Friday, November 21, 2008

Innovator's Dilemma

The Innovator's Dilemma is a great book by Clayton M. Christensen where he presents an idea that great companies fail because the too long do the “right” things. This seemingly absurd claim is explained well in his book, but summarized it means that listening your customers and constantly improving your old product will finally kill you. This happens because at the same time new and hungry companies enter the market with their disruptive innovations. Typically these innovations at first seem very bad when compared to the specs of the current solutions; their performance is worse, capacity is smaller and so on. Such products would never be done by the old giants, they could do much “better” and their customers are not asking them to do products like this.

The clue is that new innovations carry attributes that are different compared to the old ones. These new attributes allow in turn new innovations for the customers and possibly enable whole new products to be created. In his book Christensen studies disk drive industry, how new smaller disk sizes have every time been overlooked by the old giants, and industry newcomers have taken the market. Old players have asked their customers and they have told that bigger disk capacity is needed - so disk manufacturers did a justified management decision and didn’t invest into production of smaller disks. After some time there was no market at all for such companies. Can you imagine how would your iPod look like if we only had 14” disks now?

To my great surprise I one day understood that this kind of Old Giants vs. Innovative Newcomers battle is happening at the moment in the laptop industry. When first mini-laptops became available I just couldn’t understand why anybody would like to buy one (in fact, I still don’t understand that but it’s another story). They don’t fit into the pocket like a phone and if you must carry a bag for a laptop, why not carry a normal sized one? Their performance specs are ridiculous and keyboard is small. No wonder that Fujitsu-Siemens or Lenovo didn’t innovate these, at least I wouldn’t have given a permission to invest any money on the R&D project for mini-laptops.

Despite all this, mini-laptops are a very hot thing now, Gartner reported that for EMEA region year-over-year shipment growth for Acer has been 60.9% and for Asus 179.8%! HP also lost it’s No. 1 market position to Acer, thanks to the mini-laptops. There is really a change in the air!

Could same thing happen also in the mobile phone industry? Of course Apple’s iPhone was kind of a surprise when it came out, but I wouldn’t consider it as a disruptive innovation, after all. The device is comparable to the old smartphones, although Apple has weighted slightly different features than Nokia. The disruptive innovation is in the business model that makes the operators to fight for the terminal, compared to the old situation that made device manufacturers to come crawling to the operator’s doors.

So what’s the point in this writing? The same that has happened in many businesses (like hard drive, PC, laptop, etc. industries) will happen also in the mobile phone industry. Someday finetuning existing features, adding more and more megapixels and memory storage is not enough. New player will enter the market and launch a product that at the first sight may look stupid with its small feature set and technical limitations, but after some time we will understand that disruptive and bold innovation has once again entered the market. Who will do this and which of the old companies will survive, I don’t have a clue.


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