Author: Clayton M. Christensen
Clayton M. Christensen
Reading time: 30 minutes
Synopsis
In The Innovator’s Dilemma (2011), we learn that many large companies often struggle in new markets. They cannot keep up with new, smaller companies. Why does this happen? And what can they do? These Blinks will give you answers. They will show you, with many examples, the mistakes even good, old companies have made over the years. They also show a way to fix these problems. Companies can learn how to use new technology well.
What you will learn: How businesses can react well to new technology.
A big change that affects many people’s lives can sometimes start small. Think of your smartphone. You might be holding it right now. It is a phone, a game, a map, a camera, a bank, and much more. It put all these things into one device. This made other products no longer needed. It changed plans and goals for whole industries.
Companies today are aware of this. They spend a lot of money on new ideas and technology. They do this so they don’t fall behind. But Clayton M. Christensen writes in The Innovator’s Dilemma that they often still lose in new markets. This is hard for older companies. The winners are often new competitors. These new companies have little experience and few resources. These Blinks will show you why this happens. They will also show how old companies can deal better with big new changes.
In these Blinks, you will also learn:
- how Honda became bigger than Harley-Davidson in the US market,
- why market researchers find new technologies confusing, and
- that big companies can fail because they only focus on making money.
Blink 1 – Older companies do well with existing technologies.
How does a company successfully bring new technology to the market? For a long time, people thought success came from fast innovation, a rich research team, and being ahead of rivals. But is this always true?
When we look at how new technology changes a market, we see two kinds of companies. Older companies were already in the market before the new technology came. New companies start because of the new technology itself. They are often very different in size. New companies have few workers. Large companies have many. So, their goals and plans are also different.
Studies show that older companies are best at making ‘sustaining technologies’. These technologies help a product grow or work better in a certain area. They build on technology that is already there. The new idea is just to make existing things work better or do more.
Floppy disk drives are an example. Older companies ruled this market for many years. These companies had made the markets for these and older technologies. So, they kept leading by making things better all the time. Big companies like IBM spent hundreds of millions of dollars. They made thin-film disks. These disks made their floppy disks store even more data. IBM was very good at this evolutionary technology because of its many years of experience.
Older companies can grow their lead in these situations. But new companies rarely break through. They seldom succeed in the market with a ‘sustaining technology’. So, if you want to give customers something new that builds on old ideas, the companies already leading the market have a clear advantage.
Blink 2 – New companies can become leaders with big new ideas.
It might seem that old market leaders always have an advantage. But this is not always true. Sometimes, new companies become market leaders. They push out the older, bigger companies. How do they do this?
Many older companies often do not understand ‘disruptive innovations‘. These are different from ‘sustaining technologies’. They do not just make an old market bigger. Instead, they change a whole industry. They create a totally new market. Here, all the rules change, and new players have a chance.
Think of the old greeting card market. It changed completely when people could send free online cards. This new idea was not so big that older companies could not have joined in. But often, the older, experienced companies did not take this chance.
In the 1990s, the floppy disk industry also saw a big change. This was about the size of the disks. Seagate still sold 14-inch disks from the 1970s. But smaller 1.5-inch disks (about 3.8 cm) slowly appeared on the market. Seagate did not sell many of these smaller disks. They thought there would be less profit. They also thought their current customers would not be interested. Later, Seagate found out they had missed a chance to earn millions. They could have joined this fast-growing market early. But they let the chance go.
From another view, this is good. Small new companies benefit from these chances. When big companies are not there, new companies have space to grow. They can even become market leaders.
Companies like Seagate did not focus on the small disks. So, new companies like Shugart Associates, Micropolis, Priam, and Quantum started to sell only these products. At first, there seemed to be no market for them. But then, new computers came out. This changed everything. Smaller computers needed smaller disks. Demand for these small disks grew quickly. The new companies became market leaders.
This happens again and again. Older companies ignore the power of big new technologies. They often give up their lead to new companies by mistake. This happens even when older companies have the skills to lead the market with these technologies.
Blink 3 – You cannot always know what new technology can do by asking customers.
