Understand sustaining and disruptive innovation, why successful firms can miss change, and how smaller businesses can explore overlooked customer needs.
The innovator’s dilemma is a structural problem that can affect capable, rational companies. Decisions that strengthen an established business can make new markets harder to address.
Listening to major customers, concentrating on profitable work, and making reliable improvements all look sensible. Those same priorities can obscure small changes and emerging markets.
Smaller firms can face the same trap when current revenue and customers dominate attention. Use the concept to recognize that structure in your own business.
The concept describes how optimization around an existing business can make responding to new markets difficult.
Clayton Christensen introduced the idea. A company can encounter difficulty precisely because it has served present customers attentively, rather than because its judgments were careless.
Companies naturally focus on large customers, higher performance, and profitable markets.
Meanwhile, a cheaper, simpler, more accessible service can develop in a small market. It may initially appear insignificant, then enter the mainstream and threaten incumbents.
It improves current products and services through performance, features, quality, or higher-end capabilities.
Examples include:
These improvements benefit existing customers and can support profits.
It can look weaker on established performance measures while serving another group well.
Possible approaches include:
Large firms become strong at sustaining innovation because existing customers expect it. Early disruptive offers can look too small or unattractive to prioritize.
Major customers encourage more advanced, higher-priced products.
New markets often emerge beyond those requests. If present customers do not want something, internal priority can remain low.
Disruption often begins with limited revenue, low prices, or low margins.
Large firms may see little reason to invest. A market rationally deferred can later become substantial.
Organizations, incentives, sales arrangements, and profit structures support the current business.
A new initiative that conflicts with those arrangements—especially one that could reduce existing profit—can struggle to gain support.
Look at markets deferred because they are small, low-priced, or currently unremarkable.
Ask:
Reasons for non-use can reveal an entry to a new market.
Existing-customer feedback supports improvement, while people outside the customer base may reveal different value criteria.
They may include:
Serving them can expand a market without directly confronting incumbents.
See narrowing a target market through STP analysis for segmenting opportunities and choosing based on your strengths and ability to reach people.
A small release and response can matter more than a fully featured first product.
Resolve at least one customer frustration, then improve. This can reduce misalignment.
Current improvements and future-market exploration can require different perspectives. Keep both in view without allowing one to determine the other entirely.
A small market can become important later. Examine changes underway alongside initial revenue size.
Comparing a new initiative with an established business only through margin, revenue, and short-term results disadvantages the new one.
New efforts need criteria that recognize meaningful small progress. Without them, disruptive possibilities can stop before developing.
Their satisfaction matters, but exclusive focus can obscure change. Regularly examine people outside the customer base.
More capability and quality do not automatically create more customer value. Review whether complexity is making use harder.
An apparently minor market may hold the next opportunity, particularly where established players are not seriously engaged.
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Use the innovator’s dilemma to recognize a structure your own company can face, beyond reading stories of successful firms failing.
Current customers matter alongside overlooked frustrations, noncustomers’ difficulties, and small markets. Those areas can contain a new opportunity.
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A: No. Small firms can also become overoptimized for current customers and revenue, missing changes and new markets.
A: Yes, but it needs another valuable difference, such as price, simplicity, or ease of adoption.
A: Often that makes development easier. Identical evaluation criteria can stop a new initiative too early.
A: Examine people who do not use current options. Their reasons can reveal a different form of value.
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