Lecture Module 1 - Innovator’s dilemma
Fall of Nokia -> due to Apple which was a disruptive innovation
Nokia did not really do anything wrong, but still lose
Large firms missing the boat
Typologies technological change:
• Old technologies vs. new technologies (Cooper and Schendel, 1976)
• Competence-enhancing vs. competence-destroying (Tushman & Anderson, 1986)
New technologies can competence enhance or destroy
• Incremental vs. Radical (Utterback, 1994) -> Small to bigger changes
• Sustaining vs. disruptive (Christensen & Bower, 1996)
Similar to competence enhancing and destroying
Sustaining contributes to the current improvement, built on the same technology
It is especially the latter types of change that large established firms have difficulties coping with.
Disruptive innovation
Most firms fluctuated, often it can happen that new firms enter and that the market changes
Why? The success Syndrome
You like my products -> fit -> then I become more
successful -> then my firm grows and becomes older, firm
starts to have a history, age can become a constraint ->
cultural inertia + bigger means I need to put structures in
place, approval of all kinds of middle mans -> structural
inertia, approval of all kinds of middle mans -> firms can be
overconfident
Is Inertia Always Bad?
Inertia is also what keeps you going, what keeps you focused on your current trajectory and what keeps you
from changing constantly.
Inertia may result from accountability and reliability
➔ Can lead to a good product, but also to a slow organization
How to protect the traditional successful business and to engage in radical innovation at the same time?
Look at the past to what made them what they are, what made them who they are, but also look at the future.
-> ambidexterity
1
,The Innovator’s Dilemma
According to Clayton Christensen, failure to adapt to disruptive innovation is not the result of bad
management, but a result of good management.
Why?
Large companies depend on their existing customers and investors for resources
They listen closely to these customers and investors and kill ideas for which there is little need. If you have
new ideas and your biggest customers are not interested, you won’t pursue.
But because of the nature of the disruptive innovation. Disruptive innovations typically start lower, they don’t
work as well, technology might not be fully ready yet, so customers might not want it yet. But this grows and
at some point, will meet the customers. So, listening to you customers you wouldn’t go from point A to C. But
some other company will and will go from C to D and customers are interested and starts competing with you.
The tricky part is you will not know what a disruptive innovation is and what is not. Usually when it comes to
the market it is most of the time too late to start investing in it.
A to B is what if you invest in disruptive innovation yourself
Why is it that established firms not engage in disruptive innovation?
Disruptive technologies typically have (at least initially):
• Lower profit margins -> low product performance, cannot ask high prices
• Small markets
• No reliable market statistics
Tutorial Module 1
“The innovator’s dilemma: when new technologies cause great firms to fall”
Why do well managed companies often fail in spite of doing the right thing – i.e. meet their customer needs?
What is the Innovator’s Dilemma?
The logical, competent decisions of management that are critical to the success of their companies are also the
reasons why they lose their positions of leadership
Look at picture above -> Slope of the line A – B is far higher than B – E
The way that the rate of established companies according to the dimensions is higher than the rate at which
customers demand
Margins a driver of product performance
Understand disruptive technologies / innovations -> how it is different from others
Not all radical innovations are disruptive -> they might be sustaining
2
,Attributes -> performing attitudes
C – D – E, technology not even meeting the minimal requirements of performance demanded, but it offers
different type of performance package, i.e a laptop and a mobile phone, mobile phones came with a different
performance package. Not as powerful, capacity, memory etc. Offers different performance package.
It is not by how much you overshoot, but if you are meeting consumer demand
How is disruptive – sustaining different from radical – incremental?
Incremental vs radical change: size of the change
• Incremental = change in small steps
• Radical = change in big steps
Sustaining vs disruptive: how does it relate to your current business
• Sustaining enhances the performance of your current business
• Disruptive destroys your current business
Examples:
• Incremental, sustaining: new razor, going from 3 to 4
• Incremental disruptive: ford’s model T: product line process for car manufacturing
• Radical, sustaining: air fryer
• Radical disruptive: digital photography
Why do firms not invest in disruptive technologies?
Doing all the right things that the “textbook” describes, yet they failed
1. Companies depend on customers and investors
2. Small markets don’t solve growth needs
Most of the time the new technologies take place in niche markets
3. Markets that don’t exist cannot be analyzed
4. An organization’s capabilities determine its disabilities
Core capabilities become core imperiment
You are a middle manager, you have this interesting idea, develop proposal, financial forecast,
superior looks at it, have this way they allocate money, apply these decision-making models to this
proposal, do we have the capabilities / what is the investment on this, more the rational aspects, the
way the company does business is hard wired as it has been successful for the past years.
