The Innovator's Dilemma summary

The Innovator's Dilemma, by Clayton M. Christensen, asks a simple question: why do great companies fail? Not lazy or badly run ones, but admired ones, with smart managers who listen to their customers and invest in new technology. Christensen, born in Salt Lake City in 1952, worked as a consultant and ran a small ceramics company before his doctorate at Harvard, where he became a full professor in a record six years. He first described his idea in a Harvard Business Review article in 1995, and the book came out in 1997. It won the Global Business Book Award that year, and The Economist later called it one of the six most important business books ever written.

Its central claim is uncomfortable: doing everything right, listening to your best customers and chasing the best margins, can be exactly what sinks a company. Christensen builds the case on disk drives, which a friend told him were the fruit flies of business because companies there are born, grow and die so fast. He adds stories from steel mills, mechanical diggers, Honda motorcycles and discount stores.

This is an independent written summary of the main ideas, in our own words, based on the Road MBA episode. We're not affiliated with the author or publisher, and nothing replaces reading the book.

Key ideas

1. Sustaining versus disruptive technology

Sustaining technologies make a good product better for the customers you already have: more capacity, more speed. Disruptive technologies start out worse: smaller, simpler, slower, often cheaper, good enough only for a small new group of customers. Of one hundred and sixteen new technologies in the disk drive industry, one hundred and eleven were sustaining, and in every one the existing leaders also led the new wave. The other five were disruptive, with no new science in them at all, and not one industry leader stayed on top after they arrived.

2. Seagate read its market correctly, and lost

Early in 1985, Seagate engineers built working prototypes of a smaller three and a half inch drive. Its best customers, desktop computer makers like IBM, wanted forty or sixty megabytes. The small drive held twenty and cost more per megabyte, so executives canceled it. Two years later Conner Peripherals sold small drives to a market that barely existed when Seagate asked: portable computers. Seagate only shipped its own in 1988, mostly to desktop makers.

3. The pattern goes beyond technology

The first hydraulic diggers sat on farm tractors and could not reach or lift like the big cable shovels contractors used. They were sold to builders digging narrow trenches for new houses. The leader, Bucyrus Erie, launched a half hydraulic machine in 1951 and pitched it to its usual contractors, who didn't want it. Of thirty cable shovel makers, only four survived the move to hydraulics.

4. Customers and investors decide where the money goes

A project your best customers don't want will lose every budget fight, as it should in a normal week. Good management itself pushes the disruptive idea aside.

5. Small markets can't feed a big company

A company with billions in sales needs hundreds of millions in new sales to grow. A new market worth a few million is a rounding error, even if it is the future.

6. Markets that don't exist can't be analyzed

No research can tell you how big a market will be before anyone has bought the product. Honda's story shows it: the market it found was not the one it planned for.

7. What makes you good at one thing makes you bad at another

An organization's processes and values, what it counts as a good project, a good margin or a good customer, are built for the old business. And technology often improves faster than customers need. When the old product is more than good enough, the cheaper, simpler one starts to win.

8. Give the new thing its own home

Christensen's answer is not to try harder inside the main business. Hand the new thing to a separate, small organization sized to its market, where a small win feels big. Sell to the customers who actually want it, and plan for learning, not execution: assume your forecast is wrong, spend a little and find out fast. Kresge built Kmart as its own operation and turned itself into it. Woolworth's discount chain, Woolco, was never really separated from its high margin stores, and it failed.

Honda's little bikes and the steel minimills

In 1959 Honda sent three employees to Los Angeles to sell big motorcycles to Americans. The big bikes leaked oil on the highway, and repairs nearly sank the company. To blow off steam, the man in charge, Kihachiro Kawashima, rode his little fifty c c Super Cub in the hills east of Los Angeles, and people began asking where to buy one. The real market was small bikes for fun, off the road. Steel tells the same story. In the 1960s small mills melted scrap in electric furnaces into poor steel fit only for rebar, the worst business in steel, and the big companies were relieved to drop it. By 1980 the small mills had about ninety percent of rebar, then moved to bars, rods and angle iron, then structural beams. In 1995 Bethlehem Steel closed its last plant making them. At every step, giving up the bottom looked like the smart decision.

How to use it at work

• List your best clients' requests, then ask who at the bottom of your market wants something simpler and cheaper.
• Write one line describing the simplest version of what your team does, the one your best customers would turn down.
• Name one person who would be glad to have that simple version, and ask them about it this week.
• Run small new ideas in a separate team or budget so they are not judged by the main business's numbers.
• For anything truly new, plan to learn: spend a little, assume the forecast is wrong, and check fast.
• When a product already does more than customers can use, stop adding features and look at what is cheaper and simpler.

The one idea to keep: doing what your best customers ask is how you win today, and it can be exactly how you lose tomorrow, so keep one eye on the people at the bottom who want something simpler. The Road MBA episode tells these stories in full.