Older companies that miss out on new, big technologies do not have bad managers. Actually, it often happens to very well-run companies.
This might sound strange, but it makes sense. Sometimes, good management is the very reason a company fails here. A good example is always trying to give customers what they want.
Normally, everyone agrees that listening to customers helps a business succeed. This way, a company knows what people want to buy. In marketing, people always ask customers what they think. They use focus groups, talks, and surveys.
But what if customers do not really know what they want? This can happen. Then companies make wrong plans. People often say they know what products they would like and buy. But a big new technology can completely change what they expect and want.
For example, hydraulic machines came into the earthmoving industry. At first, these machines could not move as much earth as the old cable excavators. For the biggest buyers of these machines, moving a lot of earth was key. So, they chose the old cable excavators. But the smaller hydraulic machines were more reliable, safer, and easier to use. They had great potential. The older companies listened to their customers. Their idea was: ‘The bigger, the better’. So, they missed a chance in the profitable hydraulic market. New companies like John Deere and Caterpillar entered this market. Today, they are still successful leaders.
So, a company cannot always rely on what customers say they want. But many older companies do this. A method called agnostic marketing can help. This means looking at how customers *actually* use products. Not how they *say* they would like to use them.
Blink 4 – Too much new technology can be bad for customers.
In other areas, older companies often do their job too well. This can actually put them behind less eager companies. Many companies think they must always use the newest technology. They think they should do this no matter what. But sometimes, this idea is wrong.
Companies look for the next big new technology. But they can give customers too many new things too fast. This can confuse customers. Customers are often not ready for these changes. They might not understand them, or they might not want to spend money on them. Companies then go too far.
Many people think customers always want new and better things. But this is not always true. In the 1980s, hard drives were usually 5.25 inches. Many people wanted more storage space. Companies started a race to offer the most storage. Soon, small hard drives could hold almost one gigabyte of data. At that time, this was a huge amount. It was more than people asked for or wanted to buy. The huge storage was amazing technology. But people did not buy it.
When products offer too much power, buyers start to look at other things. They care about how well it works, if it’s reliable, or the price. If a company keeps adding more power, customers might leave. They will buy a product that is better in other ways.
The hard drive market had too much power. So, people started to care about other things. The 3.5-inch hard drive became very popular. These smaller drives did not store as much data as the big ones. They also cost more for the storage they gave. But they could fit into smaller computers. These smaller computers were more useful for people. So, they were easier to sell. In the end, people cared less about how much data a hard drive could store. They cared more about how well it worked for them.
Blink 5 – New companies beat older ones by accepting smaller profits.
The bigger and more successful a company is, the more it focuses on markets with high profits. They also want happy shareholders. Simply put: Market leaders go for the markets that offer the most money.
From the start of their careers, managers learn that more profit means happier shareholders. More profit and happy shareholders mean more money for the company. This money can be used for research. This brings even more profit. So, companies want to make products for markets where they can earn 50% or more profit. Slowly, they change all their projects and products for these markets. Sometimes, they even change the company’s main ideas.
Leading companies focus on the high-end part of the market. But there is a lot of space left at the low end for new competitors. If old companies do not watch all parts of the market, they might miss the most profitable parts. Then, they can be easily attacked by smaller companies. This happens when they are not looking. Smaller competitors often do not have expensive setups. They do not have to please shareholders as much. So, they can make good money even with lower profits.
They slowly gain more and more market share. In the end, they might even take over big companies in that market.
For example, a US company made a big new technology for the steel industry. It was called the Minimill. This machine made steel much cheaper. But at first, it could only make low-quality steel. This low-quality steel was good enough for building concrete house walls. Big steel companies thought this market was not very profitable. So, they let the Minimill continue. Later, the Minimill could make high-quality steel. This steel was as good as steel from big factories. The Minimill still had very low production costs. So, it became more competitive than the market leaders.
Blink 6 – Companies need patience and flexibility in new markets.
Well-run companies know their markets very well. They watch every change and number carefully. This helps them control things. But new markets are often hard to predict. This worries analysts at older companies.
