I have observed many companies who go form market leaders to market goats, despite an impressive technology and R&D capability. Once at the top of the innovator’s game, they wake up to a “red-ocean” battle, competing feature by feature with their longstanding rivals.
What used to be clear vectors of differentiation (the attributes that made their solutions more desirable than the rivals), become copied by everyone in the red ocean. Making matters worse, these traditional vectors of differentiation eventually reach a point of diminishing returns, where increases in performance is no longer valued by the customer.
And in the meantime – while busy competing in a red ocean with traditional rivals, an upstart comes along with a totally new way of getting a customer’s job done. Often this new approach is inferior to what the current market values. Thus, it is assumed the new approach isn’t an immediate threat because the current market has established a set of rules that competitors must obey to play the game.
So the upstart is ignored by the incumbents and is allowed to compete for the lower end of the market, and/or create a whole new market category. As the upstart succeeds in creating and growing a new market of “non-traditional customers, their so called “inferior” technology improves to a point where eventually their solutions now are “good-enough” to compete for traditional customers once thought out of reach.
And because the old incumbents were too busy playing the rules of the old game, when the new game goes mainstream, the old incumbents can’t compete anymore. Their playbooks are no longer relevant.
The Innovator’s Dilemma a Nutshell
The logical, competent decisions of management that are critical to the success of their companies, are also the reason why they lose their positions of leadership. Focusing development resources on clear vectors of differentiation makes perfect sense as one exploits a mainstream market. This is what Christensen refers to as “Sustaining Technologies.”
However, focusing on sustaining technologies tends to shift a company from market orientation to product ornamentation. When companies become product orientated, they can lose sight of the true desired outcomes customers are trying to get done by hiring their products in the first place. This leaves them open to what Christens calls “disruptive technologies” that change the rules of the game by establishing a new set of customer value propositions.
Sustaining versus Disruptive Technologies
Sustaining technologies can be discontinuous or radical or incremental. They improve the performance of established products, per historic values of mainstream customers. These define the vectors of differentiation rivals compete on.
Whereas a Disruptive Technologies provides a near-term worse product performance. It introduces a different value proposition and has certain features that fringe customers value – cheaper, simpler, smaller, more convenient, etc.
The transistor radio is an example of a disruptive technology
The early transistor radio versus vacuum tube radio, was inferior in terms of what the market had identified as the key competitive attributes: audio fidelity and power.
Therefore, it had no appeal for the mainstream market (the customers the incumbents were competing for). But what it could do is enable a new market opportunity by providing a highly portable radio to allow teenagers (non-consumers of existing radio products) to leave the family room and listen to their own music in their own space with friends. Sure, the sound wasn’t that great – but the freedom was exhilarating!
Technology performance improves overtime
Overtime, transistor technology increased performance along the audio and power attributes to a point where it matched and eventually surpassed the vacuum tube.
In addition, the transistor provided other new performance attributes: better power efficiency, size, and price, eventually surpassing the performance of the vacuum tube and ultimately displaced the tube. Tube manufacturers where left in the dust and could not compete successfully for the new mainstream market.
The Impact of Sustaining and Disruptive Technological Change
In every market there is a rate of improvement that customers can utilize or absorb. This is shown in figure 1 below by a range of two parallel upward moving dash red lines. The lower line depicting the performance demand at the low end of the market. The upper line depicting the performance demand at the high end of the market.
As long as new innovations stay within these boundaries, the market can absorb new product innovations. However if the innovation exceeds the upper boundary, the user cannot take advantage of the innovation.
Stated differently, the innovation has diminishing returns in improving the user’s experience. For example, increasing the clock speeds on microprocessors didn’t provide the average PC user better performance and user experiences. Thus the user will not pay more for this attribute. It’s just more cost – waste if you will – that the producer has to eat.
The lower line defines the minimal entry point. If the product or innovation is below this line, the market will not accept the innovation. Stated differently, the product is not competitive, it lacks “must have” attributes.
Christensen argues however, the new innovation may be sufficient for a totally new market for non-served or underserved users. For example, teenagers who were not buying big and expensive hi-fi’s, and the transistor radio. This provides an upstart the ability to create a new playing field, or blue ocean, the incumbents are likely to ignore.
Figure 1: The Impact of Sustaining and Disruptive and Technological Change
Over time the disruptive innovation may improve, as depicted by the two green parallel lines. Eventually, the performance lines cross the lower boundary point of the incumbent technology. When this happens, the new technology becomes an acceptable alternative with potential other advantages and benefits. And overtime, the performance trajectory may cross the upper boundary of the old technology, totally rendering the incumbent technology obsolete.
Get ready for a new game and new playbook
Don’t get trapped into thinking your current vectors of differentiation will continue to provide unlimited growth and competitive advantage. And don’t believe that because your current customers are telling you they want better-more-same, the future will be secure if you stick to doing the things that made you successful in the past.
Your future is only secure until a new game changing technology comes along. And if you aren’t watching your flank, by the time you react to it – the game is over. Throw your old playbook out and find a new game to win at, because the old rules and plays, just don’t work anymore.
So best to always be on the lookout for new ways to get customers jobs done better. Your focus must be on the problems that customers are facing in getting important jobs done – not the current solutions you and your competitors are currently enjoying great success with.
The rules of the game will change … the only constant that innovation guarantees.