused by some of the best leadership in the industry making sound, logical decisions and executing well – kinda demoralising if you are in a leadership position huh? 😉
It explains how companies that become very successful, naturally establish their own value networks (cost structures and expected benchmarks for commercial success) that become engrained in their culture.
This in itself causes them to make decisions on resource allocation that lean towards building better products (improvements to sustaining technology) for their existing customers as these always boast the biggest margins and have well known customers needs and markets.
When you think about it – it’s the most logical and safest way to continue to drive profit and growth and defend your market share from competitors – which management always feel great pressure to deliver.
To give it some context, when faced with a decision to back one of the following two projects, which would you choose as a senior manager?
- involves improvements to sustaining technology
- predictable margins at the level that the business is used to seeing
- clearly identified customer needs
- clearly identifed market
- involves innovative & disruptive technology (normally unstable and with many unknowns)
- unpredictable margins and in general the opportunity is insignificant compared to the growth needs of the organisation
- poorly defined customer needs
- poorly defined market
It’s certainly the safest career choice for managers who have the responsibility for greenlighting projects and allocating resources to always go for project A. So much so, that the most senior managers may never even get to see project B land on their desk as an option as it will have been weeded out lower down in the organisation by middle managers not willing to back it.
It’s also interesting that established companies didn’t seem to have troubles with actually developing the disruptive technology – in fact it seems that most were able to develop it just fine. What they struggled with is giving it the resources and making the right decisions for how to commercialise it early on.
It is suggested that those companies who did manage to be succesful at commercialising disruptive technologies almost always set up a seperate organisation (either by setting it up themselves or by acquiring one). This meant that they didn’t inherit the value networks of the existing organisation and did not compete for priorities and resources with the rest of the companies projects.
They were often in a different location, had their own leadership and had full autonomy to develop the disruptive technology and find their own customers / markets. They could get excited about and be commercially successful with lower margins.
Their strategies and plans were focused on learning and discovery – not execution. They allowed themselves to fail knowing it was part of the discovery process and getting it right (product and market) first time was not important. Instead they tested the market regularly with minimum viable products and conserved resources to be able to iterate and have several stabs at it. In short, they didn’t go big until their market was better known.
They didn’t search for a technology breakthrough which would allow them to sell to a mainstream market – instead they found new markets where the weaknesses in the mainstream market were actually seen as strengths in the new markets.
The existing business would have had huge trouble wrapping their head around this way of working – it’s all far too risky.
And here’s the kicker – the capabilities of the disruptive technology would grow at a faster rate than the sustaining technology (often the key sign it is a disruptive technology). Eventually the disruptive technology would be able to be competitive on features and when that happens the customer would start to favour reliability and convenience – something which the disruptive technology would normally do better. And thats where the disruption occurs.
The big companies who failed to allocate resources towards disruptive technology and approach it in the way outlined above, now were themselves disrupted by companies who could directly compete with their customers and were enjoying a first mover advantage with the new technology.
To give everything here context, The Innovators Dilemma looks thoroughly at the disk drive and excavation industries in which disruptive technology played out in a fascinating way. At the end it also takes a look at the electric vehicle and how the car manufacturer industry might approach identifying it as a disruptive technology and how to tackle it.
As I am in the gaming industry, this book really gives you a better understanding as to why mobile has been so disruptive to the console / web market. A few years ago, many held the view that mobile was uninteresting as a gaming platform – its technology was inferior, the market wasn’t clear and there was no obvious way to be able to monetise at the level that console / web companies were used to enjoying.
Fast forward to today and mobile technology has improved leaps and bounds – and at a faster rate than console technology. It’s slowly started to be able to satisfy gamers needs and it’s now pulling customers away from console and web in big numbers. Mobile teams are able to ship more quickly and cheaper and we’ve started to see some very impressive commercial successes – e.g. Super Cell & Natural Motion.
Well, I’ve rambled enough. just go buy and read the book – you won’t be disappointed.
P.S – Thank you to Ben Cousins for talking about this book so much – it was what caused me to pick it up and read it.
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