Older companies often make choices based on facts and numbers. This helps them keep their place in the market. But in new markets, this causes problems for them. A market that does not exist yet has no numbers to look at. So, before a new market appears from a big new technology, older companies do not know what to do. No one knows how much money this new area will make.
The Disk/Trend Report is a magazine that studies markets. It often guesses how much money unknown markets will make. For old technologies that just get better, their guesses are usually quite close to what happens. But their guesses for big new technologies were very wrong. For example, they guessed sales for 1.8-inch drives. They were wrong by 550 percent. Companies that trusted these numbers did not invest. They later regretted this. They had not seen how much potential the new technology and market had.
For older companies to gain from big new technologies and new markets, they need to be flexible and patient. Analysts must accept that new markets are uncertain. They cannot trust any predictions.
Their only plan should be ‘Discovery-Based Planning‘. This means they should focus on new findings. It is good to invest when you learn new things about the technology. It is also good to have a flexible plan for how to use and invest in it later.
For example, Intel bought the rights for its microchips from a Japanese calculator maker. They had worked together before. At first, Intel had no plans to use these microchips. There were no customers for them yet. But Intel stayed curious for years. They slowly gave more money and people to the microchip part of their company. The market for microchips grew slowly. In the end, IBM chose an Intel chip for its new computers. Intel’s patience paid off.
Blink 7 – Good managers cannot help if resources, processes, and values are wrong.
If you want to fire all your managers because you blame them for not succeeding, you are judging too quickly. The problems we talked about can be linked to what managers do. But these are only signs of a deeper issue.
The real problem is in three things that decide what a company can or cannot do: its resources, its processes, and its values. How these three things work together shapes a company’s culture and what it can do.
Resources mean everything a company can buy, sell, hire, or fire. They are the easiest way to change a company for a new plan. This depends on what resources the company focuses on.
Processes are the ways a company acts, works together, and makes decisions. They show how a company manages its resources. These can be formal, like written rules. Or they can be informal, like daily chats. It is much harder to change processes than resources.
Values are the third factor. They are the rules a company uses to make choices. For example, they help workers decide if a customer, product, or order is important.
These three factors are harder to change in this order: resources, then processes, then values. But new big technologies need changes in all of them. This is often the main problem. Managers alone cannot change old processes and values. The whole company must want to change with them.
This happened to Digital Equipment Corporation, a leading computer company. They had all the resources they needed. But their processes were different. The company only made minicomputers. They usually made parts in large batches. So, they failed to make computers for normal people. This needed very different processes. Their values meant they wanted 50% or more profit. The PC market could not offer this. So, the PC market was not their target.
Even when Digital Equipment Corporation tried the PC market, managers could not save it. It was clear they would fail. Their old ways of working and their values were the cause.
Blink 8 – Relying only on theories can make you lose in the real world.
When companies think about new ideas, they often use theories to study them. These theories can be helpful. They often give good guidance. But if a company trusts these theories too much, it can hurt their business.
One common theory is the S-curve concept. It shows a product’s life cycle. With this, a company can plan. They can help a product grow if it’s doing well. Or they can stop selling it if it’s getting old. Sales of a new product start slowly. Then, when people notice it, sales go up very fast. After a while, other companies, copycats, or new technology appear. They make the product less popular.
If you draw the points of a product’s life on a chart, you get an ‘S’ shape. If you put all products in a market on the same chart, their ‘S’ curves cross. This shows how they affect each other. This chart tells companies when to launch a new product. It also shows when the product will make the most money.
These charts can help as a guide. But they often do not show real life exactly. This is especially true for big new technologies. Often, you cannot easily place these new ideas into the right market. So, they do not even show up on an S-curve chart. For example, 2.5-inch drives were seen as part of the home computer market. They greatly changed the drive market. But their S-curve was never drawn on the same chart. They did not cross old S-curves. They were on a totally different graph. So, the S-curve idea did not help companies understand these drives.
Big new technologies are often too big for old models companies use to collect data. So, these models cannot capture them. Companies need to think in new ways about how products perform, what customers want, and how technology changes. Many companies have not yet learned this.
Blink 9 – Every product has a market; you just need to find it.