5. Technology supply =/ market demand
Overshooting customers demand
This was the problem, now the solution
Geographic change -> Setup operation in Eindhoven Brain port, build a unit, which is motivated for these small
revenues
Culture -> creating / opening information channels within the organization, what are the new technologies
emerging, makes it easier to make decisions regarding these technologies
Next article – Darwin and Demon
How can firms innovate and survive in the long term? What are the forces that firms must overcome?
Explain the title of this article
Survival of the fittest -> the ones that fit best in the environment they are located, they survive.
This means that being the best sometimes does not give you the competitive advantage, the competitive
advantage derives from being the fittest in the environment you are operating
Darwin:
• Evolution, survival of the fittest
3
, Demon
• Inertia
Has the tendency for something to stay in its currents state
Inertia is describing staying in its current state and not being able to adapt
When innovating; they leave a lot of the old processes and structures in place, however, they have to actually
make a lot of changes internally. This is constraint by inertia, it becomes extremely difficult to evolve and
remain fit in the changing environment
Darwin vs the demon
• To overcome Darwinian selection processes, firms need to innovate
• The demon of inertia manifests itself in too much reliance on product innovation early on, and
overshooting later on
Which type of innovation should firms focus on (incr / rad / sust / disr)
• It depends
o Product-Market life cycle
The gap signifies, there are some small early on adopters, who are very eager to test new things, and moving
that to the greater market, when you cannot make that transition you fall into the gap.
Shifting to maturity, moving from product developments to productivity, from characteristics to how efficient
can you deliver.
Shifts from upstream to downstream
Upstream -> R&D etc
Downstream -> the way the customer experiences the product
Then the industry is ready for a new disruption
In the end you have the two types of pressures, the Darwin and inertia pressure -> it is the fundamental
pressure
How can inertia be overcome?
• Introduce new types of innovation while deconstructing old processes and organizations
• Deconstruction driven by productivity, not differentiation
o Centralize (decision making)
o Standardize (processes)
o Simplify
o Automate or outsource
• Differentiation-creating innovation and productivity creating deconstruction must be conducted at
the same time
4
Fall of Nokia -> due to Apple which was a disruptive innovation
Nokia did not really do anything wrong, but still lose
Large firms missing the boat
Typologies technological change:
• Old technologies vs. new technologies (Cooper and Schendel, 1976)
• Competence-enhancing vs. competence-destroying (Tushman & Anderson, 1986)
New technologies can competence enhance or destroy
• Incremental vs. Radical (Utterback, 1994) -> Small to bigger changes
• Sustaining vs. disruptive (Christensen & Bower, 1996)
Similar to competence enhancing and destroying
Sustaining contributes to the current improvement, built on the same technology
It is especially the latter types of change that large established firms have difficulties coping with.
Disruptive innovation
Most firms fluctuated, often it can happen that new firms enter and that the market changes
Why? The success Syndrome
You like my products -> fit -> then I become more
successful -> then my firm grows and becomes older, firm
starts to have a history, age can become a constraint ->
cultural inertia + bigger means I need to put structures in
place, approval of all kinds of middle mans -> structural
inertia, approval of all kinds of middle mans -> firms can be
overconfident
Is Inertia Always Bad?
Inertia is also what keeps you going, what keeps you focused on your current trajectory and what keeps you
from changing constantly.
Inertia may result from accountability and reliability
➔ Can lead to a good product, but also to a slow organization
How to protect the traditional successful business and to engage in radical innovation at the same time?
Look at the past to what made them what they are, what made them who they are, but also look at the future.
-> ambidexterity
1
,The Innovator’s Dilemma
According to Clayton Christensen, failure to adapt to disruptive innovation is not the result of bad
management, but a result of good management.
Why?
Large companies depend on their existing customers and investors for resources
They listen closely to these customers and investors and kill ideas for which there is little need. If you have
new ideas and your biggest customers are not interested, you won’t pursue.
But because of the nature of the disruptive innovation. Disruptive innovations typically start lower, they don’t
work as well, technology might not be fully ready yet, so customers might not want it yet. But this grows and
at some point, will meet the customers. So, listening to you customers you wouldn’t go from point A to C. But
some other company will and will go from C to D and customers are interested and starts competing with you.
The tricky part is you will not know what a disruptive innovation is and what is not. Usually when it comes to
the market it is most of the time too late to start investing in it.
