The Innovator's Dilemma by Clayton Christensen: Is this highly praised business book from 1997 still relevant?

Is This Highly Praised Business Book From 1997 Still Relevant?

Is This Highly Praised Business Book From 1997 Still Relevant?

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Oct. 20 2015 7:17 AM

Is This Highly Praised Business Book From 1997 Still Relevant?

tech startup.
The Innovator’s Dilemma treats a company as being like an animal whose aim is to survive.

Photo illustration by Slate. Photo by Thinkstock.

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Answer by Rob Ennals, product manager at Quora; worked at Google, Intel, HTML5 WG, Microsoft, SCO, .EXE magazine:

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The Innovator's Dilemma is a hugely influential book, responsible for the current popularity of the word disrupt. While it makes a lot of very insightful observations, I believe the advice it gives to executives is based on the fundamentally flawed premise that the aim of a company should be to maximize its chance of survival, rather than to deliver maximum value to society and shareholders—even if that means letting the company slowly die.

For those who haven't read it, the book talks about disruptions that cause society's preferences to shift from valuing something the company is good at to valuing something the company is not good at. It then gives advice to leaders on how to maximize the chance that their company survives such a transition.

I've had the opportunity to observe leadership response to disruptive innovation close up several times: I was a project manager at Google Search when it was threatened by social, on the HTML5 working group when HTML was threatened by mobile apps, a researcher at Intel when it was threatened by ARM, a grad student at Microsoft Research when it was threatened by the Web, an intern at SCO UNIX when it was threatened by Linux, and a writer at a print magazine when it was threatened by the Web.

In most cases, the decision-makers were aware of the emerging disruptive technology early enough that they could have entered the market, and the reason that they didn't wasn't because of a flawed decision process, but because they believed (in my opinion, correctly) that this wasn't the best way for them to provide value to shareholders or society.

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There are several reasons it might not make sense to enter an emerging market despite knowing it will eventually swamp your primary market:

  • Legitimacy: Entering the market could cause your customers to take the new technology more seriously, thus potentially shortening the amount of time you have to make money from the market you currently dominate (e.g. Microsoft with Web apps)
  • Competitive advantage: You don't have a competitive advantage in the new market, so you don't expect an investment to outperform those you could make in the declining markets where you do have a competitive advantage (e.g. Intel with XScale)
  • Distraction: Trying to meet the needs of the emerging market could distract you from what you are currently good at and thus cause you to deliver less overall value (e.g. HTML5 versus mobile apps).
  • Confusion: Entering a market under your normal brand can confuse customers who expect your emerging products to have the same attributes as your normal products.
  • Risk: Entering a new market can create legal, PR, or regulatory risk for the incumbent, and such risks are bigger for large incumbent companies than small companies.

The book treats a company as being like an animal whose aim is to survive, but I'd argue that the real aim of a company is to deliver maximum value to society and shareholders, even if that means letting the company die. Never underestimate the net present value of gracefully piloting a company into the ground while issuing generous dividends to shareholders and providing great products for customers.

This is also a common flaw in business journalism. Witness the amount of attention paid to stock prices and market cap versus how little attention is paid to dividends. Witness also the mockery applied to CEOs of dying companies who are doing a great job extracting maximal value to society from a company that specializes in doing something that society doesn't need anymore.

One technique the book recommends is to create a separate subsidiary company that can focus on the disruptive market. However the book doesn't explain why this is preferable (for shareholders or society) to having such a company be nurtured by venture capitalists. Investing in spinoff companies makes sense if you expect the spinoff's relationship with the parent will give it a competitive advantage but this will not always be the case.