Innovation is a standard that most companies aspire to achieve—tech companies especially. Behind these innovations are the innovators, those who create a solution to a pressing need to be addressed. Whether it’s a product or service, these innovators pushed the boundaries of what was thought possible, adding value to human life.
Though innovators have achieved success by bringing their inventions to life, not all are able to maintain their level of success. This brings us to the innovator’s dilemma: should one disrupt the industry with an unpredictable but new technology or continue to meet existing customer needs and cease to evolve altogether? The question almost sounds daunting but can be explained by a book that also shook up the business world.
The origin of the Innovator’s Dilemma can be traced back to American business consultant and academic, Professor Clayton Christensen. Christensen first wrote of this concept in his book, “The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fall.” Written in 1997, The Innovator’s Dilemma discusses Christensen’s theory of disruptive innovation and how large firms may see their end if they refuse to evolve.
This book was recommended by Ken Goldberg, Managing Director at Modus Management Pty Ltd. For Ken, Christensen’s work has left a significant impact on his perspective on business and production evolution.
“The Innovators Dilemma that introduced the term disruptive innovation and led to a new way of thinking about organisational growth and disruptive change,” Ken remarked. “It had a huge impact on me and how I viewed global and industry trends, business models, competitiveness, and proactive/reactive change to name a few.”
THE BASIS OF THE DILEMMA
The Innovator’s Dilemma can be summed up into one question: Should companies continue to answer consumer demand and stagnate or take a risky leap into the cutting edge of technology albeit with a small niche market?
To breakdown the dilemma, it is essential to identify the following concepts:
Disruptive innovation vs. Sustaining innovation
A disruptive innovation refers to a product or service that may start out unknown or unneeded but eventually creates its own value or market. This disruptive innovation, though initially based on the unmet needs of a small, niche segment, may upend an entire market when it succeeds. Disruptive innovations, while successful, do not have a secure future. It is unclear how long the success of a disruptive innovation will last or how it will evolve over time. Examples of disruptive innovations include streaming, smartphones, ride-hailing apps, and online shopping.
On the other hand, sustaining innovations are existing products or services that is constantly improved during its life course. Its improvements are based on customer needs and feedback.
Small companies vs. Large companies
Small companies are new entrants to an industry. They release new product to answer needs of a niche market, creating a disruptive innovation. These small entities have the time to fine-tune their innovations over a product life course but are limited by their resources. Start-ups or companies with a new service or product can effectively utilise a disruptive innovation strategy.
Meanwhile, large companies already captured their own market and have sufficient resources to invest in further improvements. To improve their products, these larger entities must listen to their incumbent customer base. At the same time, they also miss the opportunity to innovate and risk stagnation.
Wary of the unpredictability of innovation, large companies consider disruptive innovation strategies to be risky. Next-generation products or new innovations are not built to appease the incumbent customer market that large companies profit from. Furthermore, investing in a relatively new product or technology could reduce finances, as opposed to improving on their incumbent product which costs less.
The S-Curve Value of Innovation
According to Christensen, the value of an innovation can be represented by an S curve. In the first phase, a new product or service is launched but is still considered unknown or niche. Over time, the product gains more value as more customers find need for it. At this phase, the product’s value will peak and decreases again over time. At this point, the first wave of the product ends.
The second wave will begin when the company adds improvements to the existing product. Again, its value increase and eventually decrease until a new improvement is made—this makes the middle phase of each wave the most valuable.
Keeping this in mind, why would large companies take the risk of relying on disruptive tech, with no certainty of its success when it already has an existing customer base? The answer is that innovation stagnation leads to a faster demise.
Example: Electric Vehicles (EV)
Applying Christensen’s book to the real world, his concept is clearly seen in the global rise of electric vehicles. Though EVs are a growing trend today, the invention goes back to the 1800s and was barely a popular vehicle choice not long ago.
According to this article by Car and Driver, EVs had an evolving niche market. In its early conception, electric vehicles served niche markets like motorsports and city transportation. Interestingly, EVs were predominantly used by women. Like today, however, EV charging stations of the 19th century were also placed in shopping districts.
Though EVs gained traction throughout the 19th century, internal combustion engine (ICE) vehicles ultimately gained the upper hand in technology. The first of EV popularity eventually died down and would not rise again until decades later.
Sometime in the 60s and 70s, petrol shortages pushed automakers to look for alternative fuel sources for their vehicles. Electricity entered the fray once again but eventually phased out once more due to low speed and performance.
Two decades later, Toyota developed the first mass-produced hybrid vehicle, the Prius. The invention of the Prius was only the beginning of the third wave of low-emission vehicles. Tesla would further this wave by producing luxury electric sports cars and establishing itself in the luxury auto industry. Both Toyota and Tesla’s successes laid the groundwork for successors like the Nissan LEAF and Chevy Volt.
Today, Tesla and BYD are the leading EV manufacturers in the world. As their stars rise, traditional ICE vehicle makers are forced to catch up. Though they have developed their own EVs, they still struggle to catch up with these EV giants’ sales and development. For most traditional auto companies, it is their ICE vehicle sales that keep them afloat despite growing competition from Tesla and BYD.
CHRISTENSEN’S RECOMMENDATIONS
The author encourages businesses to make the investment into disruptive tech. Continuous appeasing of the current customer base will only bring large companies to stagnation and an eventual end, while smaller companies and start-ups thrive by being at the forefront of innovation.
One of Christensen’s recommendations for large companies is to finance a smaller organisation and its technology. Where large companies are rich in capital and consumer base, smaller companies have the space and potential to innovate without trying to appease customers. Rather than view each other as stiff competition, there’s an opportunity for both types of entities to collaborate and succeed. However, it is important for the former to give the latter autonomy or for the smaller entity to have autonomy in the first place. This ensures that the smaller entity is still free to explore and be creative in its product development.
MORE OF CHRISTENSEN
The application of Christensen’s work can be applicable to realms beyond business. Though his early body of work focuses on strategical knowledge, there’s still wisdom to be gleaned and applied to personal aspects. With this, Ken also recommends Christensen’s “How Will You Measure Your Life?”
“Years later, what were originally concepts to make sense of organisational strategy and decision making, Christensen turned his collection of theories inwardly to examine the daily decisions that defined his own life ultimately leading to articles, doing public speaking and writing a book called How Will You Measure Your Life?, which is as (or more) important than his inaugural book.” Ken explained.
Most people will often measure their lives by money or success, forgetting the things that make them human. Memories, experiences, relationships, and beliefs will shape and define one’s time on earth—not accolades or money in the bank.
Though Christensen has passed away, his personal thoughts related to “How Will You Measure Your Life?” can still be read in a Harvard Business Review article here. His talk regarding his book at TEDxBoston can be found here as well.
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