In this innovative book, Clayton Christensen shows how successful, outstanding companies can do everything "right" and still lose their market leadership - or even fail - when new, unexpected competitors emerge and take over the market. There are two essential parts to this dilemma.
1. The value of innovation is an S-curve: improving a product takes time and many iterations. The first of these iterations provide minimal value to the customer, but over time the foundation is created and the value increases exponentially. Once the foundation is created, each iteration is dramatically better than the last. At some point, the most valuable improvements are completed and the value per iteration is minimal again. So in the middle is the most value, at the beginning and end the value is minimal.
2. Incumbent-sized businesses: the incumbent has the luxury of a large customer base, but high expectations for annual revenue. New next generation products find niches away from the established customer base to develop the new product. The new entrants do not need the annual sales of the incumbent and therefore have more time to focus and innovate on this smaller business.
Because of this, the next generation product is not built for the incumbent's customer base, and this large customer base is not interested in the new innovation and continues to demand innovation with the incumbent's product. Unfortunately, this innovation by the incumbent is limited to the total value of the product because it is at the later end of the S-curve. Meanwhile, the new entrant is deep in the S-curve and provides significant value to the new product. By the time the new product becomes attractive to the incumbent's customers, it is too late for the incumbent to respond to the new product. At this point, it is too late for the incumbent to keep up with the rate of improvement of the new entrant, which at this point is on the near-vertical part of its S-curve.
In this compelling, cross-industry study, Christensen presents his groundbreaking theory of "disruptive innovation" that has changed the way managers and CEOs around the world think about innovation.