The Innovator’s Dilemma describes, in great detail and with multiple examples and figures, why well managed companies at the top of their field fall to smaller firms that take advantage of disruptive innovations.

Disruptive technology is loosely defined as technology that can serve the same needs as an existing technology, but has radically different characteristics that are not found on the existing technology, and usually utilizes a different manufacturers, suppliers, and experts than the incumbent technology.

A large portion of the book analyzes the disk drive industry of the 60s to the late 90s because it saw accelerated comings and goings of leading firms due to the rapidly evolving technology associated with electronic data storage. Christensen explains that he chose to research the disk drive industry for the same reason geneticists study fruit flies, they are born, reproduce, and die within days, or a few years in the case of disk drive firms. In this accelerated environment, leading firms come and as a result of disruptive innovation, but when the timeline is sped up, there is something undeniably striking about the pattern. For every disruptive change in the disk market, the leading firms consistently lost to the newer firms that were employing the newest disruptive technology. This process would repeat over and over, leading firms go bust, new firms become leading firms, then those new leading firms go bust. How could this be? Surely the firms that could capture the market as startups would understand the power of disruptive technology after they grew to be industry powerhouses. The answer lies in the process that a startup has to undergo to become a market leader.

Size is the first key attribute of a startup that allows them to sneak into a market, hone their craft, and eventually pilfer the customers of the established firms. Critically, startups focusing on using disruptive technologies are bound by the constraints of budding technology. In almost all cases, the technology is less efficient, more expensive, and ill suited for the market which an established firm is operating in. Since startups can’t sell the technology to the upmarket clients where the margins are higher and opportunities larger, they must focus on selling the product to downmarket clients who can utilize some other defining factor about the disruptive technology. As a result, they don’t pose a threat to the sales of established firms. Furthermore, the opportunities that startups pursue do not meet the growth goals of larger companies. A theme that is echoed throughout is “small markets don’t solve the growth needs of large firms”.

But if that’s where the story ends, then there’s no story. Startups would just find a separate market that can use some other factor about the fledgling technology and leave established firms unbothered. There is another key attribute of disruptive technology that enables startups to march their product up to the gates of established companies and pillage their client base. In addition to having some radically different and desirable characteristics from incumbent technologies (size, durability, maneuverability, etc), they will also have steeper rates of performance improvement. As disruptive technology is developed, it becomes more efficient and less expensive faster than the established technology. With a steeper rates of performance improvement than the incumbent, it only becomes a matter of time before the disruptive technology meets market needs at a cheaper price, with better performance, and with their unique desirable characteristics.

So if that’s how startups get into the market, how do incumbents lose? If incumbents were built on disruptive technology, why can’t they just do it again when a new one is identified? Even in the accelerated environment of the disk drive industry, disruptive technologies could take up to a decade to become the superior technology. Over those years, the firm’s processes and culture were developed to continue to meet their growth needs and weed out programs that did not make the company the best profits. It had to be so, their product had to improve with ruthless efficiency and become usable to an ever-growing market if firms were going to survive the high mortality rates of startup-hood. Those very processes will become their downfall when the next disruptive technology arrives.

With upmarket positioning secured, and yearly growth rates to maintain, the focus of the established firms inevitably falls on the largest clients who demand the highest performance and who are willing to provide the largest accounts with the highest margins. Even if a disruptive technology is identified before it is a threat, the processes and ruthless efficiency of time and resources present in a large firm paralyze them from acting on a technology that is only marketable to niche clients at best, and no clients at worst (or at least no known clients). None of their existing clients who want performance and efficiency will want anything to do with a slower, less reliable, and more expensive technology and devoting time and resources to it would go against all the rules at an established firm. Additionally, if development of a disruptive technology goes according to plan, it will make the company’s existing product obsolete.

If you are an established firm faced with the tsunami that is disruptive technology, the only move to make that will ensure your survival is to understand that your current product will have to be destroyed and rebuilt and that the alternative is to be doomed. And so, with great managerial effort, you can adjust or rebuild your processes that were designed to maximize profits. The road is not easy for a firm that just decided to devote a significant portion of it’s resources to an internal competing product, and Christensen offers some right and wrong ways to go about this pseudo-civil war.

The main takeaway for large corporations is that generally, the best way to combat disruptive innovation in your field and stay relevant through it’s adoption is to create spin off company or fund a separate venture that utilizes the disruptive technology and is sized to take advantage of the smaller market of the disruptive technology and scale with it. Christensen provides a plethora of interesting metrics, figures, and business concepts to support his claims and does a great job of debating his point. This was the first book I’ve read about the nature of innovation and it’s place in business, and I found the content accessible and it’s presentation intuitive. My main critiques of the The Innovator’s Dilemma are that it is dry and a grind to read through at times. Christensen gives a wide array of examples from various industries that have been impacted by disruptive innovation but no matter how you slice it, content about the hydraulic excavator, steel mill, disk drive, and department store industries can only be so interesting.