Clayton Christensen’s influential business theory book, The Innovator’s Dilemma, describes a blueprint for failure designed to make successful creators and entrepreneurs sweat right through their business casuals.
Christensen is best known for his concept of disruptive innovation, which some consider the most important business idea of the 21st century. He has contributed other groundbreaking business works, such as the “Jobs-to-Be-Done” theory, and is an award-winning author of books exploring issues in our education and health care systems.
These days he is also the prestigious Kim B. Clark professor at Harvard Business School.
In a nutshell, Christensen targets financial and market successes as the primary reasons that large companies fail.
A company can be a market leader, consistently make money, release new and popular products, have an amazing team of talented and intelligent employees and management, and have the best intentions in the world, yet still crash and burn at the drop of a hat.
It’s like the popular kids in high school who reach their peaks too early—yeah, they might make you feel like a worthless nerd in Grade 10 and make fun of your extensive video game figurine collection—but 10 years later and they’re balding local bowling alley employees and you’re a successful Hollywood screenwriter on your way to Ariana Grande’s Grammy Party in LA.
In a way, being a nerd is disruptive, because all of that time obsessively writing and planning your latest D&D campaign can actually lead to a successful writing career. The high school jocks only focused on playing football and being popular and did not invest any research into alternative paths for success.
The driving factor in Christensen’s theory is that leading firms are afraid of committing to unproven ventures. They don't want to lose their market leadership. In many instances where large companies fail it is because they are simply too slow at investing capital into new ideas.
At one point in The Innovator's Dilemma, he gives the example of companies making hard disk drives, which need to be on the same page as companies that make the computers they're sticking their drives into. This relationship creates a value network, generating contacts, defined processes, supply chains, and all the other trappings of a stable business. But this value network can make a firm deaf to new ideas outside the echo chamber.
Many large companies like to take a wait-and-see approach, to see if new technologies are going to become popular before investing in development. By doing this, they put themselves at a disadvantage against smaller startups who have nothing to lose by putting everything into innovative ideas from the start.
It is easy in those situations, especially if clients and investors are by-and-large happy with the product, to avoid rocking the boat.
Success breeds complacency, and creates opportunities for small upstart companies to make use of disruptive new forms of technological advancement. Usually, larger companies will be hesitant to support change before it is too late.
Five principles from The Innovator’s Dilemma
1. Companies depend on customers and investors for resources
This is the point that will send control-freak managers into a spiral of existential despair and convince them to pursue that acting career they’ve always dreamed about.
Managers don’t actually have any control over the flow of companies because patterns of development need to match the demands of customers and investors.
It ends up being a Catch-22, as successful companies put the kibosh on ideas or products that don’t seem to satisfy the immediate demands of their customer base. In doing so, they also ignore the new disruptive technologies that will ultimately lead to their downfalls.
2. Small markets don’t solve the growth needs of large companies
In his book, Christensen argues, “the evidence is strong that formal and informal resource allocation processes make it very difficult for large organizations to focus adequate energy and talent on small markets, even when logic says they might be big someday.”
Logistically, it doesn’t make sense for large companies to invest into smaller markets created by new technologies because it doesn’t make them money and has a higher risk of failure.
In turn, as new smaller markets get bigger, they face the same problems as even smaller disruptive markets come into existence. It’s the ciiiiiiircle of life.
3. Markets that don’t exist can’t be analyzed
Would you spend your life’s savings trying to prove that 2Pac is still alive and living on an island near Fiji? Probably not, because even if there is a slim chance that your 2Pac intuition is strong, you’re probably just paying a whole lot of cash to be ridiculed by all your friends and family.
That is the dilemma that big successful companies face vis-à-vis disruptive technologies: regardless of how much money is invested in market research, if there is no market to research, you’re out of luck.
Additionally, resources are mostly diverted towards improving upon existing products, and therefore smaller, disconnected markets exist outside of most companies’ scopes of research.
4. An organization’s capabilities define its disabilities
As a company becomes successful, it develops a structure of values and processes. These values and processes become rigid in order to maintain success in their field, but that rigidity also prevents companies from being able to adapt to new markets.
