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WHAT IS THE INNOVATOR’S DILEMMA AND WHY DOES IT MATTER?

Posted by Ayesha Patel 6 September 2017 Innovation Consultancy

Coined back in 1997 by Harvard professor and businessman Clayton Christensen, “the innovator’s dilemma” has since come to influence and inform innovation strategy for many of the world’s most successful companies. But what is the innovator’s dilemma all about, why does it matter, and what does it mean for disruptive innovation?

WHAT IS THE INNOVATOR’S DILEMMA?

First introduced in the book of the same name, the innovator’s dilemma is a phrase which explores the relationship between the successful execution of innovation strategy and how these organisations deal with rising competition, which is often unexpected and disruptive to the industry as a whole.  

According to Wired.com, The innovator’s dilemma ‘is one of the most — if not the most — important books chronicling how innovation takes place.’ For Wired one of the most important insights is that in many situations:

‘managers played the game the way it’s supposed to be played. The very decision-making and resource allocation processes that are key to the success of established companies are the very processes that reject disruptive technologies: listening to customers; tracking competitors actions carefully; and investing resources to design and build higher-performance, higher-quality products that will yield greater profit.’ 

By conducting research across a number of industries, Christensen explains that most companies miss new waves of innovation by sticking too steadfastly to these practices, causing them to miss opportunities or struggle to recognise avenues towards new openings in the marketplace. 

WHY DOES IT MATTER?

One of the primary reasons that the innovator’s dilemma theory is so poignant is that the impact it has on multiple organisations around the world is very tangible and requires a strategy. An article by Tech Crunch on the very real effects of innovator’s dilemma argues that ‘requires brave and decisive leaders to work through it.’  

Tech Crunch suggests that because ‘in order to protect their [a company’s] dominant position, their natural reaction is to underestimate or dismiss the competition,’ often companies struggle to make the bold moves necessary to overcome such challenges. Importantly, due to the interconnected and borderless nature of the 21st century economy, arguably ‘disruptive pressure that companies face is even greater now than it was in 1997 when Christensen first identified it.’  

WHAT IS THE RELATIONSHIP TO DISRUPTIVE INNOVATION?

The innovator’s dilemma is perhaps most closely linked to disruptive innovation as opposed to incremental innovation, as it is this disruption which presents a challenge to organisations and must be overcome.

For Forbes, one example of this disruption that needs to be addressed is ‘mobile’s disruptive power [that] will continue to grow over the next several years, [and] the retailers that re-think their growth strategies, and treat mobile as a bigger priority to their desktop e-commerce should continue to thrive.’ 

Forbes suggest that mobile is the perfect example of a new technology which entered the market and ‘forc[ed] even mighty industry leaders to take a step back and re-think their core business strategies and operations with a mobile-first mentality.

For Harvard Business Review (HBR) the fact that almost 20 years after this theory was published innovators and managers are still struggling to deal with its effects is problematic and perhaps suggests that more factors are at play than a simple over-reliance on conceived wisdoms and tried and tested methods.

HBR suggests that the answer to this question ‘may be that the innovator’s dilemma is no longer the only paradox at play in innovation management.’ Noting that ‘when Christensen conducted the research for The Innovator’s Dilemma, he looked at industries that were asset-heavy,’ HBR believes that today’s disruptive environment is markedly different as new business do not need large amounts of assets and ability to fund innovation and growth through borrowing, meaning competition is increased.

Thus arguing that the problem is financial in nature and not organisational, HBR believes that ‘the businesses that fight off their digital disrupters will be creative not just in their organisational design but also in their financial structures and legal models.’ If the market structure has indeed shifted, the innovator’s dilemma paradigm will need to be adapted to suit the new challenges facing organisations, which HBR predicts will herald ‘a new era of exploration and corporate experimentation [that] will be vital to renewal.’

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