Disruption occurs when entrants create value on different dimensions
Incumbents focus on creating value for their current set of customers, while entrants target customers whose needs aren't being met and create value on a different dimension. Christensen cited examples from many different industries.
In the disk industry, what was valued was cheap storage costs as mainframes were the big target customer. However, entrants created smaller disks, though with more expensive storage costs. These new disks targeted personal computers, but as the technology improved, they moved upmarket to mainframes.
In the excavator industry, cable machines boasted larger and larger shovels. However, hydraulic shovels, though smaller, were able to dig more precise holes that were need for smaller, residential jobs.
The value networks companies focus on are both their strengths and limitations
Management structures, supply chains, and customer research, among other aspects, determine what a company can or cannot do. Management filters out projects that would be deemed risky given the current value proposition and prioritize those that sustain value. Existing processes are optimized for the current price points. The existing set of customers determine what a company pursues and does not pursue.
Markets that do not exist cannot be analyzed and are smaller than they appear
New markets both don't solve the growth requirements of incumbent firms and are also difficult to study. A $1 million market helps a $10 million company grow 10%, but is marginal for a $1 billion company. This makes moving down-market (attacking smaller markets) unappealing to large businesses.
What further complicates things is that new markets are difficult to study. Data only exists on existing dimensions of value, making smaller markets hard to quantify. It takes time to find the right dimension of value to focus in a new market, making it important to have a flexible plan. This favors startups which have no existing commitments to current customers, value networks, and supply chains.
Why entrant firms can topple incumbents:
The established firms were, in fact, aggressive, innovative, and customer-sensitive in their approaches to sustaining innovations of every sort. But the problem established firms seem unable to confront successfully is that of downward vision and mobility, in terms of the trajectory map. Finding new applications and markets for these new products seems to be a capability that each of these firms exhibited once, upon entry, and then apparently lost. It was as if the leading firms were held captive by their customers, enabling attacking entrant firms to topple the incumbent industry leaders each time a disruptive technology emerged.
How oversupply changes the dimensions of value for customers:
Performance oversupply triggered a change in the basis of competition. Once the demand for capacity was satiated, other attributes, whose performance had not yet satisfied market demands, came to be more highly valued and to constitute the dimensions along which drive makers sought to differentiate their products. In concept, this meant that the most important attribute measured on the vertical axis of figures such as 8.1 changed, and that new trajectories of product performance, compared to market demands, took shape.
The most interesting aspect of The Innovator's Dilemma is applying the concepts to understand today's state of innovation. It feels like we've hit a crescendo with technological innovation as Apple, Amazon, Google, and Microsoft have cemented themselves as the big companies of the 21st century. Even Ben Thompson thinks so.
But even the best managed companies fall, not because of management, but because of changing value networks. Disruption can happen even though there are huge companies that currently lead an industry. However, disruption requires the right environment, which usually comes from a small companies that can target smaller, unproven markets and slowly move upmarket to disrupt incumbents.
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Bob Iger's story of building a career at Disney (and affiliated companies) eventually becoming CEO and changing the trajectory of the company in the 21st century.