A to B is what if you invest in disruptive innovation yourself
Why is it that established firms not engage in disruptive innovation?
Disruptive technologies typically have (at least initially):
• Lower profit margins -> low product performance, cannot ask high prices
• Small markets
• No reliable market statistics
Tutorial Module 1
“The innovator’s dilemma: when new technologies cause great firms to fall”
Why do well managed companies often fail in spite of doing the right thing – i.e. meet their customer needs?
What is the Innovator’s Dilemma?
The logical, competent decisions of management that are critical to the success of their companies are also the
reasons why they lose their positions of leadership
Look at picture above -> Slope of the line A – B is far higher than B – E
The way that the rate of established companies according to the dimensions is higher than the rate at which
customers demand
Margins a driver of product performance
Understand disruptive technologies / innovations -> how it is different from others
Not all radical innovations are disruptive -> they might be sustaining
2
,Attributes -> performing attitudes
C – D – E, technology not even meeting the minimal requirements of performance demanded, but it offers
different type of performance package, i.e a laptop and a mobile phone, mobile phones came with a different
performance package. Not as powerful, capacity, memory etc. Offers different performance package.
It is not by how much you overshoot, but if you are meeting consumer demand
How is disruptive – sustaining different from radical – incremental?
Incremental vs radical change: size of the change
• Incremental = change in small steps
• Radical = change in big steps
Sustaining vs disruptive: how does it relate to your current business
• Sustaining enhances the performance of your current business
• Disruptive destroys your current business
Examples:
• Incremental, sustaining: new razor, going from 3 to 4
• Incremental disruptive: ford’s model T: product line process for car manufacturing
• Radical, sustaining: air fryer
• Radical disruptive: digital photography
Why do firms not invest in disruptive technologies?
Doing all the right things that the “textbook” describes, yet they failed
1. Companies depend on customers and investors
2. Small markets don’t solve growth needs
Most of the time the new technologies take place in niche markets
3. Markets that don’t exist cannot be analyzed
4. An organization’s capabilities determine its disabilities
Core capabilities become core imperiment
You are a middle manager, you have this interesting idea, develop proposal, financial forecast,
superior looks at it, have this way they allocate money, apply these decision-making models to this
proposal, do we have the capabilities / what is the investment on this, more the rational aspects, the
way the company does business is hard wired as it has been successful for the past years.
5. Technology supply =/ market demand
Overshooting customers demand
This was the problem, now the solution
Geographic change -> Setup operation in Eindhoven Brain port, build a unit, which is motivated for these small
revenues
Culture -> creating / opening information channels within the organization, what are the new technologies
emerging, makes it easier to make decisions regarding these technologies
Next article – Darwin and Demon
How can firms innovate and survive in the long term? What are the forces that firms must overcome?
Explain the title of this article
Survival of the fittest -> the ones that fit best in the environment they are located, they survive.
This means that being the best sometimes does not give you the competitive advantage, the competitive
advantage derives from being the fittest in the environment you are operating
Darwin:
• Evolution, survival of the fittest
3
, Demon
• Inertia
Has the tendency for something to stay in its currents state
Inertia is describing staying in its current state and not being able to adapt
When innovating; they leave a lot of the old processes and structures in place, however, they have to actually
make a lot of changes internally. This is constraint by inertia, it becomes extremely difficult to evolve and
remain fit in the changing environment
Darwin vs the demon
• To overcome Darwinian selection processes, firms need to innovate
• The demon of inertia manifests itself in too much reliance on product innovation early on, and
overshooting later on
Which type of innovation should firms focus on (incr / rad / sust / disr)
• It depends
o Product-Market life cycle
The gap signifies, there are some small early on adopters, who are very eager to test new things, and moving
that to the greater market, when you cannot make that transition you fall into the gap.
Shifting to maturity, moving from product developments to productivity, from characteristics to how efficient
can you deliver.
Shifts from upstream to downstream
Upstream -> R&D etc
Downstream -> the way the customer experiences the product
Then the industry is ready for a new disruption
In the end you have the two types of pressures, the Darwin and inertia pressure -> it is the fundamental
pressure
How can inertia be overcome?
• Introduce new types of innovation while deconstructing old processes and organizations
• Deconstruction driven by productivity, not differentiation
o Centralize (decision making)
o Standardize (processes)
o Simplify
o Automate or outsource
• Differentiation-creating innovation and productivity creating deconstruction must be conducted at
the same time
4
