The Innovator’s Dilemma
Insight into why established firms miss out on new waves of innovation.
Summary of 6 Key Points
Key Points
- Disruptive technologies can initially seem inferior
- Market leaders might dismiss disruptive innovations
- Companies focus on current customers rather than potential new markets
- Organizational structures can hinder embracing disruptive change
- Value networks influence how companies measure success
- Resource allocation processes favor sustaining innovations over disruptive ones
key point 1 of 6
Disruptive technologies can initially seem inferior
Disruptive technologies often enter the market in a form that may seem underwhelming or inferior compared to the existing technologies. They may lack the performance that mainstream customers require, and as a result, they are not immediately perceived as a threat by established companies. These new technologies typically offer different attributes that a few fringe customers value. The performance of disruptive technologies, however, tends to improve over time, and as it does, they become more appealing to a wider customer base…Read&Listen More
key point 2 of 6
Market leaders might dismiss disruptive innovations
Market leaders often focus their efforts on improving products and services for their most demanding and profitable customers. This can result in a concentration on sustaining innovations, which are advancements in technology that make a company’s existing products perform better. Typically, these improvements cater to the high end of the market, leaving less-demanding customers with features that may exceed their needs or price points they find too steep. As a result, companies may ignore or dismiss disruptive innovations, which are simpler, cheaper solutions that start out in low-end markets or in new markets entirely…Read&Listen More
key point 3 of 6
Companies focus on current customers rather than potential new markets
In the realm of business, companies often prioritize their current customer base when making strategic decisions. This focus is rooted in the immediate feedback, revenues, and profits that existing customers provide. They represent the company’s present financial stability and are often seen as the most reliable predictor of future success. Consequently, businesses tend to allocate resources and innovate in ways that serve the needs and desires of this core audience. The implication of this is a dedication to sustaining innovations—those improvements that make a product better for existing customers but don’t necessarily change the fundamental market dynamics…Read&Listen More
key point 4 of 6
Organizational structures can hinder embracing disruptive change
In examining the nature of disruptive change and how it impacts organizations, it is noted that the very structures which define successful companies can also be the source of their eventual downfall. These structures, which include established processes, values, and customer relationships, serve well in optimizing organizational performance for existing technologies and markets. However, they inherently resist the unpredictable and resource-diverting nature of disruptive innovations that do not initially align with the company’s current profit margins or market segments…Read&Listen More
key point 5 of 6
Value networks influence how companies measure success
Value networks within companies play a critical role in shaping how success is measured and perceived. These networks consist of employees, suppliers, and customers, all of whom contribute to the established processes and priorities that drive a company’s operations. They create a framework within which the company operates, and this structure heavily influences what is considered valuable and worth pursuing. Success is often gauged by how well the company performs within this established network, meeting the expectations of its various stakeholders and maintaining the status quo that has historically led to profitability…Read&Listen More
key point 6 of 6
Resource allocation processes favor sustaining innovations over disruptive ones
In the discussion surrounding how organizations manage innovation, it’s noted that resource allocation processes in established companies are typically geared towards sustaining innovations rather than disruptive ones. Sustaining innovations are those that improve the performance of established products, along the dimensions of performance that mainstream customers in major markets have historically valued. These innovations are usually easier to justify within a company’s existing business model since they promise immediate returns on investment and match the company’s existing clientele and market understanding…Read&Listen More