As a company’s values define them, they are extremely difficult to change fundamentally, and quick fixes don’t work.
Moving parts around within pre-existing company frameworks is not necessarily enough to tackle new problems—rather, if a company wishes to successfully approach disruptive technologies they must work to revise their entire company’s capabilities, which exist independently from individual players within the company.
5. Technology supply may not equal market demand
If successful companies expend most of their resources iterating and improving upon existing products, it follows that oftentimes they will go too far in their improvements and begin to create products that are TOO developed, featuring things that clients no longer expect, need, or want.
This, in turn, will push customers to turn to cheaper, more innovative disruptive products.
As stated by Christensen:
“products whose features and functionality closely match market needs today often follow a trajectory of improvement by which they overshoot mainstream market needs tomorrow. And products that seriously underperform today, relative to customer expectations in mainstream markets, may become directly performance-competitive tomorrow.”
It isn’t all doom and gloom. There are ways that large successful companies can mitigate the impact of disruptive technologies and, ultimately, staying in your own lane is not the answer.
Since Christensen wrote his seminal business book, major companies, such as Google, successfully apply his principles to remain in front of the crashing waves of technological development.
How can companies avoid succumbing to disruptive technology?
There are certain ways that companies can work to survive the deadly onslaught of disruptive technologies.
For example, imagine your company is the destructive, omnipotent computer system known as Skynet in the movie Terminator (warning: spoiler alert).
The Skynet AI knows that a disruptive technology, known as Sarah Connor’s son, is going to lead a revolution to destroy it. So what does Skynet do? It doesn’t just chill in the year 2029, iterating on new human-murdering algorithms.
No, it takes the bull by the horns and sends Arnie back in time to the 1980s to murder Sarah Conner and reverse the inevitable flow of time. Of course, Skynet’s plan ends up failing—but, it’s a movie, not real life, remember?
So Skynet is an example of attempting, but unsuccessfully getting ahead of the disruptive technology out there dooming its existence.
In real life, disruptive technology played a huge role in determining the hierarchy of the personal photography and camera markets.
In the early 2000s, competitors Fujifilm and Kodak took different approaches to the onset of digital photography, leading them down separate paths with two wildly divergent fates.
Here, Kodak is Skynet, who faced the disruptive technology—the advent of digital photography—head-on. However, while a lot of innovations in early digital photography were initially developed by Kodak engineers, the company failed to understand the disruptive technology’s potential and make coherent long-term plans to capitalize on them.
Instead, Kodak struggled to play catch up in every field they attempted to compete in.
Across the Pacific, Fujifilm shifted their focus from photographic film to capitalizing on their scientific assets. Rather than competing with the market, they accepted the advent of digital photography and developed a new strategy for success.
Breaking companies down into bite-sized pieces
Christensen spells out several methods for successful incumbent companies to follow when bracing themselves against the emergence of disruptive technologies.
Since large companies are often fundamentally incapable of allocating the economic and ideological resources needed to explore and capitalize on emerging markets, Christensen recommends that smaller, independent organizations be created with the sole purpose of exploring new opportunities.
Each independent organization would possess its own value and management structure.
This will enable the smaller entities to be creative and take risks without being directly accountable to management and investors whose main priorities will always be to make money and keep the existing client-base happy.
Smaller organizations will also allow employees to explore passion projects and to commercialize new technologies under the umbrella framework of the parent company.
All Your Gut Feelings are Wrong—And That’s a Good Thing
Technologies are disruptive when they appear suddenly and without warning—that is to say, they are unpredictable.
It is important, as a manager, to assume that your predictions and gut feelings about the future of your market are all completely wrong. Sorry, but you’re not a super-genius tech guru that can predict every shift in markets that transform at astronomical speeds.
However, Christensen believes by admitting that you are not clairvoyant can actually be a good thing. It encourages what he calls discovery-driven planning—a practical tool that recognizes that “planning for a new venture involves envisioning the unknown.”
Assuming that you are wrong about your forecasts is a good thing because it will encourage companies to create plans for learning and research rather than assuming they have the answers for everything simply because they are already successful.
