How innovation can topple business giants

In the book Innovator’s Dilemma, Clayton Christensen gives insight into how new technologies can cause great firms to fail through the history of the hard disk drive market. He explains how big firms focus on sustaining technologies in a bid to keep their existing customer base happy. However, it is disruptive technologies that can trip these firms up.

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In the case of the hard disk drive industry, this disruptive technology was the ability to make the physical size of the drives smaller. Each time the size was reduced, giants toppled having not reacted to the change. Christensen outlines 6 steps to illustrate the pattern he saw emerge from the hard disk drive industry.

Step 1: Disruptive technologies were first developed within established firms.

Step 2: Marketing personnel then sought reactions from their lead customers.

Step 3: Established firms set up the pace of sustaining technological development.

Step 4: New companies were formed, and markets for the new disruptive technologies  were found by trial and error.

Step 5: The entrants moved upmarket.

Step 6: Established firms belatedly jumped on the bandwagon to defend their customer base.

The latter 3 steps are a good focus point when looking at how disruptive technology and startups can bring down big firms.

Step 4, in particular, sounds very familiar when discussing startups of today. Christensen says: “New companies, usually including frustrated engineers from established firms, were formed to exploit the disruptive product architecture… The startups, however, were as unsuccessful as their former employers in attracting established computer makers to the disruptive architecture. Consequently, they had to find new customers.” This idea of trial and error is ingrained in the teachings of startups today through lean methodology and the fail fast thesis. Finding market fit is the number one goal of startups – often this can show a group of potential customers who the large companies had not found or been concerned with. 11644168395_248cc7d3a4_b

He moves on to describe in step 5 how the hard disk drive startups then learn that by adopting sustaining technologies, similar to that of their larger counterparts, they could meet the needs of the customers in the older established markets – effectively gaining market share from the large firms.

But step 6 is where it gets really interesting. Often the larger firms were too slow to react and found themselves at a disadvantage to the startups: “Although some established manufacturers were able to defend their market positions through belated introduction of the new architecture, many found that the entrant firms had developed insurmountable advantages in manufacturing cost and design experience, and they eventually withdrew from the market.” This step is the key in showing how startups and small companies can topple their large adversaries. The larger a company gets the more it focuses on surviving day-to-day by building on their current success and keeping their customer base happy. This narrow focus quite often doesn’t see what is right around the corner.

Keeping an existing customer base happy is crucial to maintaining business success, but can also be a spanner in the works. This goal stifles innovation as people are apprehensive to change – they are happy with the product they receive so any change must be bad, right?

Startups fundamentally ignore this by finding a new market fit. They have the freedom to come up with disruptive innovations and search for the people that want them, later enticing older markets when there is visible success.

Corporations cannot move this fast and often cannot take the risks startups are able to. By working together with startups they can have the best of both worlds – keeping their existing customer base happy, staying on top of market developments and having access to disruptive technology.

From equally large competitors to the fast moving small guys, it is crucial that large companies keep their ear to the ground and stay on top of activity in their market.

To find out more read Innovator’s Dilemma: When new technologies cause great firms to fail by Clayton M Christensen.

Source: Innovator’s Dilemma: When new technologies cause great firms to fail by Clayton M Christensen. (Harvard Business Review Press; 1997)  

Image: William Warby