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Innovators Dilemma

Essay by   •  May 2, 2012  •  Research Paper  •  1,666 Words (7 Pages)  •  1,499 Views

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INNOVATOR'S DILEMMA

The main idea that Clayton Christensen, author of the Innovator's Dilemma, investigates in his book is why do well -managed companies fail? He presents the idea that certain well-established large corporations fail due to the management practices that allowed them to become industry leaders in the first place. These management practices are excellent at developing the sustaining technologies that drive the company's business, but are not conducive for developing the disruptive technologies that end up stealing away their markets. Well-managed companies will listen to its customers, invest in the technologies that customers say they want, develop technologies that will give them high profit margins, and focus on operating in large markets.

Developing disruptive technologies goes against these principles that well-managed firms operate by; the characteristics of a disruptive technology generally start out as something simple, cheaper, and lower performing. Initially they only offer lower profit margins, there isn't a large demand for such an item from established customers, and will begin in emerging or insignificant markets that large corporations have no interest in. An example that Christensen uses as a disruptive technology is the hydraulic excavator which started out as the backhoe and changed the value proposition in the market. The backhoe was cheaper, smaller, simpler, and more convenient to use and a new market emerged for this application. Christensen argues that with "experience and sufficient investment, the developers of disruptive technologies will always improve their products' performance, and they eventually are able to take over the older markets." This is the case with backhoe, which started small by being used to dig ditches to eventually taking over the market and eliminating the older cable pulley excavators.

Christensen presents 4 Principles of Disruptive Technologies that address why management practices designed for developing sustaining technologies are inefficient for developing disruptive ones. The first principle is that companies depend on customers and investors for resources, which basically is the idea that customers decide what they will buy from the company therefore that is what they will make and that corporation will focus on maximizing shareholder's wealth by developing technologies with high profit margins. The second principle is that small markets don't solve the growth needs of large companies, the third is that markets that don't exist can't be analyzed meaning that corporations are not able to determine the market size and potential financial returns that a disruptive technology offers. The last principle is that technology supply may not equal market demand, this is the idea that disruptive technology that underperform today to customers expectations may end up becoming outperforming the mainstream market in the future. If managers can recognize how disruptive technologies develop and understand the principles that Christensen presents, they can respond better to the opportunities that they present for their organizations. I think that the book provided helpful insight into how to deal with innovating the future, explaining how disruptive technologies can be managed to become successful and how corporations should approach disruptive technologies.

I particularly liked Christensen's case study on the electric vehicle as a disruptive technology and the way that a manager should organize a program, set its strategy, and manage it to become a successful technology. He laid out a clear marketing strategy for electric cars that first established that "electric vehicles cannot initially be used in mainstream applications because they do not satisfy the basic performance requirements of the market." At first these EVs did not meet the basic performance requirements but after some were made and used by "early adopters" the technology grew into something that is closer to fitting into the mass market. The second part of the marketing approach was "no one can learn from market research what the early market(s) for electric vehicles will be." Useful information about the market was created once automakers started "selling real products to real people who paid real money," when the California Air Resources Board mandated that no automobile manufacture would be allowed to sell any cars in the state if EVs didn't constitute at least 2% of its unit sales in the state.

I have seen the documentary Who Killed the Electric Car? and I was reminded of GM's EV1 project and its failure as I read Christensen's case study on electric cars. The EV1 failure has a lot to do with his principles on disruptive innovations, especially the principle that markets that don't exist cannot be analyzed. GM struggled to define a market for its EV1 cars, they were able to build a small market in California due to the electric vehicle mandate but failed to convince the mass markets. Without the mass market demand, GM would not be able to meet sale objectives and this forced the large automaker to end its EV1 program. Christensen's other principle that small markets don't solve the growth needs of large companies also relates to the failure of the EV1, since GM couldn't define a big enough market they weren't able to match the growth needs of the company to the EV1 program. The program had low profit margins and wasn't aligned with its growth model and shareholders' interests. GM might have had

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