To succeed consistently, good managers need to be skilled not just in choosing, training, and motivating the right people for the right job, but in choosing, building, and preparing the right organization for the job as well – Clayton M. Christensen.
Clayton M. Christensen’s The Innovator’s Dilemma is considered by many to be one of the most thoughtful business books ever written. Many tech entrepreneurs such as Jeff Bezos herald this book as one of their favorites. What’s the book about? It focuses on disruptive innovations – how they change an entire industry, and how they are ignored at first by established companies.
Christensen describes two types of innovations. One is innovation which is tailored to meet current demands, from products to services. These innovations focus on meeting the expectations of the existing customers of a company. They are innovations that pay the bills and generate the company’s revenues.
And then you have disruptive innovations. There may not be a market for disruptive innovations as yet. Customers may not see a need for it, and companies may think twice about fully backing these innovations with the might of their capital. Disruptive innovations, at the start, hardly generate any revenue, and so are ignored by large companies.
So who takes advantage of disruptive innovations? What does Clayton M. Christensen recommend? Startups, of course. They see these innovations as addressing a gap in the market which is left alone by the larger companies. So, these innovations present an opportunity for smaller companies, for which they don’t have to content with the competition from any of the Fortune 500.
But here’s what happens. The disruptive innovations gradually become mainstream, and the small companies behind them no longer remain small. They stake up the space previously occupied by the larger companies and the larger companies are left with an outdated business model or out-of-favor technologies that suddenly find no takers in the market.
So now, the larger companies are forced to change course and adapt themselves to the same disruptive innovations that they had previously ignored. And by this time, it’s already too late for them.
The startups that have latched on to the disruptive innovations (which by the way are no longer “disruptive” but a part of mainstream society) have the first movers advantage over them and well ahead in the race. So the old, established companies are suddenly faced with an uncertain future, lose their dominance and gradually fade away to irrelevance.
To explain the power of disruptive innovations, Christensen takes the examples of mini-mills in the steel industry. They were for the most part ignored by the large steel companies such as US Steel, but latched on to by much smaller, new companies such as Nucor. What happened was that eventually, companies such as Nucor became profitable and made more steel than even the larger companies. US Steel is no longer in existence while Nucor goes from strength to strength.
Examples of disruptive innovations are more commonly seen in the technology sector and on a more regular basis. How many of our readers remember the 1990’s, which was the era of dial-up modems? AOL – which sold dial-up internet connections – was the undisputed king of the tech sector in those days, so powerful that it could but out Time Warner.
But then, we had the disruptive innovation of fast internet broadband, and dial-up modems became a part of history. So where is AOL today? Nowhere! It is today a shell of its former self. Clayton M. Christensen’s book is full of great examples like that and is a must read for the smart business book reader.