Aug 27, 2009

Summary of The Innovator's Dilemma by Clayton M. Christensen

Mr. Christensen tries to answer "why the best firms can fail" in this book. After the analysis from HDD industry, he concludes that the best firms can fail when they are unable to deal with disruptive technologies correctly. My quick summary is below:

A disruptive technology has three properties:
1. The performance of the technology is going to exceed the demands of certain market segments
2. The technology distinguish itself with some new features which appeal to a group of new customers.
3. The new market segments are too small to attract the attention of the leading companies of the existing technology.

What will happen when a disruptive technology emerges?
1. The startup who finds the new market for it has the "first mover advantage". Those who find have 30% survival rate.
2. The startup who focuses on improving the performance to meet the existing demands is going to be knock out of the market.
3. Existing companies will still focus on existing customers since they are more profitable.
4. The useful techniques like PDCA or Customer-Oriented Management help existing companies compete with one another, but they also prevent existing companies to enter the new market.

What should a existing company do?
1. A big company is managed by existing customers, process and values, not managers. Establish a new department to manage the disruptive technology if the required values and process are different from the existing one.
2. Do not try to improve the performance of a disruptive technology, but to find a new market for it. The new technology will grow itself with the new customers.
3. It's impossible to predict where the new market is. One has to try several times to find it. Don't put all resources in a single try.
4. When looking for new markets, don't hear what customers say, but see what they actually use the product.

1. YouTube: It's a example of a disruptive technology. The quality of its video hosting service exceed what people demands. It provides a new type of web service. In the beginning, the profit of such service is too small to attract attention of any existing companies. Nevertheless, it grows big enough to be acquired by Google. A good end.

2. Netbook: It's commercialized first by Asus. The performance of netbook will compete with notebooks in the future. However, Asus does not have any first mover advantages. The followers like Acer and HP got ahead of ASUS very quickly. Why?
Just think about property 2 and 3 above. The people who buy netbook also have notebooks. There are no new customers. The existing notebook manufacturers join the battlefield quickly. Therefore, there are no first mover advantages for ASUS. Netbook is not a disruptive technology but a sustaining one.

3. SSD: Compared with HDD, the capacity per dollar of SDD is very low. However, the value increases every year. When it hits the sweet point, HDD will be wiped out from personal computer market. The first mover advantage is very clear. No leading HDD manufactures have influence on SDD markets.