The Innovator's Dillemma

 

Introduction

이 책에서 다루고 있는 문제의식을 소개하고 있다. 이 책에서 다루려 하는 건 약한 조직이 아니라, 정말 열심히 하고 기민하게 움직이고, 고객의 소리를 들으려 노력하는데 실패하는 조직이다. 

 

'왜 열심히 하는데도 실패하는 걸까?' 라는게 클레이슨 크레이텐슨 교수의 질문이다.

 

그러면서 나오는 사례가 Sears Roebuck 사례다.

 

이 곳은 한때 미국 전체 소매의 2%를 차지할 정도이고 SCM이 되었든 Store brands, Catalogue Retailing, Credit Card Sales 등 혁신의 아이콘이 될 정도였다고 했다.

 

1964년 당시 Fortune은 이렇게 찬양했다.

 

"How did Sears do it? In a way, the most arresting aspect of its story  is that there was no gimmick. Sears opened no big bag of tricks, shot off no skyrockets. Instead, it looked as though everybody in its organization simply did the right thing, easily and naturally. And their cummulative effect was to create an extraordinary powerhouse of a company"

Innovator's Dillema p.xii 재인용

 

하지만 이들은 할인판매점과 홈 센터의 출현을 완전히 놓쳤다고 한다. 그리고 사람들의 기억속에서 사라졌다. 

 

그리고 한 평론가는 이렇게 혹평한다.

 

"Sears Merchandise Group lost $1.3 billion (in 1992) even before a $1.7 billion restructuring charge. Sears let arrogance blind it to basic changes taking place in the American marketplace."

Innovator's Dillema p.xii 재인용

 

 

p.xiv

One theme common to all of these failures, however, is that the decisions that led to failure were made when the leaders in question were widely regarded as among the best companies in the world.

 

p.xiv~xv

There are two ways to resolve this paradox. One might be to conclude that firms such as Digital, IBM, Apple, Sears, Xerox, and Bucyrus Erie must never have been well managed. Maybe they were succcessful because of good luck and fortuitous timing, rather than good management. May they finally fell on hard times because their good fortune ran out. Maybe. An alternative explanation, however, is that these failed firms were as well-run as one could expect a firm managed by mortals to be - but that there is something about the way decisions get made in successful organizations that sows the seeds of eventual failure.

 

p.xv

What this implies at a deeper level is that many of what are now widely accepted principles of good management are, in fact, only situationally appropriate. There are times at which it is right not to listen to customers, right to invest in developing lower-performance products that promise lower margins, and right to aggressively pursue small, rather than substantial, markets.

 

p.xvi

Given that aim, technology, as used in this book, means the processes by which an organization transforms labor, capital, materials, and information into products and services of greater value. All firms have technologies. A retailer like Sears employs a particular technology to procure, present, sell, and deliver products to its customers, while a discount warehouse retailer like PriceCostco employs a different technology. This concept of technology therefore extends beyond engineering and manufacturing to encompass a range of marketing, investment, and managerial processes. Innovation refers to a change in one of these technologies.

 

p.xvii

Only twice in the six times that new architectural technologies have emerged in this field has the industry's dominant firm maintained its lead in the subsequent generation.

 

p.xvii~xviii

The failure framework is built upon three findings from this study. 

 

The first is that there is a strategically important distinction between what I call sustaining technologies and those that are disruptive. These concepts are very different from the incremental.-versus-radical distinction that has characterized many studies of this problem. 

 

Second, the pace of technological process can, and often does, outstrip what markets need. This means that the relevance and competitiveness of different technological approaches can change with respect to different markets over time.

 

And third, customers and financial structures of successful copmanies color heavily the sorts of investments that appear to be attractive to them, relative to certain types of entering firms.

p.xviii

An important finding revealed in this book is that rarely have even the most radically difficult sustaining technologies precipitated the failure of leading firms.

 

Occasionally, however, disruptive technologies emerge: innovations that result in worse product performance, at least in the near-term. Ironically, in each of the instances studied in this book, it was disruptive technology that precipitated the leading firms' failure.

 

p.xix

The second element of the failure framework, the observation that technologies can progress faster than market demand, illustrated in Figure I.1 means that in their efforts to provide better products than their competitors and earn higher prices and margins, suppliers often "overshoot" their market: They give customers more than they need or ultimately are willing to pay for.

And more importantly, it means that disruptive technologies that may underperform today, relative to what users in the market demand, may be fully performance-competitive in that same market tomorrow.

 

p.xx

The last element of the failure framework, the conclusion by established companies that investing aggressively in disruptive technologies is not a rational financial decision for them to make, has three bases.

 

First, disruptive products are simpler and cheaper; they generally promise lower margins, not greater profits.

Second, disruptive technologies typically are first commercialized in emerging or insignificant markets. 

And third, leading firms' most profitable customer generally don't want, and indeed initially can't use, product based on disruptive technologies.

 

By and large, a disruptive technology is initially embraced by the least profitable customers in a market. Hence, most companies with a practiced discipline of listening to their best customers and identifying new products that promise greater profitability and growth are rarely able to build a case for investing in disruptive technologies until it is too late.

