Innovator's dilemma
The Innovator's Dilemma, popularized by Clayton Christensen, describes the phenomenon where established, successful companies can be overtaken by smaller competitors offering "disruptive innovations". These innovations, often initially inferior to existing products, target emerging or overlooked markets and gradually improve, eventually displacing the incumbents. The dilemma arises because established companies, focused on serving their existing, profitable customers and maximizing short-term gains, often overlook or dismiss these disruptive technologies, leaving them vulnerable when the disruptive innovation matures and gains mainstream acceptance. [1, 2, 3, 4, 5]
Here's a more detailed breakdown:
• Sustaining vs. Disruptive Innovation: Established companies excel at sustaining innovation, which improves existing products and satisfies current customers. Disruptive innovation, on the other hand, often starts with a simpler, cheaper, and less powerful product that appeals to a different segment of the market. [6, 7, 8]
• The Focus on Existing Customers: Established companies prioritize investments that meet the needs of their current, profitable customer base, often ignoring or undervaluing the potential of disruptive technologies that don't initially fit those needs. [5, 7]
• The Power of Overlooked Markets: Disruptive innovations often target "low-end" or emerging markets that established companies find unattractive due to lower profit margins or different customer requirements. [4, 7, 8, 9, 10]
• The Gradual Improvement: Disruptive technologies, while initially inferior, gradually improve in performance and functionality, eventually reaching a point where they can compete with and even surpass the established products. [1, 7, 8]
• The Threat to Incumbents: By the time established companies recognize the threat of disruptive innovation, it may be too late to effectively respond, as the new technology has already gained a foothold in the market. [3, 4, 11, 12, 13]
• Examples: The personal computer disrupting mainframe computers, discount retailers like Walmart impacting traditional department stores, and the rise of online banking are all examples of the Innovator's Dilemma in action. [8, 11, 14, 15]
• The Solution: Christensen suggests that established companies should create independent, agile divisions to explore and develop disruptive technologies, mimicking the behavior of startups. [1, 16]