Monthly Archives: August 2013

The Innovator’s Dilemma

Innovator's Dilemma

This is a book that I’ve recently read for my latest MBA course on Managing Innovation. It’s kind of one of those ‘must-read’ books for business/technology types and aspiring super-nerds like me. Without giving it all away, the crux of it is, when it comes to certain types of innovations (“Disruptive” Innovations), engaging in smart business practices may be the last thing you’ll want to do.

Intrigued?

It is a bit of mind bender, but Clayton Christensen goes into a fair bit of detail (don’t say I didn’t warn you) – using predominately the computer disk drive industry as his testing ground – to outline how doing things like listening to their customers, investing in the highest ROI opportunities and allocating resources to continue to innovate and improve on products and processes has actually lead to the demise of many organizations.

As I said, it’s a bit of mind bender.

If you’re interested in learning more about how doing these seemingly ‘right things’ can in some cases end up being the ‘wrong things’ (hence the dilemma),  I’d recommend checking out this book. Alternatively, if you want the Cole’s notes version, along with some of my insights on how I think that the Internet is “disrupting” the education industry, continue reading to check out a short paper that I recently submitted for the class.

Abstract

This is a book review on ‘The Innovators Dilemma’ by Clayton Christensen, being prepared and submitted for MBA 7351 – Managing Innovations, at the University of New Brunswick, Saint John. It will begin with a summary of disruptive technologies and innovations, as outlined in the book, to demonstrate an understanding of the concepts. It will be followed by a discussion on how the internet has and will continue to disrupt the education industry. The paper will then end with a brief conclusion.

A Summary of Disruptive Technology & Innovations

In ‘The Innovator’s Dilemma’, Clayton Christensen does a deep dive into the paradox of how, when it comes to dealing with ‘disruptive’ technologies, following good management practices can – and often does – lead to poor results. He focuses predominately on the computer disk drive industry as the focus of his research for the book, since as is still largely the case; it is an industry that moves at a staggering pace making it an easy target for research of an evolutionary (or in this case, revolutionary) nature.

Since ‘The Innovator’s Dilemma’ was first published some ten years ago, the term ‘disruptive’ has become somewhat ubiquitous, but as is often the case, it is used loosely and often incorrectly. As such, before proceeding any further, it will be helpful to first define what exactly a ‘disruptive’ technology is, as defined by Christensen.

Technologies and innovations can fall into one of two categories. The first is what Christensen calls ‘sustaining’ technologies, which are the most common. These are the types of advances that improve on existing products or services. They can be incremental in nature but they can also be radical. This is important to note, as sometimes radical, sustaining technologies are mistaken for disruptive technologies. Sustaining technologies, whether incremental or radical, are in fact the types that, “foster improved performance of established products along dimensions of performance that mainstream customers in major markets have historically valued” (Christensen, page xviii). As Christensen outlines, using examples from the disk drive industry, as well as others such as the excavator and motorcycle industries, sustaining innovations progress along the same performance trajectories whereas disruptive technologies redefine performance trajectories.

Disruptive innovations, unlike sustaining innovations which continue to advance existing technologies and products, often – at least in the short term – offer worse performance than is currently in the market. As such, when they first emerge they are of little, if any, interest to the mainstream market. And why should they be? A fundamental tenant of business is to seek out innovation as a way to create and maintain a competitive advantage in the market place. Another is to listen to your customers and to give them what they want. Yet another is to invest funds and allocate resources where you can get the highest returns. Understanding all of this – as good companies (companies not unlike the organizations featured in the book including IBM, Seatgate, Quantum and others) do – that is how businesses are typically managed. They seek out innovation (most often sustaining in nature); they listen to their customers; they astutely invest and allocate resources based on their expert knowledge, industry research and best practices. Yet, despite all of this, many wind up losing their industry leadership positions and eventually fail. Why does this happen? This is, in part, the “Innovator’s Dilemma”.

