The Innovator's Dilemma: how good companies lose to disruption

Who should use it, and when not to

Use it when a cheaper or simpler rival is winning customers your team calls "not our market", when most customers use only a few of your features, or when you're deciding whether to launch a low-cost product that could eat into your main one.

It doesn't fit every rival. A competitor with a better product for the same customers is ordinary, sustaining competition. And it doesn't measure an industry's overall profitability: for that, use the five forces.

The core ideas

Sustaining and disruptive. Most innovation is sustaining: faster, bigger, more features for demanding customers. Leaders are good at it. Disruptive innovation brings a different package: lower performance on the usual measure, but lower cost, simplicity or convenience.

Overshoot. Products often improve faster than typical customers need. When customers use a fraction of the features and choose on price, there's room for a "good enough" product.

Footholds. Christensen and his co-authors later described two kinds of entry, in The Innovator's Solution (2003): the low end, customers who don't need the full product, and new markets, people who weren't buying at all.

Value networks and resources. A company's customers, cost structure and processes shape what it can pursue. A small, low-margin market can't feed a large company's growth targets, so it gets no attention.

The disk-drive evidence. The book traces generations of hard disk drives, in which leaders of one generation repeatedly lost the next to entrants with smaller, cheaper drives for new kinds of computers.

A worked mini example

This is an illustration with fictional names. A company sells desktop accounting software to accountancy firms at about 900 euros a seat per year, with deep audit tools. A cloud app, Cuadrix, sells to freelancers at 15 euros a month with no audit tools. Two years ago it lacked multi-currency; now it has it, and it just added access for accountants. A survey shows 70% of the incumbent's users use only invoicing, bank reconciliation and VAT returns.

How to check a rival

1. Name the measure the market uses today, and what your best customers want next.
2. Check for overshoot. Compare what typical customers use with what you deliver.
3. Classify the rival: sustaining, low-end or new-market, with the reason.
4. Find its foothold and why your own incentives make you ignore those customers.
5. Estimate how fast it improves, and when it might be good enough for typical customers.
6. List what makes its model work, and whether you could match it inside your current organization.
7. Choose a response: monitor with a named signal, a separate unit, acquire, or move upmarket on purpose.

The disruption threat check skill runs these steps with your facts and marks your guesses.

Common mistakes

• Calling every rival disruptive. Most competition is sustaining.
• Asking your best customers. They are the last to want the cheaper product.
• Running the response inside the core business. Its margins and targets will starve the new unit.
• Treating the pattern as a law. Scholars dispute how often it holds. Use it to ask better questions.

To map how your market's parts evolve over time, see Wardley mapping.

Where it comes from

Clayton M. Christensen, a professor at Harvard Business School, introduced the term "disruptive technologies" in a 1995 Harvard Business Review article with Joseph Bower, and expanded it into The Innovator's Dilemma in 1997. He later renamed the idea disruptive innovation, and developed it further in The Innovator's Solution (2003) and books on education and health care. Later studies both support and question the theory; one study of the hard disk industry found that incumbents did innovate less than entrants.

This page is an independent summary in our own words. It is not affiliated with or endorsed by the author's estate or publishers. The book's title is used only to name it. More explainers are in the business books index.

Questions

What is the innovator's dilemma?

Leading companies do the right things for their best customers: they improve products and chase higher margins. That same good management makes them ignore cheaper, simpler products sold to customers they don't value, until those products improve enough to take their market.

What is the difference between sustaining and disruptive innovation?

A sustaining innovation makes a product better for the customers a market already serves. A disruptive one starts out worse by those customers' measures but cheaper, simpler or more accessible, and wins customers the leaders overlook.

How should a company respond to disruption?

Christensen's main advice is to address the disruptive market through a separate unit with its own cost structure, targets and customers, so the core business's margins and processes don't starve it.