The Innovator's Dilemma

Disruptive technologies bring to a market a very different value proposition than had been available previously. Generally, disruptive technologies underperform established products in mainstream markets. But they have other features that a few fringe (and generally new) customers value. Products based on disruptive technologies are typically cheap

A key metric of good management, in fact, is whether such clear and consistent values have permeated the organization. 6

Consider the computer industry. IBM dominated the mainframe market but missed by years the emergence of minicomputers, which were technologically much simpler than mainframes.

above, good management was the most powerful reason they failed to stay atop their industries. Precisely became these firms listened to their customers, invested aggressively in new technologies that would provide their customers more and better products of the sort they wanted, and because they carefully studied market trends and systematically al

When a threatening disruptive technology requires a different cost structure in order to be profitable and competitive, or when the current size of the opportunity is insignificant relative to the growth needs of the mainstream organization, then—and only then—is a spin-out organization a required part of the solution.

When the performance of two or more competing products has improved beyond what the market demands, customers can no longer 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.

This study of technological change over the history of the disk drive industry revealed two types of technology change, each with very different effects on the industry’s leaders. 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

Creating an independent organization, with a cost structure honed to achieve profitability at the low margins characteristic of most disruptive technologies, is the only viable way for established firms to harness this principle.

A product becomes a commodity within a specific market segment when the repeated changes in the basis of competition, as described above, completely play themselves out, that is, when market needs on each attribute or dimension of performance have been fully satisfied by more than one available product.