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TECHNOLOGY & LIFE

The Innovator's dilemma

21st July 2016

In my quest to become a product owner/manager I did my research about what books and articles I should read to get a better understanding of product management how it is done and what it takes to become a good product owner/manager.

I stumbled upon this article. The second entry in the must read section you find "The Innovator's dilemma" by Clayton Christensen.

I have just finished it and I am still wondering how could I live without this book.

The book is full with examples of big companies that have struggled and failed when a new "disruptive" technology emerges. Professor Christensen sometimes go too much into numbers and details to justify his point but apart from that he gives a clear view exemplifying it with stories of real companies facing disruptive technologies and gives the management tools needed to cope with those disruptions based on the lessons learnt from the same companies.

Sustaining versus disruptive technologies

All the sustaining technologies can be identified because they improve the performance of established products, along the dimensions of performance that mainstream customers in major markets have historically valued. Let's say in the telecommunication business, we as customers value speed in our internet connection, so then a technology X that improves the speed of our internet connection without limiting our data transfer capabilities can be called a sustaining technology.

Occasionally, however disruptive technologies emerge: innovations that result in worse product performance, at least in the near-term. Disruptive technologies bring to a market a very different value proposition that had been available previously. Generally, disruptive technologies underperform established products in mainstream markets. The disruptive technological products are simpler and cheaper; they generally promise lower margins, not greater profits. Solar planes are an example of disruptive technology. Even when solar impulse managed to travel around the world it seems inimaginable that the current plane manufacturers try to sell a this technology to their current main customers (airlines) as the technology is still a little bit inmature, however it looks possible that as it happened for cars plane manufacturers struggle with the growth of the electrical planes.

Why management fails when faced with disruptive technologies?

Professor Christensen offers a framework of four principles of Disruptive Technology to explain why the management practices that are most productive for exploiting existing technologies are non productive when it comes to developing disruptive technologies.

Principle 1: Companies Depend on Customers and Investors for Resources.

To survive companies must provide customers and investors with the products, services and profits they require. Top performing companies have well developed systems for killing ideas that their customers don't want. As a result, these companies find it very difficult to invest resources in disruptive technologies (lower margin opportunities) until their customers want them and by then it is already too late.

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

To maintain share prices and create internal opportunities for their employees, successful companies need to grow. As they get larger, they need increasing amounts of new revenue just to maintain the same growth rate. It becomes more difficult for them to enter a newer market with smaller profits that are destined to become larger in the future. They need to keep focus in the current large markets.

Principle 3: Markets That Don't Exist Can't Be Analyzed

Markets research and good planning followed by execution according to plan are the hallmarks of good management. Big companies get scared when faced with disruptive technologies because they demand data on markets that don't yet exist.

Principle 4: Technology Supply May Not Equal Market Demand

Although disruptive technologies can initially be used only in small markets, they eventually become competitive in mainstream markets. This is because the pace of technological progress often exceeds the rate of improvement that mainstream customers want or can absorb. As a result, the current mainstream products will offer a better performance than the one the customers demand, while disruptive technologies that currently underperform in the mainstream market might tomorrow become direct competition. Once two or more products offer an adequate performance, customers will find another criteria to pick products. These criteria tend to move toward reliability, convenience, and price, all of which are areas in which the newer technologies often have advantages.

How to deal with disruptive technologies?

Professor Christensen specifically advises managers faced with disruptive technologies to:

  1. Give responsibility for disruptive technologies to organisations whose customers need them so that resources will flow to them.

  2. Set up a separate organization small enough to get excited by small gains.

  3. Plan for failure. Don't bet all your resources on being right the first time. Make revisions as you gather data. (Be Agile)

  4. Don't count on breakthroughs. Move ahead early and find the market for the current attributes of the technology. You will find it outside the current mainstream market. You will also find that the attributes that make disruptive technologies unattractive to mainstream markets are the attributes on which the new markets will be built.

My personal opinion

I have found this book a difficult read at the beginning specially because the examples and technologies he mentions are from the 90's and the author repeats the same examples over and over again on an attempt to make his point clear.

In one of the chapters of the book professor Christensen explains how Honda came to dominate the American motorbike market in a surprising way, this is one of my favourites stories of the whole book and I will keep it for the next blog post :)

One of the most interesting conclusions I draw from the book is that the reason why the companies failed was the good management itself. Trying to satisfy your current customers, using processes and values that suit perfect your current business model is not enough when faced with disruptive technologies. These technologies might require different processes and values as they play in a different value network.

I would definitely recommend this book to any product or program manager.

For the ones that are a little bit lazier I have found this video that summarises the book :) You can watch the video first and after that read the book as you will find many interesting stories that the summary leaves out. Enjoy the life!!!

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