As Christensen illustrates throughout the book, the undoing of these otherwise well managed firms comes from their inability to make strategic decisions to embrace disruptive technologies; or at least while there is still time to do so. What has happened time after time and in industry after industry, is a disruptive technology will emerge onto the scene, and true to the earlier noted disruptive attributes of being a worse, not better performer by traditionally held standards, will be met with little fan fair from organizations trying to continually one-up the competition with the latest sustaining advancement. As a result of the inability to break into traditional markets, the disruptive innovations have to figure out an entirely new value proposition for a new, often smaller market. In doing so, what happens in these new, often fringe markets, is the disruptive innovation gets momentum and advances – through advancements in sustaining innovations on this new performance trajectory – until it can move ‘up-market’ to serve the very industries that weren’t initially interested. This then gets the attention of the often larger, established firms who will sometimes scramble to try and get on the bandwagon, but often it’s too little too late. It’s particularly interesting, and perplexing, how the when it comes to disruptive technologies, the attributes that make them “unattractive to mainstream markets are the attributes on which the new markets will be built”. (Christensen, page 267).

To illustrate these points using an example from the book, we’ll look at the disk drive industry where Christensen takes the readers through the progression of disk drives from being 14 inches (diameter) to 8 inches, to 5.25 inches, to 3.5 inches, to 2.5 inches and eventually to 1.8 inches. Initially the 14 inch drives, for use in mainframe computers, were the industry norm. In 1974 their average storage capacity was 130 MB (megabytes). Through sustaining innovations, disk drive makers were able to keep their customers happy by increasing capacities at levels the customers had come to expect. By the early 1980’s several entrant firms had emerged, producing smaller 8 inch drives with much lower capacities – from 10 to 40MB – nowhere near the requirement for a mainframe computer. As such, the mainframe computer users weren’t interested in these drives, despite the fact that they were smaller. Size wasn’t a factor for mainframe users, capacity was. So in order to survive, the smaller drive makers (Shugart Associates, Micropolis, Priam and Quantum) started selling to firms in a newer, smaller market than mainframes: minicomputers.

As the 8 inch drives gained momentum in the minicomputer market, developing sustaining innovations (at a faster rate of the established firms in the mainframe market) on this new performance trajectory, they were eventually able to begin serving the mainframe market, thus pushing out the established incumbents. Christensen goes on to walk readers though how this cycle repeats for all of the different drive sizes from 14 down to 1.8 inches.

In examining how disruptive technologies have lead to the demise of organizations that were once atop their industries, Christensen ensures that his readers understand that it wasn’t in these organizations’ lack of technical capability. He outlines how, in some cases, the industry leading organizations had working prototypes of the disruptive innovations ready to be taken to market. The reasons for their failures were largely related to what Christensen calls ‘value networks’ and their related cost structures. Essentially, large organizations in large markets are organized internally and within their supply chain to serve large markets. In the same vein, large companies require large markets to meet their growth targets and the smaller, fringe markets opportunities presented in the early days of disruptive innovations are generally not attractive propositions.

Similarly, he goes to great lengths to ensure that his readers understand that it wasn’t their inability to diligently manage their organizations. In fact, the diligent management of their organizations was the reason for their demise. They were innovative. They invested wisely. They listened to their customers. But what did their customers want? Better performance or worse performance? What made sense to invest in? Established markets with high returns, or fringe markets with low returns and little or no market research data?

With disruptive technologies, “doing the right thing is the wrong thing” (Christensen, page xxxiv). This is the “Innovator’s Dilemma”.

Impact of Disruptive Technology/Innovations on the Education Industry

At the risk of stating the obvious, the internet has and continues to have a profound effect on many industries. It has been a driver of both sustaining innovations as well as disruptive innovations.

Some of the more prevalent and talked about industries impacted by disruptive innovations tend to be the music (iTunes vs. brick and mortar music stores), video (Netflix vs. Blockbuster), and print media (Online news, Google, blogs, Twitter and others vs. traditional newspapers) industries as a result of the major changes that have already, and are continuing to take place.

There are other industries that are still in the very early days of what may become disruptions, some of which include the electric car (i.e. Tesla) and P2P currency (i.e. Bitcoin) – each, among others, were strong candidates for further exploration in this paper.

An industry that is somewhere in the middle is the education industry, which will be explored in more detail in this section. This industry is an interesting one in that it is being impacted by the internet for both sustaining innovations and disruptive innovations. Further, within areas that can be defined as disruptive, there are areas of similarity of those explored in “The Innovator’s Dilemma” as well as areas of difference making it a good candidate for inclusion here since certain aspects of the internet’s impact – and if they are truly disruptive in nature – may still be subject to some debate.

