The Innovator's Dilemma

Citation

Christensen, C. M. (1997). The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail. Harvard Business School Press.

Chapter Summary

The first edition (Harvard Business School Press, 1997) is a short book of about 225 pages: an introduction, ten chapters in two parts, and an index. Part One explains why well-run, leading firms fail when a certain kind of technological change arrives; Part Two turns that explanation into advice for managers. The book's central distinction, as Ellen Domb summarized it in a 1999 review in The TRIZ Journal, is between sustaining technologies, which improve products for a firm's existing markets, and disruptive technologies, which first succeed in unconventional markets and applications and are typically brought in by new entrants. Later printings, beginning with the HarperBusiness edition of 2000, add an eleventh chapter (see below), so chapter numbers after Chapter 7 differ between editions.

Part One: Why Great Companies Can Fail

Chapter 1: How Can Great Firms Fail? Insights from the Hard Disk Drive Industry

The opening and one of the longest chapters builds the argument on the disk drive industry, which Christensen treats as a fast-breeding test case, much as biologists study genetics in a fast-breeding insect, according to Domb. She notes the successive generations of drive sizes, from 14-inch drives for mainframes through 8-inch, 5.25-inch and 3.5-inch drives to 2.5-inch and 1.8-inch drives, and that, apart from the first, each new size was developed by a newcomer that could not interest the established industry.

Chapter 2: Value Networks and the Impetus to Innovate

The longest chapter introduces the concept of the value network named in its title and connects it to the incentives that drive a firm to innovate, the second half of the argument for why leading firms back some innovations and not others.

Chapter 3: Disruptive Technological Change in the Mechanical Excavator Industry

A second industry case tests the argument outside electronics, in earthmoving equipment, which Domb also lists among the book's examples.

Chapter 4: What Goes Up, Can't Go Down

Part One closes with the asymmetry named in the title: established firms move readily toward more demanding markets at the top end and find it very hard to move back down toward the markets where disruptive technologies begin.

Part Two: Managing Disruptive Technological Change

Chapters 5–6: Give Responsibility for Disruptive Technologies to Organizations Whose Customers Need Them; Match the Size of the Organization to the Size of the Market

Part Two opens with two prescriptions stated as chapter titles: place a disruptive technology in an organization whose customers actually want it, and make that organization small enough that a small emerging market can matter to it.

Chapter 7: Discovering New and Emerging Markets

As its title says, this chapter is about finding the new and still-emerging markets in which disruptive technologies take hold, rather than serving markets that already exist.

Chapter 8: Performance Provided, Market Demand, and the Product Life Cycle

The chapter relates the performance a technology provides to the performance the market demands, and connects this to the product life cycle. In the 2000 and later editions it is Chapter 9.

Chapters 9–10: Managing Disruptive Technological Change: A Case Study; The Dilemmas of Innovation: A Summary

Chapter 9 applies the book's prescriptions to a single worked case; Chapter 10 is a brief summary of the dilemmas. The 2000 and later editions insert a new chapter, "How to Appraise Your Organization's Capabilities and Disabilities", as Chapter 8 and add a book group guide.

Key Concepts

Part One: Why Great Companies Can Fail (Chapters 1–4)

• Sustaining technology: an innovation that improves performance along the dimensions that existing mainstream customers already value.
• Disruptive technology: an innovation that at first performs worse on those dimensions but offers other attributes, and takes root in new or unconventional markets.
• Value network: the system of customers, suppliers and economics within which a firm decides which innovations are worth backing.
• Upmarket asymmetry: the ease with which firms move toward higher-end markets and the difficulty of moving down.

Part Two: Managing Disruptive Technological Change (Chapters 5–10)

• Organizational placement: housing a disruptive technology in a unit whose customers need it.
• Matching organization size to market size: giving small markets to organizations small enough to care about them.
• Discovering markets: learning about markets that cannot be analysed in advance.
• Performance supplied versus performance demanded: comparing the trajectory of technological improvement with what customers can use.

Critical Analysis

Strengths

• Evidence built on industry histories. The argument rests on detailed industry cases, above all disk drives, followed by excavators. Domb found the disk-drive analysis valuable precisely because it offers real data from familiar products.
• Candour about exceptions. Domb notes that where the data contradict the thesis, Christensen points out the discrepancy and speculates about the reasons instead of hiding it.
• Range of examples. Besides the core cases, the review lists discount retailing (Kresge's success with K-Mart and Woolworth's failure), Honda and Harley-Davidson in small motorcycles, Hewlett-Packard and Digital Equipment Corporation, covering services and business models as well as products.
• Compact and structured. Ten chapters move from diagnosis (Part One) to prescription (Part Two), with the prescriptions stated as chapter titles, which makes the book easy to outline and discuss.

Limitations

• A theory built largely from retrospective cases. The concepts are derived from industry histories read after the fact. Critics have asked whether sustaining and disruptive changes can be told apart in advance rather than only in hindsight; this is worth discussing explicitly in a course.
• Narrow empirical base in depth. Only two industries receive full chapter-length analysis; the other examples are briefer illustrations.
• Edition differences. The 1997 edition lacks the chapter on appraising an organization's capabilities and disabilities that later editions add, and chapter numbers change after Chapter 7, which matters when an instructor assigns chapters by number.
• Dated examples. The industries discussed are those of the 1970s to the mid-1990s; readers must supply current cases themselves.

Where It Fits in the Course

This is the course's classic argument about why established firms struggle with certain innovations, and it is short enough to read in full. Tidd and Bessant's Managing Innovation is a research-based textbook that treats innovation as a manageable process inside organizations, integrating technological, market and organizational change; it places Christensen's idea of disruption within a wider body of research, so it works well after this book or alongside it. Ries's The Lean Startup addresses the opposite side of the dilemma, the new venture testing ideas quickly with customers, and is a natural companion to Chapter 7 on discovering markets.

The entrepreneurship textbooks, Barringer and Ireland's Entrepreneurship and the free OpenStax Entrepreneurship, follow the process of starting and growing a venture; Christensen supplies the strategic context that explains why new entrants can sometimes overtake incumbents. Shane's A General Theory of Entrepreneurship is a research monograph on how individuals discover and exploit opportunities, a more academic treatment of the opportunity side for students who go further.

How to Use This Book

The book is written for managers rather than specialists and requires no technical or mathematical background; undergraduates in business, engineering or economics can read it early in an innovation or strategy course.

• Read Part One closely. Chapters 1 and 2 carry the core theory: the disk drive evidence and the value network concept. Take notes on how each generation of drives entered the market and who brought it. Chapters 3 and 4 test and extend the argument.
• Read Part Two as a set of prescriptions. Each chapter title states a rule. For each, ask what evidence from Part One supports it and what a manager would need to do differently.
• Finish with the summary chapter, then return to Chapter 2 to see how the dilemmas follow from the value network idea.
• Check the edition. If a course uses a later printing, Chapter 8 is the added chapter on capabilities and disabilities, and the remaining chapters move down by one.

To test the theory rather than simply absorb it, choose a current industry and try to classify a recent innovation as sustaining or disruptive before knowing how it turned out; then compare with what happened. Discuss the cases Christensen himself notes as exceptions.