Notes on The Innovator's Dilemma

It was long overdue, but I finally finished reading The Innovator's Dilemma by Clayton Christensen, an HBS professor. So many people kept citing this work around me, and I now understand why. The book is a bit slow and dry in its writing style, but the key points are incredibly deep, thought-provoking, and not as often discussed in start-up pop culture.

My biggest takeaway is that when companies are doing the "right" things, like being good managers, following business school teachings, executing, listening to customers, etc., these practices that help them scale successfully are exactly the WRONG things to be doing when confronted with disruptive innovation. That's the core of the dilemma. As a start-up gets traction and grows into a big company, it makes it much less likely that it will be able to keep doing disruptive innovation. This is a really interesting concept, and one that's bittersweet.

My notes are below. You can also download a great book guide that was included in the book at the bottom of this post (sorry for the quality, I took the photos on my phone).

I really enjoyed the book, even though it took me a while to get through it (this was a physical copy I was reading for 10-20 pages at a time).

Part 1: Why great companies can fail

Ch. 1: How can great firms fail

• Disruptive innovations technically straightforward 
  
• Studied disk drive industry
  
• Known tech in unique architecture
  
• Advanced tech development for sustaining innovation
  
• Customers of incumbents demand sustaining innovation
  
• Firms that led disruptive innov always entrants who developed for new mkt and not for current customers
  

Ch. 2: Value networks and the impetus to innovate

• Different value networks (industries, target users) have different needs and cost structures, assigning value to different components of products
  
• Incumbents listen to lead customers and don't pursue disruptive innovation because isn't appropriate for value network
  
• Entrants seek fit via trial and error with some value network that wants their disruptive product
  
• Then later entrants grow and expand into territory of incumbent and by then it's too late for incumbent to respond
  
• Customers mislead in advice around disruptive innovation
  
• Technology s-curve framework: tech supplants old tech when second derivative negative (past inflection point)
  
• S-curve only for sustaining innovation (disruptive along new curve)
  
• Initially disruptive tech is worse in most product attributes than majority value network care about; only better in an attribute that small value network cares about which is uncertain and must be discovered
  
• Over time, if trajectories of what 2 techs deliver to different value networks over time cross, then disruptive tech can overshadow and meet needs of both value networks, threatening incumbent firms
  
• Flash disk drives vs DRAM

Ch. 3: Disruptive innovation in mechanical earthmoving industry

• When disruptive innovation comes out, majority of market doesn't want it
  
• Search for market that could use it and appreciates its value
  
• Then as product improves along axes the majority care about, can expand into there
  
• Hydraulic excavator vs. cable system

Ch. 4: What goes up can't go down

• Moving upmarket to higher price points easier for customers than moving downmarket into lower price, smaller market opportunities (as is required for disruptive innovation)
  
• Managers also prefer higher margin, proven market projects
  

Part 2: Managing disruptive innovation

• Good (not bad) management to blame for missing disruptive innovations
  

Ch. 5: Give responsibility for disruptive technologies to organizations whose customers need them

• Customers allocate an org's resources, not mgmt (resource dependence theory)
  
• Result is need to create an independent org and embed it among emerging customers that do need disruptive tech
  
• Same org can't keep supporting mainstream customer and pursuing disruptive innov

Ch. 6: Match the size of the organization to the size of the market

• Leadership in sustaining technologies not essential (can be follower company)
  
• But is essential in disruptive
  
• Big companies searching for big markets to sustain growth rates; disruptive tech for small markets not interesting
  
• Acquire a small company and launch products through it 

Ch. 7: Discovering new and emerging markets

• Market apps for disruptive tech unknowable
  
• Discovery and learning, not execution
  
• Market research and listening to customers impossible
  
• Expert forecasts always wrong
  
• Failed ideas versus failed businesses: most successful ventures abandon original biz strategies after learning 
  
• Managers often can't deviate from plan
  
• Plans to learn vs plans to execute
  
• Discovery-driven planning
  
• Smaller batches
  
• Agnostic marketing: no one (us or customer) knows size of market until you try
  
• Get out of the building and test (same stuff as custdev and lean startup teachings!)

