The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail

Christensen defines innovation in relation to technology, indicating that while all companies use technology to transform resources into goods and services, innovation represents a change in the technologies that enhance the business process. This is a crucial distinction to make because Christensen subcategorizes innovations, labeling them as disruptive innovations or sustaining innovations, and this distinction is key to the book’s argument. This idea suggests that the book’s focus is not necessarily about the ownership of advantageous technologies; instead, it focuses on managing the process of changing that technology to gain a lead.

Processes are defined in Chapter 8 as “the patterns of interaction, coordination, communication, and decision-making through which they [transform inputs of resources into products and services of greater worth]” (163). They are one of three factors in the organizational capability framework that enables companies to successfully develop and commercialize new products. They include processes that have been formally standardized within the company’s code of operating procedures, as well as informal procedures that employees naturally form to improve operational efficiency. Christensen argues that processes can hinder firms from developing products that leverage disruptive technology. Once a company has established its processes, it is difficult to form new ones.

Resources are described in Chapter 8 as one of the three categories of organizational capabilities that allow a company to function. Christensen’s definition of resources is broadened to include more than just capital resources; he also acknowledges technologies, branding, market knowledge, market relationships, and human assets as part of a company’s resource capabilities. Most managers assume that resources have the greatest impact on organizational capability, but Christensen argues that resources are much more flexible compared to the other two factors—processes and values.

Contrasted against disruptive innovation, sustaining innovations are defined in Chapter 1 as technologies that maintain “the industry’s rate of improvement in product performance […] and [range] in difficulty from incremental to radical” (9). Sustaining innovations cater to the needs of a company’s customer base by improving the attributes they value most in the product. This demand increases over time as customers seek more effective and efficient products in the market. Hence, firms are compelled to improve their product performance at regular intervals, usually overshooting the level of improvement demanded. Christensen further categorizes sustaining innovations into incremental improvements, which utilize an established technological capability and radical changes, thereby requiring the company to practice new technological capabilities.

In the Introduction, technology is defined as “the processes by which an organization transforms labor, capital, materials, and information into products and services of greater value” (xvii). Technology is distinguished from innovation through its role in enhancing business operations. Any asset that gives companies a competitive advantage can be considered technology, such as market analysis tools and mass production services.

In Chapter 2, Christensen defines a value network as “the context within which a firm identifies and responds to customers’ needs, solves problems, procures input, reacts to competitors, and strives for profit” (32). Value networks are distinguished from markets by broadly focusing on the dynamics between corporate strategy and market offerings. Since many companies produce goods as components for other companies, multiple markets can be discussed in the context of a single nested network. When disruptive technologies enable a company to enter a new market that is excluded from the hierarchy of the mainstream value network, this dynamic creates a new value network.