Why do established, well-run companies get disrupted by innovation?
Could it be because the pace of technology is too fast? Could they not be listening to their customers? Is it because they are complacent or become incompetent with size?
It turns out that all of these plausible, but simplistic explanations do not suffice. Clayton Christensen, who coined the term “disruption”, debunks them in his seminal book – The Innovator’s Dilemma. Established companies regularly develop disruptive products as part of their R&D efforts but subsequently shelve them. They hire and nurture the best talent. They are not complacent – they sustain high growth targets to satisfy their shareholders. They organize their incentive structures to delight their most valuable customers.
Then what causes them to fail?
Counter-intuitively, listening to their top customers with a single-minded focus is precisely what causes their failure. When companies are large, their processes are streamlined to serve their top customers, which gives them a lot of momentum. However, the priorities of their most profitable customers could lead these companies away from emerging opportunities that would eventually reconfigure their markets. By the time they realize this, their large momentum would render them incapable of changing direction.
Momentum can be powerful. The profitability it offers helps large companies absorb risks and weather setbacks. Veteran chess players harness momentum from years of immersion in the game to analyze parts of a board holistically, and obtain an insurmountable advantage over beginners. But this momentum only holds so far as the rules of the game do not change. A small variation in how a piece can move, or a change in the layout of the board can cause even grandmasters to lose the advantage they have over rookies.
Learning the rules of the game and training their workforce to play it serves organizations well in an unchanging world. But playing the same moves when the rules of the game have changed can lead to disaster.
Knowing whether or not the rules have changed is what constitutes their dilemma.
Credits: The Innovator’s Dilemma by Clayton Christensen