Name: The Innovator’s Dilemma
Rating: 4.4 (379 reviews)
Author: Clayton Christensen

What’s in it for me? Learn about a key concept of economics.

Business cycles move fast. So fast, in fact, that theories about what’s going on rarely outlast them. Such theories “live and die like fruit flies” (The Economist). Every so often, though, an idea with lasting power comes along. An idea that won’t die. The concept of “disruptive innovation” is one of them.

Revolutions can be violent: if you want to create something utterly new, you have to break something. In economics, this is not an entirely new concept. A long time ago, in the 1940s, Austrian-born author Joseph Schumpeter came up with the term “creative destruction.” According to him, destruction can be a good thing, because it helps to advance and restructure the economy.

Half a century later, it was Clayton Christensen who offered a significant update to this idea. It’s hard to overstate the splash his book The Innovator’s Dilemma made when it was published in 1997. Steve Jobs said it had deeply influenced his thinking. Michael Bloomberg sent fifty copies to his friends. Andy Gove, the CEO of Intel, said it was the most important book of the decade. It sold over half a million copies within a year.

Why was the book so successful? Well, it predicted how a significant part of the economy would function in the new millennium – long before apps and e-commerce were omnipresent. And Christensen was right. Today, it feels obvious that innovation has a destructive side: Uber disrupted the conventional taxi system; Amazon disrupted the business of brick-and-mortar stores; and so many other companies are trying to do the same to their industries.

So, let’s zoom in. In this short Blink, we’d like to focus on the key concept of The Innovator’s Dilemma: disruptive innovation.

Let’s start with a story.

Who needs cheap radios?

We’re in the United States and it’s the early 1950s. The war is over. People feel hopeful. The economy is booming. More households have more disposable income than ever before, and they’re spending it.

That’s good news for all kinds of industries, from carmakers to the manufacturers of refrigerators. It’s also great for consumer electronics companies like RCA and Zenith. One of their top sellers is the vacuum tube music console – a handsomely veneered cabinet with an integrated radio that sits at the center of middle-class living rooms across the nation.

These consoles are well-made, sturdy objects. More to the point, they’re highly engineered and sound great. All that makes them expensive, but that’s not a problem. This is an age of affluence, and people can afford to pay top dollar for what matters to them – quality. And so that’s what companies focus on. They tinker and improve and continue making big, expensive consoles that sound great.

And that’s when a small Japanese firm called Sony enters the picture. Founded in 1946 with around $6,000 start-up capital, it still has fewer than twenty employees. But Sony’s chairman, Akio Morita, has an idea.

He takes up residence in a cheap hotel in New York City and starts negotiating a license to patented transistor technology owned by the American telecommunications company AT&T. Morita gets his license, but AT&T executives are baffled by his plan to use the technology to build small radios. Why would anyone care about small radios, they ask. His answer is cryptic: “Let’s see.”

Sony’s portable transistor radio appears on the market in ’55. It’s a terrible radio. The static is so loud you can hardly hear the music, and the fidelity is much lower than those vacuum tube consoles. If you’re an affluent household that values sound quality, there’s no chance you’re buying a Sony radio! But what if you don’t have a lot of disposable cash? What if, in other words, you’re a typical American teenager? Well, the alternative to crappy transistor radios for ’50s teenagers is no radio, and so they start buying a lot of Sony radios!

You can probably guess where this story is going. Sony’s crappy radios give the company a crowbar to prize open the American market. And, slowly but surely, transistor technology improves. By the time it’s so good that it becomes interesting to more affluent market segments – those teenagers’ parents, say – it’s already too late for companies like RCA and Zenith to catch up to Sony.

That is how Sony came to dominate the radio market in the United States.

Convenience trumps quality.

Business analysts had a neat explanation of why established companies like RCA and Zenith end up losing out to upstarts like Sony. It goes like this.

Technological change is fast and furious; you have to run to stand still. Managers, though, often lose sight of this fact. They’re so focused on what works in the present that they fail to plan for the future. That’s how they get picked off. Call it complacency. Call it lack of innovation. Call it bad management.

Why Gillette is stuck on the horns of a dilemma.

Let’s recap. There’s sustaining innovation. And there’s disruptive innovation.

Sustaining innovation improves existing products. We can take Gillette as an example – a company which proudly states on its website that it’ll only stop making razors when it can’t make them any better. First-generation Gillette razors were fairly straightforward pieces of a kit: a two-piece safety razor with a double-edged blade attached to a reusable handle. Today’s battery-powered razors, by contrast, feature five anti-friction blades, lubricating strips, and a precision trimmer for sideburns.

About the Author

Clayton M. Christensen (1952–2020) was a professor at Harvard Business School and one of the foremost management researchers in the world. He wrote numerous books and more than a hundred articles. The Economist named his book The Innovator’s Dilemma as one of the six most important business books ever.