The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail

Is true innovation birthed by customer feedback, or by visions of disruptive innovators? What is the best way to innovate? Let’s find the answers in The Innovator’s Dilemma, a book by Harvard Business School professor Clayton M. Christensen, D.B.A.

At the core of Dr. Christensen’s theory are the definition of and difference between sustaining and disruptive innovations. Sustaining innovation is what most big firms are best at, i.e., improving a product’s performance based on the needs and feedback of its mainstream customers. The market for a sustaining innovation is known. Disruptive innovation, on the other hand, is meant for new or emerging markets, and initially provides lower product performance in many of the key features valued by the mainstream market. Sustaining innovations meet their customers’ current needs, but disruptive innovations evolve to meet their customers’ future needs. This is at the core of the innovator’s dilemma.

Why do big firms often fail with disruptive innovation?

Dr. Christensen argues this is a result of so-called good management strategies that allocate resources for sustaining innovations that enhance current products’ performance and assist in the company’s upmarket mobility. This strategy often blocks the big firms’ vision and mobility for uncovering and developing niche-but-unproven applications and markets for disruptive products.

The author uses the history of the disk drive industry as an elaborate and effective case study to help readers understand this dilemma. Between 1975 and 1994, the disk drive industry went through disruptive changes in terms of capacity and recording density. Disruption initially started with architectural advancements that gradually reduced the recording density from 14-inch diameter disks to 8, 5.25, 3.5, 2.5, and 1.8 inches. In each case, the reduced density did not initially meet the dimensions of performance in the mainstream applications, such as capacity, cost per megabyte, and access time. As a result, these disruptive technologies looked for and created new markets that were previously unknown. Once they found firm ground in the niche market, they experienced rapid growth and delivered performance demanded by the mainstream market.

What can big firms do to avoid such failures?

In the final chapter of his book, Dr. Christensen provides a recipe for big firms for managing disruptive technological change. To my delight, he uses the electric vehicle (EV) technology as an example. And as a real-life automotive industry professional, I read this chapter like a kid in a candy store, matching my industry knowledge and awareness of the EV technological and market development in the last 20 years to Dr. Christensen’s predictions made in 1997.

To my further delight, the author gets almost all of it right. He starts by asking the very fundamental question, how can we ascertain that the EVs “pose a legitimate disruptive threat to the companies making gasoline-powered automobiles?” He answers this question by charting the mainstream market needs compared with the latest capacity of EVs, and correctly observes that EVs of 1997 fall short in three features: cruising range, acceleration, and top cruising speed.

Next, he charts the trajectories of performance improvement demand in the mainstream market and the performance improvement of EV technology. Again, he correctly deduces that the former trajectory is relatively flat, and the latter trajectory is moving at a faster rate, which means that the EV performance improvement trajectory would one day catch up and surpass the gasoline-powered vehicles’ trajectory. In other words, the threat of disruption is real. Fast forward to 2012, and Dr. Christensen’s prediction comes true, as Tesla disrupts the market by unleashing its flagship Model S. As of 2021, all major automakers have caught up, and almost all major EV products match their gasoline counterparts in cruising range, top speed, and acceleration.

As for developing marketing strategies for a disruptive technology like EV, the author’s advice is to uncover a niche market that turns the current weaknesses of a disruptive technology into strengths. He speculates the first niche market could include parents of high school students who want basic transportation for their teenagers and low/zero gasoline cost. The Model S buyer profile, however, did not exactly match. In addition to a desire to reduce gasoline cost and carbon footprints, a Tesla Model S customer is driven by the product’s luxury branding. The early adopters were business executives and entrepreneurs living in cities, often tech-savvy and ecofriendly — in other words, quite a niche market as Dr. Christensen predicted.

Another golden prediction was the need for new distribution channels for disruptive technologies, as the mainstream distribution channels often reject them. Tesla’s dealerless distribution strategy has proved the validity of Dr. Christensen’s argument. It is worth mentioning that the accessibility of charging infrastructure and charging time will be crucial factors in mass adoption of EVs in the coming decade — an aspect obvious in 1997 but not adequately discussed by the author.

So, what advice does Dr. Christensen have for big firms to do disruptive innovation right? His first piece of advice is to fail fast while developing disruptive technologies, which has since become the mantra for innovation in the 21st century. Another insightful piece of advice addresses the issue of resource allocation. To that end, he proposes spinning off independent organizations “whose survival is predicated upon successful commercialization of the disruptive technology.”

Final thoughts

Other than the slightly pedantic and repetitive style that perhaps makes it a great textbook for business school students but not an easy read for average readers, I could find nothing to disagree with. As I finished reading, I arrived at a puzzling question. Since this book now has been around for nearly 25 years, why are some of the big firms still being caught flat-footed by disruptive technologies? Why does the innovator’s dilemma still exist?

Pramita Mitra, Ph.D., is a supervisor of exterior, Internet of Things (IoT) and blockchain applications at Ford Motor Company Research and Innovation Center in Dearborn, Michigan. A professional member of SWE since 2015, Dr. Mitra currently serves on the WE Local advisory board and the editorial board. In 2020, she received the WE Local New ELiTE (Emerging Leader in Technology and Engineering) Award and a total of 13 Patent Recognition Awards in 2020 and 2021. Dr. Mitra also received the Women of Color STEM Technology Rising Star Award in 2021.