Clayton Christensen introduced the theory of disruptive innovation to explain why successful companies often fail. Disruptive innovations offer qualities that are not initially valued by existing customers but are better for other needs. Incumbents focus on sustaining innovations for current customers and large markets, ignoring disruptions. To fight disruptions, companies must set up independent organizations to serve emerging small markets before disruptions grow, as waiting allows disruptors advantages. Technical competence is not the barrier - disruptions are a marketing problem for incumbents rather than technological.

1. THE INNOVATOR’S
DILEMMA

2. About the Author – Clayton Christensen
• Professor at Harvard Business School
• Introduced Disruptive InnovationTheory
• Most Influential BusinessThinker in the World, 2011
& 2013
• The LondonTimes
• “One of Most Influential BusinessTheorists of the
Last 50Years”
- Forbes

3. Thesis
Question: Why do well-managed companies fail? How can industry leaders fail so
predictably to new entrants?
Well known examples:
• Sears
• IBM
• BlackBerry
• Nokia

4. Example 1: Excavators (1950s-1970s)
Cable Excavators Hydraulic Excavators

5. Example 2: Steel (1960s-1990s)
Integrated Steel Mills Mini-mills

6. Value Propositions and Networks
• Products offer specific qualities that make them valuable to customers.These
qualities are value propositions.
• Customers, customers of customers, etc. build a value network around these
qualities.
• Value networks demand continual improvement along those qualities, because
those are the ones that are important.
• Example: Intel continues to make faster (more instructions per sec) and smaller
processors.This is because its’ customers (value network) demand this.

7. Sustaining Innovation
• Innovation along the qualities important to the value network.

8. Disruptive Innovation
• Innovation along qualities not seen as valuable by the value network.
• Radically change the value proposition offered to the market.
• Disruptive products usually offer worse performance than existing products along
qualities demanded by current value network.
• But they are better for other qualities, which may not be valuable right now...

9. Disruptive or Sustaining?
Innovation Type of Innovation
The development of the diesel-powered excavator,
replacing the steam-powered excavator.
The invention of the digital camera, replacing the film
camera.
The invention of a new engine that allows Boeing to make
planes that can carry 10% more passengers than its
competitors.
Not easy to do. ClaytonChristensen initially thought the iPhone was sustaining, but later conceded
disruptive.
SUSTAINING
DISRUPTIVE
SUSTAINING

10. Markets for DisruptiveTechnologies
• Due to the nature of DisruptiveTechnology, they can’t be sold to mainstream
customers.
• Initial markets of disruptive technologies are small and remote from mainstream
customers.
• Often, it’s not even clear who the customers will be when disruptive innovations are being
made.

11. Ex: Hydraulic Excavators
• Hydraulic excavators, when introduced:
• Carried fewer cubic feet per bucket.
• Could not extend as far as cable excavators.
• However, they were:
• More maneuverable.
• Had smaller buckets.
• Could be attached to the back of a small tractor.
• Hydraulic excavators were initially used for small sewage projects and residential
foundations.
• Previously done by hand.
• Cable excavators were too expensive, too big, and too imprecise for them.

12. Moving Up-Market
•How do disruptive technologies go from serving a small,
unimportant market to completely taking over the
larger markets of the incumbents?
• Higher Rate of Innovation
• Technology Supply vs Market Demand

13. Moving Up-Market
Source: http://dltj.org/article/disruptive-innovation-card/
Technology
Supply
VS
Market
Demand
Higher
Rate of
Innovation

14. Why Successful Companies Fail
When dealing with disruptive technologies, the things that make
companies so successful are also those that lead to their downfall.
• Listening to Customers
• Investing inTechnologies that Customers Want
• Focusing on Large Markets, not Small Ones
• Seeking Higher Margins

15. Why Successful Companies Fail
Listen to Customers

16. Why Successful Companies Fail
Invest in technologies their customers want, rather than
the disruptive ones.
• Ex: IBM continued investing in mainframes, even well after the invention of
the minicomputer and the personal computer.
• This is something very hard to change from within an organization.
• Executives cannot simply dictate resource allocation, much of it is
subconscious by middle managers (and Program Managers!)
• Hard to motivate employees about a technology that their customers do
not want.

17. Why Successful Companies Fail
Focus on large markets, not small ones
• Ex: $10 million market for new, disruptive technology
• To Microsoft: Less than 0.0002% of revenue – boring!
• To Start-up: Great business opportunity!
• Again, it’s hard to motivate employees (sales & engineering) to work on
things that are so inconsequential to the organization’s bottom line.

18. Why Successful Companies Fail
Seek higher margins
Source:
http://theinnovationands
trategyblog.com/wp-
content/uploads/2013/04
/130415-minimills-and-
integrated-mills1.jpg

19. Technical Competency
• Are incumbents incapable of fighting entrants?
• “Too slow”, “Too big”, “Bureaucratic”, etc.
• Most often, incumbents have the ability and technology to create
disruptive products.
• Disruptive Innovation is a marketing problem, not an engineering
problem.

20. TechnicalCompetency
• Should incumbents wait for the market/technology to develop?
• By the time incumbents decide to enter, they will be at a disadvantage to the
entrants, who now have:
• Technical Know-How
• Economies of Scale
• Distribution and Business Channels
• Customer Loyalty
• The incumbent sacrifices all of its inherent advantages by waiting.
• However, this is not necessarily true for sustaining technologies.

21. HowTo Fight Back • The history of how companies have
fought back is analogous to human
flight.
• First, we tried to adapt ourselves
for flight.
• Eventually, we learned to use the
laws of nature to our advantage.
• Most companies will try to combat
disruptive technologies by trying to
adapt themselves.
• However, the successful companies
will harness the principles of disruptive
technologies to their advantage.

22. How to Fight Back
• Set up or buy a small, independent organization to combat the disruptive
technology.
• Its’ customers will need the disruptive technology, ensuring resource flow
as managers make the right decisions.
• Can get excited about small markets and small wins.

23. How to Fight Back
• Plan for failure. Don’t bet all your resources at the start.
• It’s impossible to know about markets that haven’t yet been created.
• Must be found through “trial and error”.
• Ex: HP Kittyhawk Disk Drive

24. How to Fight Back
• Don’t wait for breakthroughs.
• Move early and find markets based on current technology.
• What makes the product unattractive to mainstream customers will make
it attractive to new markets.
• Ex: iPhone

25. ThankYou
The Innovator’s Dilemma by Clayton M. Christensen
Collin’s Business Essentials (2006)
Available at the MS Library.
Other interesting books:
• The Innovator’s Solution: Creating and Sustaining
SuccessfulGrowth
• The Innovator’s Prescription: A Disruptive Solution for
Health Care