The Innovator ’s Dilemma# summary

Despite their powerful position, established firms don’t always manage to maintain their market dominance. Sometimes entrant firms swoop in and grow to dominate the market.

How does this happen?

When a disruptive technology emerges, established companies can falter. Interestingly though, it is usually well-managed established firms that succumb to entrant companies. This is because, paradoxically, some of the features of good, sensible business management can put established firms in danger when a disruptive technology comes around.

A prime example of such a mistake is listening to customers – long-considered an integral part of sensible business management. Business schools teach students that it’s important to know what customers want so that businesses can provide it. This is why marketers are constantly seeking out the opinions of customers via focus groups, interviews and surveys. The results are then carefully considered when formulating strategies and designing new products.

Somewhat counterintuitively, another technology-related risk that well-managed firms run is being too focused on innovation.

It is often considered good business practice for a company to be right at the cutting edge of technology, which is why many companies strive to offer their customers the latest and greatest innovations.

By now you know that supposedly sound management practices can be dangerous to established companies. This is also true in the case of their constant drive for profitable higher-end markets and satisfied shareholders.

Established companies in dominant positions often focus on the higher-end markets where they can make the largest profits. This is because managers have been taught that generating large profits is the key to satisfying shareholders. This strategy results in the companies having more profits to spend on research and development, so they build new products and get even more profits.

Good business management requires detailed information about the company’s market. But the development of emerging markets is notoriously hard to predict, which can make established companies wary, as they need to justify their investments, and for this they require data on the relevant markets.

As you know, disruptive technologies transform existing industries in profound ways, and this can often lead to the emergence of an entirely new market. But it’s hard to know how profitable this new market will prove; you can’t measure a market that does not exist yet.

It may seem as though the fall of an established company is always the fault of management, as they rely too much on customers’ opinions, seek higher-end markets and fear unknown opportunities, but this is not the case. In fact, the problem lies much deeper, in their capabilities in the areas of resources, processes and values. This RPV framework defines a company’s capabilities and culture.

Resources refer to anything that can be bought, sold, hired or fired. They are the easiest part of the framework to adjust, and redirecting them helps organizations deal with strategic changes.

For a long time, companies have modelled their thinking regarding technological innovation in business by using theoretical models.

One well-known model is the S-curve, which can help guide firms’ strategies when products are at the beginning or end of their life cycle.

When there are so many ways of missing the opportunity provided by a disruptive technology, how can businesses actually succeed in seizing one?

They simply need to anticipate the market for them. Disruptive innovations are usually variations on existing technologies that open up a new customer base, so if companies wish to take advantage of a disruptive innovation, they must find this customer base, a.k.a. the market.

Considering all the pitfalls of disruptive technologies, how should companies proceed when they spot a market for potentially successful disruptive innovation? Basically, there are three options:

Option A:They can try to grow the emerging market quickly enough to satisfy shareholders with the profits.