Epic fail compilation—you won’t believe these fails!!
Successful companies create ecosystems where failure is unacceptable.
There are too many accountabilities to manage: customers, investors, deadlines, company values—the list goes on. It’s presumed that by riding the laurels of success, there is no room for risk-taking.
However, Christensen believes if a big company wants to remain competitive in the face of new technology, they need to find a way to foster failure and encourage innovation.
Like Fujifilm cutting costs and focusing on scientific, rather than photographic, assets—the company accepted their inevitable failure in the digital market and instead created a space for innovative products, along with a brand new market for analog photography along the way.
Failure in the short term is often mistakenly equated to failure in the long term, when in fact, it is often the opposite: taking risks in the short term is ultimately less destructive than always playing it ‘safe’ until that one catastrophic failure sinks you in the long term.
Christensen uses Intel as an example:
“There is a big difference between the failure of an idea and the failure of a firm. Many of the ideas prevailing at Intel about where the disruptive microprocessor could be used were wrong; fortunately, Intel had not expended all of its resources implementing wrong-headed marketing plans while the right market direction was still unknowable. As a company, Intel survived many false starts in its search for the major market for microprocessors.”
In the design and development stage, it is better to fail multiple times rather than taking a ‘wait-and-see’ approach, only to find the opportunity to enter a newly profitable market has already passed. This is one of the hallmarks of great firms.
Google and The Innovator’s Dilemma
Christensen published his book in 1997. Since then, there have been some prime examples of outstanding companies who, applying the concepts presented by this Harvard professor, succesfully navigated innovation.
For example, Google has shown that through creative value-management, the idea of disruptive technology can be harnessed as a positive by large, successful companies.
Google has been unafraid to fail—giving their employees the leeway to spend company time and resources on the development of personal passion projects through their “20 Percent Time” practice.
"20 Percent Time" is a workplace practice that allows employees to spend the equivalent of one full workday per week working on whatever Google-related project they feel like.
Google has taken Christensen’s idea of embedding projects in smaller sub-organizations within the parent organization and compartmentalized it so extensively that each Google employee has become their OWN embedded organization.
The 20 percent rule has led to important software innovations like Gmail, Google News, and AdSense.
Of course, for every Gmail there’s a Google+ or Google Hangouts—comparative failures. And yet, Google has not shied away from smaller failures in order to remain ahead of the curve in the larger picture of innovation.
A successful way to counter disruptive innovation is to offer employees room to innovate on ideas that may not necessarily fit into the current scheme of development or might not seem immediately viable as money-making ideas.
Innovator’s Dilemma and YOU
Though Christensen maintains his focus on corporate innovation, the lessons surrounding The Innovator’s Dilemma can be applied in different realms, and ultimately, can be used as theories of self-betterment.
Take, for example, the music industry. With the advent of the internet as mass-media, more people than ever have been able to publish their music for dirt cheap.
That means genres and popular artists fluctuate at an extremely rapid pace, and for example, in hip hop, artists who came out three years ago are already considered old.
You can’t even release two albums in a row with similar sounds these days without being automatically considered stagnant. Although this may mean it is harder than ever to get your sick dope mixtape heard by the masses, it also creates a healthier and more creative ecosystem. One that encourages innovation by artists while also removing the occasionally destructive middleman—record labels.
Help yourself by disrupting the norm
The principles laid out by Christensen for empowering large businesses against disruptive technologies can also be repurposed as concepts to foster self-improvement and mental wellness.
Maintaining the status quo in your personal life and consistently making safe decisions might seem like the best idea in the short term, but inevitably, by doing so you will be unprepared to face those sudden and disruptive events that might create chaos in your life.
Embracing innovation means harnessing unexpected changes, failures or not, as a means to a happier and more satisfied life.
Accepting and learning from failures in the short term as a result of trying new things can be much more productive than waiting for that big failure down the line.
It is important to take a step back and acknowledge that you may not have all of the answers.
Taking a discovery-based approach—where you can comfortably admit that you might not be able to predict the future or know everything—will help prepare you for anything life throws your way.
Failure is inevitable, but if you are prepared for it, it will sting a lot less.