The Professor & the Theory of Disruption

How is it that in every industry a small new entrant is able to rise up and kill the industry leader? Why doesn't leader defend themselves? The answers are in the principles outlined in Clayton Christensen's seminal work, The Innovator's Dilemma, which explores how successful companies can falter by ignoring disruptive innovations.

The Innovator's Dilemma: The Disruptive Theory That Changed Everything

In the late 1990s, Kodak was at the pinnacle of its industry—a household name synonymous with photography. With a legacy built on decades of innovation and a dominant market share, Kodak seemed unstoppable. The company was a model of "good management," focusing on maximizing profitability through tried-and-true products. Executives were confident in their strategy, investing heavily in improving film products and throwing up barriers to entry so they could exploit their competitive advantage

A small team within Kodak had developed one of the world's first digital cameras. It was clunky, low-resolution, and not the sort of camera there main customers would use. When they did the math, they quickly shelved the digital camera realising that the profit margins where too low, after all, film was where the profits were, and why would Kodak want to disrupt that?

As history would later reveal, while the company continued focusing on film, digital camera's where getting better and better, until they had got so good, they had overtaken film cameras.  By the time Kodak realised that shift, it was too late. The company filed for bankruptcy in 2012, a stark reminder of what happens when businesses fail to recognise the power of innovation. 

What is the Innovator's Dilemma

Clay Christensen’s The Innovator's Dilemma explores this very scenario, highlighting how companies like Kodak—despite their market leadership and focus on profitability—often fall prey to disruptive innovations. Historically, these companies become victims of their own success. As the leaders they get to deal with the most profitable customers, so when a new entrant comes in with a crummy new technology that only their least profitable customers value, it makes perfect sense that they let the new entrants have them, besides their profit margins actually increase when they do; But technology offers improves at a faster rate and soon enough the new tech gets so good that even the best customer's move ship. 

The Three Types of Innovation

At the heart of his work lie three distinct types of innovation, all which are very important but serve different purposes. The problem is that the doctrines of finance, in the past, has been seen to pressure leaders to focus on the type of innovation which improves short term gains. These pressures however, in fact, cause companies not to focus on disruptive innovation, which are those innovations which yield the best profits.

Efficiency innovations:

What They Do: These innovations help companies cut costs and increase margins—making the same product faster, cheaper, or with fewer resources. This allows companies to raise capital to invest in other areas of the business or do be more competitive with pricing in the market. 

Toyota’s Lean Manufacturing
Toyota’s just-in-time production system and kaizen (continuous improvement) allowed it to produce high-quality cars at a lower cost than US automakers. This efficiency innovation helped Toyota become a global powerhouse while making existing processes dramatically more productive.

Sustaining innovations:

Intel’s Faster Chips
Every few years, Intel released a more powerful microprocessor to keep up with computing demands. These were crucial for staying ahead of competitors. This allowed intel to dominate the market for long periods of time, capturing the best deals. However, they didn’t create new markets—they just served the same customers better.

Disruptive innovations:

These start as low-end, crappy alternatives that are valued by underserved customers. Big companies ignore them because they aren't initially profitable. But overtime as the tech gets better, it becomes relevant upmarket, and then suddenly it's so good that it offers more value than the leader can.

Kodak Ignoring Digital Cameras
Kodak invented the first digital camera but ignored it because film was way more profitable. Digital cameras started as a low-quality, niche product, but got better over time. By the time Kodak realized digital photography had taken over, it was too late—they filed for bankruptcy in 2012.

The Innovator’s Dilemma: Big companies can’t easily fight disruption because their business model depends on high-margin customers. 

The Innovator's Dilemma and Five Fundamental Principles

Christensen's groundbreaking book, "The Innovator's Dilemma," unveiled five fundamental principles that illuminate the dynamics of disruptive innovation:

1. Established companies are beholden to their existing customers and investors, making it difficult to embrace nascent, disruptive ideas.
2. Small markets, the breeding grounds for disruption, are often dismissed by large corporations seeking immediate growth.
3. Disruptive innovations create new markets, rendering traditional market analysis obsolete.
4. A company's existing capabilities can become its Achilles' heel, hindering its ability to adapt to radically different approaches.
5. Technological advancements may outpace market demand, leaving companies overserving their customers.

My Journey with Clayton Christensen

I’ve always had a deep appreciation for Clayton Christensen—even though I never met him, his ideas have profoundly influenced my perspective. I first encountered his name during my studies in marketing and management, a time when textbooks were my primary source of knowledge. Back then, his work was just a name on a page—a Harvard Business School professor with intriguing insights that I vaguely remembered.

Years later, curiosity led me to seek out his seminars online. Platforms like YouTube provided access to his lectures, allowing me to engage directly with his teachings. I found myself repeatedly drawn to these videos, each viewing deepening my understanding and appreciation of his ability to distill complex economic concepts into accessible and profound ideas.

One of the most impactful concepts I revisited was his theory of disruptive innovation, introduced in his 1997 book The Innovator's Dilemma. Christensen explained how successful companies could lose market dominance by focusing solely on sustaining innovations—incremental improvements that cater to their most profitable customers. This focus often leads them to overlook disruptive innovations, which initially target less profitable or emerging markets but eventually evolve to challenge established players.

For those interested in exploring his ideas further, the Clayton Christensen Institute's YouTube channel offers a wealth of content, including seminars and lectures that delve into these transformative concepts. But really just watch his lectures and you'll be hooked.

A Lasting Legacy

Clayton Christensen, the renowned thought leader who's work continues to inspire the top leaders in business to think differently. He also is one of the leaders behind the Jobs to be Done theory  which unlocks the secrets to understanding how to get customer's to buy your products.  Join our JTBD workshop—designed to help you understand and solve your customers' real needs."