Innovator's Dilemma: When New Technologies Cause Great Firms to Fail/The Innovator's Solution: Creating and Sustaining Successful Growth, The

Academe, Jan/Feb 2005 by Birnbaum, Robert

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

Clayton M. Christensen. Boston: Harvard Graduate School of Business Press, 1997

The Innovator's Solution: Creating and Sustaining Successful Growth

Clayton M. Christensen and Michael E. Raynor. Boston: Harvard Graduate Business School Press, 2003

The subtitles of these two complementary books tell the story. The Innovator's Dilemma: Wlien New Technologies Cause Great Firms to Fail presents an original and thoughtful analysis of how the introduction of new technologies may cause great business firms to lose market dominance, and sometimes even to go belly up. The Innovator's Solution: Creating and Sustaining Successful Growth suggests how the same innovations instead can be managed in ways that establish new opportunities for profit and growth. While neither book gives more than peripheral attention to higher education, one might argue, recognizing the increasing significance of technology to our institutions, and concerned abovit the future well-being-indeed, the survival-of colleges and universities, that their lessons are important for academia. On the other hand, businesses and academic enterprises may be so fundamentally different that experiences in one arena have little relevance for the other.

The arguments in these two books are theory-based, subtle, and supported by extensive case-study evidence. This summary may not do them justice, and readers intrigued by them should review the books for further clarification. The major concept of The Innovator's Dilemma is that changes in technology, defined as the processes through which organizations transform inputs of resources into outputs of greater value, can be of two kinds: "sustaining" or "disruptive." The distinction is illustrated by an analysis of computer hard drives. In the mid-1970s, hard drives were disks fourteen inches in diameter. Major manufacturers continuously made improvements in disk performance. These improvements were sustaining technologies, consistent with the desire of mainframe computer users for increased disk capacity. Around 1980, several firms developed eightinch drives that were smaller but had less capacity. This new technology was ignored by mainframe users, for whom smaller size was not important, because the diminished capacity of the disks decreased product performance. Eightinch drives were a disruptive technology, not considered useful by mainstream customers, and initially desirable only to an emerging minicomputer market with profit margins too small to interest leading manufacturers. However, the capacity of eight-inch drives rapidly improved to a point at which they became competitive with fourteen-inch disks. Although the companies that manufactured fourteen-inch disk drives all had the capability to produce eight-inch disks, most did not do so. AU of these manufacturing companies ultimately failed.

The Innovator's Dilemma argues that this pattern has occurred with many other technologies. The Innovator's Solution expands the concept and proposes a host of additional examples in which established firms were the leaders in developing sustaining technologies that improved product performance. However, these Arms paid little attention to newer disruptive technologies, which did not meet the needs of existing customers and appealed only to the least profitable segments of the market. It was with such disruptive technologies that the potential for future growth lay, but the values and processes of established firms prevented them from recognizing this. For this reason, very few major corporations led in developing disruptive technologies, and established firms ultimately lost out to entrant firms that became the leaders both in developing new technologies and in creating profitable markets ibr them.

What accounts for the failure of industry leaders to capitalize on new technologies? Certainly not lack of knowledge-indeed, many disruptive technologies were invented by established firms, although not subsequently developed by them. And certainly not ineffective leadership, since the major companies discussed in the books, along with their leaders, were universally admired for their productivity and sound management. Instead, the key is in the concept of "value networks." As businesses use technology to grow and prosper in their environments, they develop interlocking networks of suppliers, customers, and management systems that share and support the same values. Sustaining innovations are reinforced by the sales interests of traditional suppliers, by the desires of traditional customers for greater productivity, and by the rational decisions of managers who see product improvement as enabling them to move up market where established users are willing to pay higher prices for high performance, and where greater profit margins are available. Consistent with the resource dependence model of organizations, which argues that organizations are affected more by the availability of resources than by the actions of their managers, the established industry leader ensures a stable supply of raw materials by funning partnerships with suppliers, of a stable customer base by meeting or exceeding customers' needs, and of a stable income by maximizing profits. Everyone wins! The internal procedures of industry, suppliers, and customers become fine-tuned to support the technology.