Ch. 8: How to appraise your organization's capabilities and disabilities

• Only companies that succeeded in disruptive tech are those who create independent orgs whose size matches size of opportunity
  
• Organizational capabilities determine where it can succeed
  
• 3 factors: resources, processes, values
  
• An org's processes and values also define what it can't do
  
• Values are decision rules
  
• For companies to maintain growth rate as they grow, have to ignore small markets (Wall Street cares about earnings growth percentages)
  
• Bittersweet reward of success: lose the capability to enter small markets
  
• Problem with mergers and acquisitions
  
• If acquiring for resources, integrate acquiree
  
• If acquiring processes or values, let acquiree stand alone
  
• Acquiring to create capabilities is good
  
• Resources can change easily but processes and values much more rigid and limit developing new capabilities internally
  
• Create spin-out venture with new processes when big org values and growth rules prevent it from doing disruptive work
  

Ch. 9: Performance provided, market demand, and product life cycle

• Performance oversupply satiates customer demand and customers no longer willing to pay price premium so start considering other aspects; basis of competition changes, allowing new entrants
  
• Product becomes commodity with only price competition once exceeds all market demands/needs and no more features/differentiation is needed
  
• Performance oversupply drives transition from one phase to next of product life cycle
  
• Based on product and vendor availability over time, customers choose products first based on functionality, then reliability, then convenience, then price
  
• Performance oversupply causes phase transitions between these
  
• Chasm model is user-centric but shows same transitions
  
• Aspects of disruptive tech that make it unsuitable for mainstream mkt make it perfect for emerging mkt
  
• Disruptive tech usually simpler, cheaper, more reliable, and convenient
  
• Sustaining tech assumes existing market needs valid and has a technological problem of improving product to meet them
  
• Disruptive tech seeks to find market that fits and has a marketing problem of finding the market that will accept the tech
  
• Strategies: move up market towards higher end customers along life cycle, stay with customers as they move along life cycle, market to change customer demand for new product functionality
  

Ch. 10: Managing disruptive tech change case study

• Electric vehicle example
  
• Is tech disruptive?
  
• Look at market behavior, not interviews. Plot market performance demanded over time. If exceeds new tech capacity, then might be disruptive
  
• Look at performance improvement of new tech over time. If growing faster than market performance demanded, then can be disruptive on day (will intersect market need curve)
  
• Where is the market for the new tech?
  
• Ignore mainstream
  
• Find a market that values the disadvantages of the disruptive tech compared to mainstream
  
• No one can learn from market research where the right market is for an emerging market
  
• Only way to learn is through expeditions of trial and error, prototyping, selling real products to real ppl paying real money
  
• Business plan must be one for learning, not executing strategy
  
• Product: simple, reliable, convenient. Designed for quick and cheap iteration. Low price point. 
  
• Product plan cannot rely on achieving breakthrough tech innovations. Disruptive tech usually combines existing stuff in new way. 
  
• Distro strategy: usually new value network and channel needed because existing has clear formula that doesn't fit
  
• Create independent org or spin-off so not competing against current needs and resources
  
• Bigger org's best for sustainable innovation
  

Ch. 11: The dilemmas of innovation summary

• 1: Pace of market need doesn't always match tech progress
  
• Cannot just be guided by current customers
  
• Use tech trajectory maps
  
• 2: mgrs are honed for profitability, and it will be very difficult to keep allocating resources to disruptive tech
  
• 3: disruptive tech is a mktg challenge, not a tech challenge
  
• Find a mkt that values characteristics of disruptive tech in current form
  
• 4: org's capabilities much more specialized than we believe because tuned to one value network
  
• Not fit for disruptive tech
  
• 5: disruptive tech very risky so need to focus on quick learning and tolerating failure
  
• 6: must use diff strategy in leading disruptive than sustaining innov
  
• 7: biggest companies make their own barrier to entering and investing in disruptive tech at the most important times that entrepreneurs can take advantage of

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