What it is: “The Innovator’s Dilemma” is a book explaining why leading companies fail to survive the introduction of new technology.
At one time, everyone relied on the Yellow Pages to find a business, so logically the Yellow Pages should have morphed into Google, but it has practically died instead. Montgomery Wards pioneered the idea of mail-order shopping, so they should have become the next Amazon. Instead, they died. Another company that should have been Amazon was Borders Books, but rather than focus on Internet book-selling, Borders chose to direct all of their online customers to shop at Amazon instead so they could focus on retail book selling.
“The Innovator’s Dilemma” clearly explains why big companies fail. Generally, those big companies go through several steps.
First, they dabble in new technology that will eventually disrupt their current business model. Once they see that the disruptive new technology isn’t ready yet, they shelve it and ignore it.
Kodak invented digital photography but because early digital photographs were so poor compared to film, the company deemed it more profitable to focus on the film business and ignore the digital photography business.
Second, this new disruptive technology often proves inferior to existing technology, so it’s easy for big companies to dismiss it. As a result, new companies arise to focus on this technology. Since they can’t tackle existing markets, they focus on markets that big companies are ignoring.
You can already see this happening with hard drives. The hard drives in most laptops have been steadily increasing to 500Gb and up to 1Tb. More always seems to be better.
So when solid-state drives (SSD) appeared, they seemed inferior. Not only did they cost more, but the laptops offering them could offer far less storage space. The original MacBook Air only came with 64GB of SSD storage while conventional laptops offered 500GB hard drives for the same or even lower price.
But the big companies fail to see that new technology meets the needs of a different market. Some people want more storage, so that’s not the market for SSDs. However, some people prefer light, fast laptops. Since SSDs take up less space and run faster than mechanical hard drives, that’s the market for SSDs. New technology often has to focus on customers that current technology is ignoring.
Because the majority of customers prefer current technology, big companies cater to the larger market. Then as the disruptive technology improves, it gradually overtakes the current technology. Watch as SSDs in laptops eventually creep up to the 500GB range and still remain cost-effective compared to mechanical hard drives. When that happens, why would anyone use a mechanical hard drive?
Disruptive technology initially costs more and doesn’t meet the needs of most customers, so it’s easy to dismiss it as irrelevant. That’s what happened with PCs when mainframe and minicomputer users dismissed PCs as toys. Then PCs got good enough to do most tasks while costing less too. PCs killed the mainframe and minicomputer market.
Now PC users are dismissing tablets as toys, but eventually tablets will continue growing in power until they’re just as capable of PCs. When that days comes, they’ll be no reason to use a traditional PC.
“The Innovator’s Dilemma” clearly outlines the common mistakes companies make time after time to focus on their current profitable market and ignore the potentially disruptive market that will eventually wipe out their current profitable market.
Given a choice between spending resources on new technology that isn’t going to make an instant profit, or focusing on the current market that is bringing in the most profits, most corporate executives play it safe and allocate resources to the current market — even though the new technology will eventually wipe out that market.
Executives (who get paid large amounts of money to make decisions), often make the wrong decisions (and thus appear overpaid and unnecessary) because they focus on the short-term outlook rather than the long-term future.
As the world shifts to mobile and wearable computers, it’s easy to see that the era of desktop operating systems is over. Nobody wants to learn an operating system any more to use a computer. They just want to get their tasks done without wasting time reading a 300-page book teaching them how to use an operating system.
Learning to use an operating system today is like learning how to crank a car engine to start it every morning. In the old days, people had to hand crank cars to start them up and know how to fix them if they broke down. That’s where PCs are at right now.
Today’s cars let you hop in, turn the ignition key (or press a button), and start up and drive away without knowing how to start an engine or how to fix a car. It just works.
Today’s PCs are like antique cars where you better know how to fix them and use the operating system or you can’t use the computer at all. Smartphones and tablets are like today’s cars that let you do something right away without worrying about learning an operating system or knowing how to fix the computer if something goes wrong.
Who missed the shift to mobile computing? Microsoft, Intel, AMD, Hewlett-Packard, and Dell Computers. Look how they’re struggling to jump into the mobile market while new companies like Google and Apple have taken over the mobile computer market and are now shifting to the wearable computer market. Think Microsoft can successfully cram Windows 10 to run on a wearable computer?
If you want to see how companies fail, read “The Innovator’s Dilemma.” If you want to learn how to spot trends, you’ll see how short-sighted thinking dooms a company every time.