It seems easy to make mistakes with big new technologies. So, how can a company succeed?
One way even old companies can succeed with big new technologies is to be creative. New technologies are not like older ones that just make things better. Instead, they offer a new way to do something known. This helps them find new kinds of customers. You need to find these new customers, this new market.
This can happen by chance, like with Honda. Honda, a Japanese company, wanted to sell motorcycles in the US. But their light Super-Cub model struggled against the popular Harley-Davidson choppers. But then, they sold their bikes as off-road bikes for adventure. They did not show them on the main road, Route 66. This created a completely new market for them. They simply showed customers a new way to use a motorcycle. And they succeeded.
Honda might not have planned this. But this way of working has a system. It is about being creative to find, or even create, new markets. Electric cars are an example. They are a big new technology. But in normal markets, they cannot yet go as fast as petrol or diesel cars.
A market for electric cars would be where drivers do not need to go very fast or accelerate quickly (over 120 km/h). Instead, they want a car that saves fuel. This market includes new drivers, delivery vans, or taxis in busy areas. In these places, there is a lot of traffic. So, even normal cars cannot drive fast or accelerate quickly.
When using big new technologies, problems are not about the general conditions. They are solved if a company is creative and finds the right customers. So, what a company has is not as important as what it *does* with it.
Blink 10 – Creating a separate small company is the best way to handle big new technologies.
When a new, big technology market is possible, there are three main ways to act.
Option one: An old company tries to make the new market grow fast. They want profits and to keep shareholders happy. But this often fails. The market does not grow as fast as they hope.
Option two: Wait until the market is older and safer. The problem is that by then, other companies might already be market leaders.
Option three, and the best way: An old company starts or buys a smaller, separate company. This new company focuses only on big new technology. It is small enough to be happy with small wins and profits. This gives it all the good points of a new company.
This new small company needs different customers. These customers should be more open to new technology than the main company’s customers. It can use the main company’s money and tools. But it must not use its processes or values. These often cause problems with big new technologies. It is also important to be ready for failure. This way, mistakes will not cause big financial problems.
IBM is a good example of this again. When personal computers looked like a good market, IBM started a new, separate company. They gave it staff and enough money. After that, IBM did not interfere with the new company’s internal work. This new company did not use IBM’s old processes or values. It created its own cost plan. This plan fit the PC market, not IBM’s other markets. So, the new company made money. It secured IBM’s place in the PC market. IBM still holds this place today.
The answer is to understand this: A company cannot serve old and new technologies well at the same time. Not if it uses the same processes and values for both. It is better to create a separate part of the company. This part should focus only on big new technologies. This can solve the problem.
Zusammenfassung
The main idea of these Blinks is:
Older companies often struggle with big new technologies, even with good managers. New companies benefit from the problems of the big ones. They often become market leaders with new, groundbreaking technologies. But older companies can change. The best way is to set up a new, small company. This new part should focus on big new technologies, separate from the old ways of working.
What you can do:
Let specialists do their job!
Start a new team in your company. This team should focus only on big new technologies! It should be small enough to be happy with small successes. This team will not be held back by old ways or rules. It can change quickly. This gives you a much better chance to succeed in a new market.
Do not plan too much ahead!
Be ready for possible failure. This helps you stay flexible. If you make a full plan for everything, you will not be ready for unexpected problems. New markets always have surprises. So, do not think you can know everything that will happen!
Do not always listen to your customers!
When you study a new market, do not listen too much to what customers say they want. Often, customers do not know what they really want if they have not seen the new technology yet. Instead, watch how people actually use a product. Then, decide based on that.
Did you like this?
We hope these Blinks were helpful. Please tell us what you think. Just send an email to [email protected]. Use ‘The Innovator’s Dilemma‘ as the subject.
To read more: My Brand by Hermann H. Wala
It is hard for old companies to keep up with new, fast-moving startups. But sometimes, a simple rebrand can help. This means looking closely at your company’s values and goals. The Blinks for My Brand (2011) show how rebranding works. They also show why it can lead to new ideas and success.
Source: https://www.blinkist.com/https://www.blinkist.com/de/books/the-innovators-dilemma-de