Sunday, October 28, 2007

Book review: The Innovators Dilmma

I’m just coming to the end of The Innovator’s Solution (Christensen and Raynor, 2003) - OK, I admit it, I can’t be bothered to read the last couple of chapters. Like so many books the first few chapters are very interesting, then the tend to get a little bit boring. I suppose this is because the first few contain the ideas while the later chapters are more about implementation. Still, I always make a point of reading the last chapter as this usually restores some of the feel of the early chapters.

That said, its a good book and interesting. I suppose more people have heard of Christensen earlier book The Innovators Dilemma. So why did I choose to read this one and not the earlier one? Well I guess because it was a) newer, and b) be seemed to offer a solution where the other offered a problem. Having read this I wonder if I would have been better reading the first book after all. That’s not to say this isn’t a good book.

Clayton Christensen is most famous for giving the world the theory of disruptive technologies. Such technologies are ones which, well, disrupt, the current market. Current market leaders fall, distribution channels change and small companies get to grow fast. All good stuff.

What gets less publicity is the alternative to disruptive technologies, namely sustaining technologies. These are technologies that can be used by the current market incumbents to maintain their market. In this book Christensen and Raynor suggest that in many instances companies can choose to use a new technology as disruptive or sustaining, it depends in part on how you package and market it, what market you are in now and which market you want to be in.

They also suggest that in an established market the incumbents will always win a straight fight with new competition. The only chance a new entrant has is to use their technology as a disruptive influence. Conversely incumbents need to use technology (maybe the same technology) to sustain their position. So if you are a new entrant don’t both trying build a better mouse trap, and if you are an incumbent don’t bother trying to disrupt the market.

What is nice about this book, although it does make it longer in place, is that the authors understand that a different context needs a different solution. Unlike many books which say: faced with problem X you should do Y; these authors say, if you face problem X and you are an incumbent than do Y, if you are a new entrant do Z.

The formula for a new entrant with a disruptive technology seems quite simply. Enter the market at the low end, offer a cheaper product than the current incumbents. Rather than compete head on target people who don’t buy the current products (non-competition) with a cheaper, less functional product. Sell to people who don’t buy the current product or are over served by it. Then as your technology improves expand this base. Quite often the current incumbents will move out of your way because they don’t want the low end of the market - that is if they notice you at all!

Of course I summarise and miss out many of the details but you get the idea. If you want to know more then read the book!

Interestingly much of the book’s key message is shared with Crossing the Chasm, they have the same idea but come at it from different perspectives. The key idea is: start with a small niche and grow it.

The advice in Crossing the Chasm is for small high-tech companies who wish to increase sales of their product. Moore suggests you define your own niche, nominate it then grow the niche. In this case the new technology is assumed to be superior - in some way - to the incumbents.

The advice in Innovator’s Solution is aimed at existing, probably large, corporations who want more innovation. Here the niche is always at the low end of the market, it is always a niche defined by cost and price. In this case the technology is superior through a lower cost structure, therefore price can be lower. Over time the niche is expanded by moving the product up market.

Most of the small software companies I see are so concerned with getting a sale, sometimes at any price, that the idea of niche marketing is foreign to them. Sales (and any marketing) tends to be a shot gun affair where any sale is what counts.

Indeed the whole idea of marketing is pretty foreign. Increasingly I see the existence of well functioning marketing as the key differentiator between successful and not successful technology companies. When I say marketing I mean both outbound marketing - telling people you have a product, advertising, etc. etc. and (the lesser known) inbound marketing - understanding your customers, knowing their problems. For both you need to define your target market.

Trouble is: you don’t need a marketing department to start a high-tech company. You do need techies, scientists and engineers to design and build the product. You do need sales people, someone to get out and sell the thing that has been built. If you lack either of these you don’t have a company. So you always find engineers and sales in any company.

But you don’t need marketing. You can carry on with the sales and engineers for quite a while without marketing. But if you want to grow you either need marketing or you need a lot of luck.

This is a mistake made by many many software companies. Which might just explain why Crossing the Chasm, The Innovators Dilemma and Solution sell so well.

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