The Innovators Dilemma, Solution and Seeing What's Next

"My learning of the theories of Clayton M Christensen's. This is a work in progress and I will be adding to it as I progress through the books and my understanding."

I have been reading the latest in the line of books written by Clayton Christensen. These books I came across via a podcast that I listen to when I was studing for my Master of Management. This was a presentation he gave at the Open Source Business Conference in 2004. His other books are The Innovator's Solution: Creating and Sustaining Successful Growth and Seeing What's Next: Using Theories of Innovation to Predict Industry Change

In this presentation he delivered his theory in an easy and understandable manner. From this presentation I then went and purchased the first of his books The Innovator's Dilemma This book was all about the dilemma's faced by existing companies and how they are almost always lose to attacks from businesses which introduce disruptive innovation. The issue faced by businesses when confronted by disruptive innovation is the lack of understanding that it is a threat to their business. Initial the disruptive innovation usually come about with going for the non-customer or the least profitable customer.

The incumbent business in many respects sees this as a blessing and is more than often willing to for go that client and business. It usually is the high maintenance, low margin which detracts the business from the higher margin clients. Where there is a higher margin client the incumbent will move up feeling that they can address the higher end and leave the small fish. The problem starts when the disruptive innovator starts to then move up the tree. Again the incumbent sees higher margins up the tree and for goes the next level. After a while each step up the tree becomes faster and the incumbent has no where to go.

Initially the disruptive innovator's product appeals to the less discerning customer who is willing to pass on the more expensive options. As the new business starts to build on their innovation their quality and standard improve and they start to move up the food chain. If they stay in the lower end of the market while they are establishing then this market space will stay open. When the incumbent has reach the top of the food tree then it is at that point that the new entrant needs to have established sustainable innovation and improvement.

The dilemma face by incumbent businesses is to compete with the disruptive innovator it usually requires a different business model. As most incumbent businesses would have reached a point of sustainable innovation, for them to address the lower end of the market would need investment for lower or little return. As put forward by Clayton does the business invest in customers who return a high profit or in the customer with low return. While there is profits at the top end of the market businesses usually will keep going up, it a logical decision. But in understanding this theory it raises the dilemma.