2.2 The innovator's dilemma and the innovator's solution
4 min read•august 16, 2024
explains why successful companies often struggle with disruptive innovations. It highlights the conflict between serving existing customers and exploring new markets. This challenge can lead to missed opportunities and potential obsolescence.
offers strategies to overcome this dilemma. It emphasizes creating new markets, focusing on -to-be-done, and building separate structures for disruptive projects. These approaches help companies balance current success with future growth.
Challenges of Disruptive Innovation
Resource Allocation and Market Focus
Top images from around the web for Resource Allocation and Market Focus
Disruptive Innovation. What it is, and what it is not. - $_DV View original
Is this image relevant?
Cracks In The Foundation Of Disruptive Innovation -e-Literate View original
Is this image relevant?
Innovación Disruptiva (Christensen) – juandon. Innovación y conocimiento View original
Is this image relevant?
Disruptive Innovation. What it is, and what it is not. - $_DV View original
Is this image relevant?
Cracks In The Foundation Of Disruptive Innovation -e-Literate View original
Is this image relevant?
1 of 3
Top images from around the web for Resource Allocation and Market Focus
Disruptive Innovation. What it is, and what it is not. - $_DV View original
Is this image relevant?
Cracks In The Foundation Of Disruptive Innovation -e-Literate View original
Is this image relevant?
Innovación Disruptiva (Christensen) – juandon. Innovación y conocimiento View original
Is this image relevant?
Disruptive Innovation. What it is, and what it is not. - $_DV View original
Is this image relevant?
Cracks In The Foundation Of Disruptive Innovation -e-Literate View original
Is this image relevant?
1 of 3
Established companies struggle with resource allocation prioritizing existing profitable products over potentially disruptive innovations that may initially appear less profitable
The "innovator's dilemma" arises when companies focus on sustaining innovations for existing customers neglecting and technologies
Companies face the challenge of "" customer needs in established markets leaving them vulnerable to simpler, lower-cost disruptive alternatives
Difficulty in accurately predicting the potential of disruptive innovations leads to underinvestment or missed opportunities
Example: Kodak's underestimation of digital photography's potential
Example: Blockbuster's failure to recognize the disruptive potential of Netflix's DVD-by-mail and streaming services
Organizational Barriers
Organizational inertia and resistance to change impede companies' ability to adapt to disruptive innovations quickly
Companies may face the "" where previous investments in existing technologies or business models hinder willingness to pivot towards disruptive innovations
Example: Nokia's reluctance to abandon its Symbian operating system in favor of adopting Android or developing a new mobile OS
The "" prioritizes short-term financial performance over long-term innovation strategies
Example: General Electric's focus on short-term earnings growth under Jack Welch, which ultimately led to long-term decline
The Innovator's Dilemma
Concept and Implications
Coined by describes the paradox where successful companies can fail by making seemingly rational decisions that ultimately lead to their downfall
Managers face the dilemma of choosing between sustaining innovations for existing customers and disruptive innovations that may cannibalize current product lines but offer long-term growth potential
Highlights the conflict between short-term profitability and long-term sustainability often leading managers to prioritize incremental improvements over radical innovations
Emphasizes that success in the past does not guarantee future success requiring managers to continually reassess their strategies and market positions
Example: IBM's transition from hardware to services and consulting
Example: Apple's shift from personal computers to mobile devices and services
Market Dynamics and Organizational Structures
Disruptive innovations often start in low-end or new markets initially appearing less attractive than existing high-margin products
Example: Personal computers disrupting mainframe computers
Creates the need for separate organizational structures or spin-off companies to pursue disruptive innovations without the constraints of the core business
Requires managers to develop skills to balance exploitation of existing markets with exploration of new disruptive opportunities
Example: Google's creation of Alphabet to separate core business from moonshot projects
Example: Amazon's development of AWS as a separate business unit
Overcoming the Innovator's Dilemma
Customer-Centric Approaches
Implement a "" approach to understand customer needs beyond product features focusing on the fundamental problem customers are trying to solve
Example: Intuit's focus on helping small businesses manage finances rather than just selling accounting software
Adopt a approach to manage uncertainties associated with disruptive innovations using assumptions testing and iterative learning
Example: Toyota's development of the Prius through iterative prototyping and market testing
Transition from a product-centric to a solution-centric approach integrating products and services to address customer jobs more holistically
Example: IBM's shift from selling hardware to providing integrated IT solutions
Organizational Strategies
Develop a culture of continuous learning and experimentation encouraging calculated risk-taking and embracing failure as a learning opportunity
Example: 3M's "15% time" policy allowing employees to work on innovative projects
Create or "" teams that operate independently from the core business to pursue disruptive ideas without bureaucratic constraints
Example: Lockheed Martin's original Skunk Works division for advanced aircraft development
Adopt an "" structure allowing for simultaneous exploitation of existing markets and exploration of new disruptive opportunities
Example: Procter & Gamble's Connect + Develop open innovation program
Implement a to innovation investments balancing resources between sustaining innovations and potentially disruptive projects across different time horizons
Example: Johnson & Johnson's innovation portfolio spanning incremental improvements to breakthrough technologies
Innovator's Solution Framework
Market Creation and Reshaping
Emphasizes creating new markets or reshaping existing ones through disruptive innovation rather than competing in oversaturated markets
Identify and capitalize on "" opportunities creating new markets for previously underserved customers
Example: Airbnb tapping into the market of people who couldn't afford traditional hotel accommodations
Example: M-Pesa creating mobile banking services for unbanked populations in Kenya
Case Study Applications
Analyze cases where companies have successfully applied the "jobs to be done" approach to uncover unmet customer needs and create disruptive solutions
Example: Netflix's transition from DVD rentals to streaming based on the job of convenient entertainment consumption
Examine examples of companies that have effectively used resource allocation processes to fund and nurture potentially disruptive innovations alongside their core business
Example: Amazon's investment in AWS while maintaining its e-commerce business
Study cases where companies have successfully created separate organizational structures or spin-offs to pursue disruptive innovations
Example: Alphabet's creation of X (formerly Google X) for moonshot projects
Evaluate instances where companies have leveraged emerging technologies or business models to create new market categories or redefine existing ones
Example: Tesla's of the automotive industry through electric vehicles and direct-to-consumer sales model