Innovation can be a high-stakes tightrope walk. Successful companies must continually refine and enhance their existing products to stay ahead – this is called sustaining innovation. But sometimes, a new and unexpected disruptive innovation will sneak in and rewrite the rules entirely. When this happens, even industry leaders can fall down.
It’s a pattern we see play out time and again. Kodak, once the world’s leading photography company, failed to keep pace with the advent of digital photography. And we all know what became of BlackBerry, Walkman and Blockbuster video rental stores when disruptive new upstarts emerged in their respective markets.
So, why do established, seemingly well-run companies struggle? And what could they have done differently? Clayton Christensen, hailed by The Economist as “the most influential management thinker of his time,” sought to answer these questions in his 1997 book The Innovator’s Dilemma.
Do its insights still hold up in today’s era of move-fast-break-things tech innovation? Surprisingly, yes…
Why great companies struggle with innovation
Companies don’t fail at disruptive innovation because they’re lazy, incompetent or poorly managed. They tend to fail because they are too good at what they do. They listen to their customers, allocate resources based on their experience of what works, and continue refining and improving their products to keep happy customers coming back for more. Sounds like basic good business practice, right?
But not for Christensen. He argues that these are the hallmarks of a “sustaining innovation” company set to lose out to a disruptor. As he puts it, the innovator’s dilemma is “about well-managed companies that have their competitive antennae up, listen astutely to their customers, invest aggressively in new technologies, and yet still lose market dominance.”
If Christensen had been writing a few years later, I’m almost certain he would’ve included the cautionary tale of BlackBerry.
Quick recap: It’s the early 2000s, and BlackBerry is the business phone. With its sleek design, tiny keyboard, flashing red light, and revolutionary email-on-the-go, it took the world by storm. When Apple launched the iPhone, it didn’t seem like an obvious threat – no physical keyboard, a finicky touchscreen, and an App Store full of games and multimedia software. A fun gadget? Sure. A business tool? Not likely.
Of the two companies, only one was listening to its customers and allocating resources based on its proven strengths – and it wasn't Apple.
BlackBerry was convinced its strengths mattered most – it was the best at making phones for business people. These loyal customers wouldn’t want to trade a physical keyboard for touch screens and gimmicks. So, what happened next?
BlackBerry’s Market Share:
2010: 43% 📈
2011: 30.4% 📉
2012: 15.2% 🚨
2013: 5.9% 💀
It wasn’t that BlackBerry ignored innovation. It just stuck in the lane of “sustained innovation” while Steve Jobs & Co chose “disruption” and redefined the game.
“That’s cute… but don’t tell anyone”
Another reason why successful companies fall prey to a disruptive innovator? They bet on the “safe” option. Unlike startups, established companies can fall into the trap of believing they no longer need to take risks.
This, says Christensen, breeds organisational inertia and complacency. Big businesses prioritise projects with guaranteed short-term profits that serve existing customers' needs. Disruptive technologies, on the other hand, are deemed “bad bets” – impractical, unpolished and too niche to justify investment.
For a picture-perfect example, just look at Kodak.
It’s a company name that now conjures up a sort of sepia-tinged nostalgia. Yes, Kodak still exists, but its glory days are very firmly in the past, in the era before digital photography made camera film pretty much obsolete.
But here’s a surprising fact. The first digital camera was invented in 1975... by Kodak. That’s right, the world’s leading producer of photographic film created the very technology that would eventually make film all but obsolete. And what did they do with it? Nothing.
The digital camera’s inventor Steve Sasson recalled to the New York Times:
My prototype was big as a toaster, but the technical people loved it. [...} But it was filmless photography, so management’s reaction was, ‘that’s cute but don’t tell anyone about it.’
Film was Kodak’s cash cow and digital didn’t fit their business model. So, they buried it.
By the time Kodak's management realised their mistake, it was too late. Sony and Canon had already taken over the digital camera market.
The Kodak story parallels the infamous downfall of Blockbuster at the hand of a plucky upstart called Netflix. Both let the future slip through their fingers.
As Christensen writes, it's a perennial hazard for businesses when they seem to be at the top of their game.
The highest-performing companies [...] have well-developed systems for killing ideas that their customers don’t want. As a result, these companies find it very difficult to invest adequate resources in disruptive technologies – lower-margin opportunities that their customers don’t want – until their customers want them. And by then it is too late.
How to solve the innovator’s dilemma
The lesson of Christensen’s book is that the most successful innovators don’t necessarily have the most resources or the best technology. Instead, they are the ones who make room for experimentation, recognise when to shift strategies, and have the discipline to balance sustaining and disruptive innovations.
So, how can established companies successfully walk this tightrope? It starts with recognising that their biggest strengths can sometimes become their biggest weakness.
Christensen writes:
Perhaps the most powerful protection that small entrant firms enjoy as they build the emerging markets for disruptive technologies is that they are doing something that it simply does not make sense for the established leaders to do. Despite their endowments in technology, brand names, manufacturing prowess, management experience, distribution muscle, and just plain cash, successful companies populated by good managers have a genuinely hard time doing what does not fit their model for how to make money.
Established companies become risk-averse. And even when giants like Blockbuster, Kodak and BlackBerry finally recognise where the future is headed, their sheer size makes it harder to pivot quickly – giving smaller, more agile disruptors the upper hand.
The solution? Small independent teams.
Christensen argues that big companies can have the best of both worlds if they create separate, autonomous teams to pursue disruptive innovation. These teams can operate with different priorities, metrics and business models. They can move fast and take risks, free from the red tape and slow decision-making of a large corporate parent.
He concludes:
With few exceptions, the only instances in which mainstream firms have successfully established a timely position in a disruptive technology were those in which the firms’ managers set up an autonomous organisation charged with building a new and independent business around the disruptive technology. Such organisations, free of the power of the customers of the mainstream company, ensconce themselves among a different set of customers - those who want the products of the disruptive technology.
It’s a strategy embraced by many of today’s Silicon Valley giants – from Amazon’s Two-Pizza Teams, which keep innovation nimble by limiting team sizes, to Google’s X lab, a semi-secret incubator for moonshot projects, and Meta’s internal startups, which allow new ideas to flourish without the weight of corporate bureaucracy.
Christensen’s small team approach recognises that disruption often begins on the fringes, not in the boardroom. By carving out space for risk-taking and experimentation, maybe today’s tech titans will avoid becoming the next Blockbuster, BlackBerry or Kodak.
Ultimately, successful companies don’t need to be able to predict the future. But they must be agile, bold and brave enough to invest in disruptive innovation if they’re to ensure the future doesn’t leave them behind.
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