Leveraging the internet to provide learning opportunities has been around since almost as long as the internet itself has been around – or at least the internet as we know it today (post Windows 95 era). While generations past – including my own – used to have learn things the ‘old fashioned way’ (i.e. buying and reading a physical book, or setting foot in a physical classroom), now it is often as simple as a performing a Google search for an insightful blog or YouTube video to find the knowledge that you seek. Similarly, universities and educational institutions have been leveraging the power of the internet to extend learning capabilities to its students through such things as learning portals, such as the ‘Desire to learn’ portal currently deployed with the University of New Brunswick, Saint John. When the internet is used in this fashion, these are sustaining types of innovations. They further improve on an existing service. They add value – incrementally or radically – in ways that users have come to expect.

Somewhat more recently, as broadband internet becomes more accessible, combined with other factors such as rising university tuition costs and a generation of people doing more and more things online (i.e. working, communicating, watching TV, listening to music), opportunities to learn online are also increasing and more people are taking advantage. According to a recent study commissioned by The Sloan Consortium – a leading professional online learning institution, “over 6.7 million students were taking at least one online course during the fall 2011 term, an increase of 570,000 students over the previous year” (2013, The Sloan Consortium).

Where things start to take on disruptive characteristics are in a couple areas. Firstly, many of the entrant firms providing these online learning platforms are not your traditional, established firms (akin to the “IBM’s” in the disk drive industry). They are smaller, start-up firms such as Coursera and Aacademicearth, both education companies that partner with top universities and organizations around the world to offer courses online for anyone to take. Another – and arguably the most important reason they stand to disrupt this industry in a big way is – the courses are free.

Recalling that when disruptive technologies arrive on the scene they are often thought as being inferior offerings, it’s not a major surprise that there is still much debate over their merits within academic circles, with many education purists insisting that there is no substitute for the value of face to face interaction and collaboration that happens in a physical classroom.

One of the findings from the earlier noted study by The Sloan Consortium, was that “only 30.2 percent of chief academic officers believe that their faculty accept the value and legitimacy of online education – a rate is lower than recorded in 2004” (2013, The Sloan Consortium). However, the same study also found some evidence to indicate that reaction is still in fact mixed, with many academic institutions continuing to ponder as to how they will continue integrating online learning into their long-term strategies.

While traditional brick and mortar institutions continue working toward figuring this out, it’s hard to deny how providing a free education from top universities – the likes of which could include MIT and Harvard – for free no less, is opening the door to an untapped market for these technologies to get the momentum they require to become a real threat.

Interestingly, two of the major institutions driving online learning agendas are in fact two of the most established brick and mortar institutions: MIT and Harvard. These two academic powerhouses recently teamed up to develop an initiative called ‘edX’, a program that builds further on MIT’s existing OpenCourseWare platform (thousands of free online courses), to provide not only a library of free, online courses but also an open-source technology platform free for use by other universities looking for follow suit.

Conclusion

It will now be interesting to see how many of the traditional brick and mortar universities react to these disruptive innovations. Will they simply pass them off as an inferior product and continue developing sustaining innovations to serve their existing, mainstream markets hoping (or not aware of) the sustaining innovations advancing in the smaller markets below them (at potentially advancing at greater rates), as we have seen in the past? Or, will they take a hard look at what steps may be necessary – within their value networks, cost structures and organizational cultures – to not let history repeat itself in yet another industry.

References

(2013) Retrieved from:  http://academicearth.org/

(2013) Retrieved from: https://www.coursera.org/about

(2013) Retrieved from: http://sloanconsortium.org/publications/survey/changing_course_2012

Christensen (2000), The Innovator’s Dilemma

Dunn (2012, May 2) Harvard and MIT Introduce edX: The Future Of Online Learning.
Retrieved from: http://www.edudemic.com/2012/05/harvard-and-mit-to-form-new-online-learning-project/

Horn (2012, April 12) Yes, University of Phoenix is Disruptive; No, That Doesn’t Make It the End-All. Retrieved from: http://www.forbes.com/sites/michaelhorn/2012/04/12/yes-university-of-phoenix-is-disruptive-no-that-doesnt-make-it-the-end-all/

Myers (2011, November 13) Clayton Christensen: Why online education is ready for disruption, now.
Retrieved from: http://thenextweb.com/insider/2011/11/13/clayton-christensen-why-online-education-is-ready-for-disruption-now/

Myers (2011, May 14) How the Internet is Revolutionizing Education.
Retrieved from: http://thenextweb.com/insider/2011/05/14/how-the-internet-is-revolutionizing-education/

Stokes (2011, April 14) Is Online Learning a Disruptive Innovation?
Retrieved from: http://hepg.org/blog/54

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