[No. 64] Encountering Business Books: Why Do Excellent Executives Destroy Their Companies with "Correct Decisions"? "The Innovator's Dilemma"
In this **[Encountering Business Books]** series, I will introduce, in a review format, one business book each time that I have encountered and that has served as a catalyst for changing my perspective on life and business.
Book and Author
The book I am introducing today is **"The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail"** (original title: The Innovator's Dilemma) by Clayton Christensen, a professor at Harvard Business School and the proponent of the theory of disruptive innovation.
Introduction: It Is Not Stupid Executives Who Fail
When large companies go bankrupt or lose market share, we tend to think: "It's because the management team wasn't looking at the front lines." "It's because they were resting on their laurels and were negligent."
Professor Christensen analyzed a vast amount of data and refuted this. "No. They failed because they thoroughly practiced 'excellent management' by listening to the voices of their customers, investing in technology, and pursuing profits."
The better a company is, the more likely it is to be left behind by the wave of innovation and die. This phenomenon, where "logically correct actions lead to failure," is the "dilemma" that is the theme of this book.
The Core of the Book: Two Types of Innovation
The key to solving this mystery lies in the difference between types of innovation.
1. Sustaining Innovation
Content: Making existing products higher-performing for existing customers.
Example: Improving the fuel efficiency of gasoline cars, increasing the image quality of smartphones.
Action of large companies: Large companies are good at this. This is because customers want it and will pay a high price for it.
2. Disruptive Innovation
Content: Creating products that are lower in performance but "cheaper, easier to use, and smaller."
Example: Early electric vehicles compared to gasoline cars (short cruising range), early digital cameras compared to film cameras (coarse image quality).
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Action of large companies:This is the trap. Excellent companies 'ignore' disruptive technology.
This is because early disruptive technology is at a 'toy' level and existing excellent customers (professionals and the wealthy) do not want it.
"Our professional customers don't want a digital camera with poor image quality. Let's make higher-quality film." This is a perfectly correct management decision."
The Moment of Reversal
However, disruptive technology evolves rapidly. The moment it improves and reaches a level that satisfies the general public, the market flips completely. At that point, even if large companies rush to enter, it is too late. This is because their internal processes and cost structures are optimized for making "high-end products," and they cannot win the battle to make "cheap and decent products."
Practice: Create a Separate Unit
So, how can large companies (or your own business that has achieved a certain level of success) survive? Christensen's answer is cold and clear. "It is impossible to create disruptive innovation within an existing organization."
Under the value criteria of an existing organization (sales scale and profit margins), disruptive technologies that only have small markets are inevitably "rejected." That is precisely why you have no choice but to create a physically isolated "separate organization (spin-off)."
Main unit: Continue sustainable innovation (high profit) for existing customers.
Separate unit: Nurture disruptive innovation (future source of income) at a size that can be satisfied with small markets and small profits.
This "ambidextrous management" is the only way to break through the dilemma.
Summary: Success is the mother of failure
"The Innovator's Dilemma" is a kind of horror novel. The reason Netflix, introduced in [No. 62], was able to defeat the former king Blockbuster was not because Blockbuster was "stupid." It was because they valued their "existing customers who come to the store" too much, and as a result, they were forced to downplay the "disruptive technology" of online streaming.
If you are currently listening to customer feedback and repeatedly making earnest improvements, please be careful.
The next disruptor will surely come from the blind spot of that "correctness."
This is a book of warnings that should be reread periodically to maintain a perspective that questions "common-sense correct answers."
▼ Recommended reading (from past series)
This is a must-read list for digging deeper into the cruel truth learned in "The Innovator's Dilemma"—that "existing success becomes a shackle"—from the perspectives of strategy, history, and organizational culture.
[No. 65] "Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant" [Reason for selection: Escape strategy from the dilemma] If you continue to meet the demands of existing customers (mainstream), you will sink into the "red ocean" of cutthroat competition. You can connect the "disruptive technology" preached by Christensen to a concrete strategic theory on how to build a new market without competitors (blue ocean) and win without fighting.
[No. 29] "Crossing the Chasm, 3rd Edition: Marketing and Selling Disruptive Products to Mainstream Customers" [Reason for selection: The wall faced by disruptive technology] The "disruptive technology" discussed in this book initially has low performance and only sells to a few enthusiasts. It teaches you how to cross the unavoidable "deep chasm" in order to advance into the mainstream market and knock down existing giants. It shows you the practical route of advance.
[No. 75] "A World History" (William H. McNeill) [Reason for selection: The dilemma proven by history] McNeill's historical law that "the centers of wealthy civilizations stagnate as they try to protect their completed systems, and are eventually swallowed by barbarians on the frontier" is exactly the "Innovator's Dilemma" in business. You can reaffirm the inevitability of disruptive innovation from the swells of history.
[No. 63] "The Lean Startup: How Today's Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses" [Reason for selection: How to run an organization that doesn't fall into a dilemma] Large companies ignore disruptive technology because they cannot see guaranteed profits. You can learn the concrete execution process for breaking through the dilemma: how to quickly verify "disruptive innovation" with high uncertainty at minimal cost and nurture the buds within a huge organization.
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▼ I'm introducing various other things too!