 

p.xxii

Colleagues who have read my academic papers reporting the findings recounted in chapters 1 through 4 were struck by their near-fatalism. If good management practice drives the failure of successful firms faced with disruptive technological change, then the usual answers to companies' problems - planning better, working harder, becoming more customer-driven, and taking a longer-term perspective - all exacerbate the problem. Sound execution, speed-to-market, total quality management, and process reengineering are similary ineffective. Needless to say, this is disquieting news to people who teach future managers!

 

p.xxii

By analogy, the ancients who attempted to fly by strapping feathered wings to their arms and flapping with all their might as they leapt from high places invariably failed. Despite their dreams and hard work, they were fighting against some very powerful forces of nature. No one could be strong enough to win this fight. Flight became possible only after people came to understand the relevant natural laws and principles that defined how the world worked: the law of gravity, Bernoulli's principle, and the concepts of lift, drag and resistance. When people then designed flying systems that recognized or harnessed the power of these laws and principles, rather than fighting them, they were finally able to fly to heights and distances that were previously unimaginable.

 

p.xxiii~xxvii

- Principle #1 : Companies Depend on Customers and Investors for Resources

- Principle #2 : Small Markets Don't Solve the Growth Needs of Large Companies

- Principle #3 : Markets that Don't Exist Can't Be Analyzed

- Principle #4 : An Organization's Capabilities Define Its Disabilities

- Principle #5 : Technology Supply May Not Equal Market Demand

 

p.xxiii

This evidence supports the theory of resource dependence. Chapter 5 summarizes this theory, which states that while managers may think they control the flow of resources in their firms, in the end it is really customers and investors who dictate how money will be spent because companies with investment patterns that don't satisfy their customers and investors don't survive.The higthest-performing companies, in fact, are those that are the best at this, that is, they have well-developed systems for killing ideas that their customers don't want. As a result, these companies find it very difficult to invest adequate resources in disruptive technologies - lower-margin opportunities that their customers don't want - until their customers want them. And by then it is too late.

 

p.xxv~xxvi

In dealint with disruptive technologies leading to new markets, however, market researchers and business planners have consistently dismal records, In fact, based upon the eivdence from the disk drive, motorcycle, and microprocessor industries, reviewed in chapter 7, the only thing we may know for sure when we read experts' forecast about how large emerging markets will become is that they are wrong.

 

In many instances, leadership in sustaining innovations - about which information is known and for which plans can be made - is not competitively important. In such cases, technology followers do about as well as technology leaders. It is in disruptive innovations, where we know least about the market, that there are such strong first-mover advantages. This is the innovator's dilemma.

 

Comapnies whose investment processes demand quantification of market sizes and financial returns before they can enter a market get paralyzed or make serious mistakes when faced with disruptive technologies. They demand market data when none exists and make judgements based upon financial projections when neither revenues or costs can, in fact, be known. Using planning and marketing techniques that were developed to manage sustaining technologies in the very different context of disruptive ones is an exercise in flapping wings.

 

p.xxvi~xxvii

When managers tackle an innovation problem, they instinctively work to assign capable people to the job. But once they've found the right people, too many managers then assume that the organization in which they'll work will also be capable of succeeding at the task. And that is dangerous - because organizations have capabilities that exist independently of the people who work within them. An organization's capabilities reside in two places.

 

The first is in its processes - the methods by which people have learned to transform inputs of labor, energy, materials, information, cash, and technology into output of higher value.

 

The second is in the organization's values which are the criteria that managers and employees in the organization use when making prioritization decisions.

 

People are quite flexible, in that they can be trained to succeed at quite different things. An employee of IBM, for example, can quite readily change the way he or she works, in order to work successfully in a small start-up company. But processes and values are not flexible. A process that is effective at managing the design of a minicomputer, for example, would be ineffective at managing the design of a desktop personal computer. Similarly, values that cause employees to priortize projects to develop high-margin products, cannot simultaneously accord priority to low-margin products. The very processes and values that constitute an organization's capabilities in one context, define its disabilities in another context.

 

p.xxviii

When the performance of two or more competiting products has improved beyond what the market demands, customers can no logner base their choice upon which is the higher performing product. The basis of product choice often evolves from functionality to reliability, then to convenience, and, ultimately, to price.

 

p.3

When I began my search for an answer to the puzzle of why the best firms can fail, a friend offered some sage advice. "Those who study genetics avoid studying humans," he noted. "Because new generations come along only every thirty years or so, it takes a long time to understand the cause and effect of any changes. Instead, they study fruit flies, because they are conceived, born, mature, and die all within a single day. If you want to understand why something happens in business, study the disk drive industry. Those companies are the closest things to fruit flies that the business world will ever see."

 

p.10

Technologies of the first sort sustained the industry's rate of improvement in product performance (total capacity and recording density were the two most common measures) and ranged in difficulty from incremental to radical. The industry's dominant firms always led in developing and adopting these technologies. By contrast, innovations of the second sort disrupted or redefined performance trajectories - and consistently resulted in the failure of the industry's leading firms.