The Innovator’s Dilemma

Author: Clayton M. Christensen
ISBN: 0060521996

This book attempts to explain why large, industry leading companies with deep pockets and seemingly unassailable market dominance fail. The obvious answer might be bureaucracy, arrogance, stale staff, poor skills, overly conservative management, inadequate investment and so on. While Christensen acknowledges that these are factors in some failures, he points out that even the best run companies also fail. Market leaders, that listen to customers, invest heavily in new technology and are run by astute managers. Although seemingly inexplicable, this is a recurring feature of the business landscape.Christensen begins his explanation by proposing that technology falls into two categories:

  • Sustaining technologies improve the performance of established products, along the dimensions of performance that mainstream customers in major markets have historically valued.
  • Disruptive technologies bring to a market a very different value proposition that had been available previously and generally underperform established products in mainstream markets but they have other features that are valued by fringe customers.

Side note:

The distinction between “sustaining and disruptive” is not the same as the distinction between “incremental and radical” improvements. Whenever an established product improves along established performance criteria then the improvement is ‘sustaining’– regardless whether that improvement comes from incremental or radical technology. Conversely, disruptive technology need not be (and often isn’t) radical – they aren’t necessarily technical breakthroughs, they are often existing technology applied in new ways.

In a nutshell, Christensen’s explains the failure of good companies as follows. I’ll use the example of motorbikes in the American market to illustrate.

If the most important performance factor for mainstream buyers of motorcycles is ‘power’ then we can expect the market’s demands to grow over time, as follows:

The Innovators Dilemma 1

The two main rivals in the high-powered road bike market in the United States were Harley Davidson and BWM. In order to win market share they continually improved the power of their bikes – these were sustaining improvements. However, in their haste to outdo each other they were spending money building bikes that had performance characteristics greater than what the market demanded. For example, there is a limit to the power that a person can use – set by the traffic authorities. Whether a bike can do 250km/hr or 300km/hr is not likely to influence the buying decision – they are both adequate for mainstream needs. Over time the gap between what was being produced and what the market actually valued widened, as shown here:

The Innovators Dilemma 2

Then new competitors entered the market – the Japanese motorcycle companies. These new bikes were a disruptive technology because along they underperform established products (Harley Davidson and BWM) along the performance criteria that the mainstream market demanded: power. So these new entrants had to find new (niche) markets for their products. As profits from these markets grew the money was reinvested and the products were improved through sustaining technology. As the graph below illustrates, eventually the performance of these new motorbikes intersected with the requirements of the mainstream markets.

The Innovators Dilemma 3

So what happened then? It didn’t matter that the power of the Japanese motorbikes was still less than the power from the established products because the performance was ‘good enough’ for the mainstream. At this point “power” ceased to be the dominant performance criteria – the market started making purchasing decisions based on other criteria: the obvious one being price. The Japanese motorbike makers needed lean cost structures to be profitable in the ‘niche’ markets and when they hit the mainstream they had a huge cost advantage over their larger competitors. And the rest, as they say, is history. The Japanese motorbikes became the dominant force in the US motorcycle market.

By the end of the book you can’t help but agree with Christensen’s persuasive argument. He presents his theory simply, lays a solid theoretical foundation, presents countless case studies and statistics and finally draws logical conclusions. The book can be a bit repetitive and the academic writing style can be distracting at times but a great book nonetheless. First published in 1997, it has stood the test of time, an amazing feat given the impact of the Internet on business over those years.

So what’s this got to do with EA?

Two core themes of this book are:

  • smaller companies can compete with, and overtake, larger entrenched rivals through the use of disruptive technology.
  • the disruptive technology used can be existing technology applied in new ways to new markets.

The trend seems to be that IT is increasingly not a source of competitive advantage. However, good EA should be about reversing that trend. In my mind, the main role of the Enterprise Architect is to build an organisation’s capabilities (both technical and non-technical) to quickly capture the business benefits of emerging technology. That is, to help build the “agile” enterprise.

Once the groundwork has been laid (i.e. the capabilities are in place), the Enterprise Architect should follow information technology trends, looking for innovation that can benefit the business. Having laid the ground work, it should be possible to mobilise the business quickly to exploit these benefits. If these benefits are realised before the competitors have a chance to act, IT becomes a source of competitive advantage. As it should be.


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