Book Review: The Innovator’s Dilemma, When New Technologies Cause Great Firms to Fail

Book review
The Innovator’s Dilemma, When New Technologies Cause Great Firms to Fail
by Clayton M. Christensen (1997)

There is far more than schadenfreude at play when reflecting on our cultural fascination with why the mighty fall. Instead, it is perhaps rooted in our desire to avoid a similar fate. If that big and successful company over there can fail, then what does that mean for the business that I’m in?

The theory and concepts introduced in the Innovator’s Dilemma is an absolute must understand for anyone facing the task of continuing business growth. If you noticed that I have written “must understand” rather than “must read” you’ve already picked up on one of my key reflections on this book. It’s not an easy read. If you’re not an attuned technical reader that flies through academic texts, or don’t have a keen fascination with disc drives and the history thereof, you’re going to struggle with this one. That being said, if you can persist, the reward is worth it. The way you think about growth, success and innovation will be forever changed.

This book is actually pretty old these days, first published in 1997, it was perhaps ahead of it’s time as the explosion of tech startups in the recent years has brought the word ‘disruption’ into the common business vernacular. There are plenty of historical examples of disruption, the examples of disc drives and mini mills being described at length in this book, however, never has there been a time where the pace of change was so rapid, and so present in everyday consumer life. It’s all around us. How we consume media, how we buy books, where we stay when we travel, how we get from place to place, how we connect with friends and family, the list could go on and on! The up shot is that The Innovator’s Dilemma is as timely and relevant now as it ever was, both for established companies looking avoid the mistakes of the former greats, and for the up and coming startups hoping to be the next great disruptor.

The first half of the book reads like an extended history of the disk drive. The same story many times over, 14 inch, 8 inch, 5.25 inch, 3.5 inch, 2.5 inch and 1.8 inch. On and on. Technical, detailed and pretty tough going. To be honest, I got bored a few times, put it away, read something else and then came back to it. I did keep coming back though!

By the end of this section the lesson is clear, new technology is usually simpler, cheaper and lower performing. It often has a lower margin, doesn’t meet the needs of existing customers and those whose needs it does meet are so niche, they’re not worth pursuing. If you are only focused on current markets, current customers and improving profitability, it’s never going to be a priority. More than that, you’re not just going to leave this new technology that you may even have developed in house on the shelf, you’re going to bury it and ignore others playing in this space, writing them off as a non-threat due to your own lens on the competitive landscape.

The problem with this is that by carving out a strong spot in a niche market, a disruptor then has the ability to invest in incremental improvement on this new technology, which quickly sees them surpassing the original in both performance and cost. They move up market, often with disastrous consequences for the incumbent.

This is the dilemma: “the logical, competent decisions of management that are critical to the success of their companies are also the reasons why they lose their positions of leadership.”

With the pattern and framework established, the second half of the book is where it gets really interesting. With the point made, the examples become more varied, and the writing style switches from historical recount to thesis, case studies and advice. The distinction between sustaining innovations that help progress existing technologies, and disruptive innovations that chart new waters becomes clearer, and there are some positively fascinating snippets addressing questions like “When does a product become a commodity?” (Answer: When the features and functionality exceed what the market demands.)

Christensen also uses these case studies and examples to discuss good and bad strategies and posits the beginnings of some solutions to the dilemma – each presented with their potential challenges. In complete contrast to the first half of the book, I barely put my kindle down at this point!

For those that want the cliff notes, the video below gives a nice little 4 minute summary of the basic principal of disruptive vs. sustaining innovation and the dilemma itself. But if you can keep yourself motivated by the promise of the second half, do take the time to read the full book.

 

In short, the Innovator’s Dilemma is definitely on my list of books to revisit and read again in the future as it has a wealth of highly relevant principles and considerations for modern management, but first I’m going to give The Innovator’s Solution a go.

Book Review: Playing to Win, How Strategy Really Works

Book review
Playing to Win, How Strategy Really Works
by A.G. Lafley and Roger L. Martin (2013)

 

Roger Martin is a world leading global business thinker whose name keeps company with the likes of Clay Christensen and Michael Porter in the world of business and innovation strategy.  He is an advisor to CEOs globally, a strategist, design thinker, innovator, author and Dean of Rotman School of Management.  Martin is best known for the Playing to Win framework described in the book Playing to Win:  How Strategy Really Works, which he co-authored with A.G. Lafley.

Alan George (A.G.) Lafley was the CEO of mega giant consumer goods company Procter & Gamble from 2000-2009.  He is credited, along with Martin acting as his advisor, with revitalising P&G growing earnings per share by 12% and more than doubling the market capitalization to become one of the five most valuable companies in the US.  Along with these outstanding financial results, he is credited with bringing the consumer to the centre of the organisation and embedding strategic thinking to significantly lift collaboration and connectivity across the organisation for a more innovative culture.

Playing to Win, How Strategy Really Works is essentially a full length case study of P&G’s decision making process across both the corporate organisation and a variety of their major brands / business units.  It explains in detail, the Playing to Win framework for strategy, and is therefore not only interesting, but makes the leap that many business books fail to perform adequately, to being a practical guide on the subject matter.

Having been lucky enough to have attended a one-day conference where half the day was devoted to Martin describing his approach to strategy, I had high expectations for what the book could deliver over and above hearing it from the horse’s mouth.  I wasn’t disappointed.

Playing to Win, How Strategy Really Works, explains the concept of strategy simply and succinctly.  Rather than getting caught up in the wide variety of uses of the term (see Mintzberg’s ‘5 Ps for Strategy’, a topic for another day), or complicated, boring and ineffective processes (see anyone who has ever been part of traditional ‘strategic planning’ exercises,) Martin & Lafley define strategy simply, it is a choice.  More specifically, “a set of interrelated and powerful choices that positions the organisation to win.”  In Martin’s view the Playing to Win book is supposed to clarify and simplify strategy to be a powerful tool for managers.  Done and done.

Beginning with a discussion of what strategy is and a summary of the five interrelated choices, the book then devotes a chapter to each of these choices with examples from P&G that don’t just illustrate the points, but create a narrative around brands and businesses that are household names.  You can picture the packaging, the placement, the price and the promotion.  They are stories you can relate to and they are brands that you may not love, but definitely know.  This ensures that Playing to Win is not just another dry business book.

In addition to being academically interesting, the scenarios and content presented are practical.  There is enough detail that you will feel confident in applying the thinking yourself, but not so detailed as to create a snooze fest.  The final two chapters take things one step further to provide methodologies for making sense of the strategic options with a clear framework and process, a ‘how to’ for implementing the five choices.

Rather than repeat the specific content of Playing to Win, which should be top of your reading list if you have any interest in making choices for yourself, your role, your function or your business, I have instead summarised below the five key messages from all of the various materials that I have collected from Martin, including the Playing to Win book, but also his toolkit, detailed case studies, various articles and his key note speech from the event I attended last year.  These are some of the key elements of strategic thinking.

1. Strategy is simply about making choices.  Choosing to do some things and not others.

Strategy is a set of choices that “positions an organisation to win with customers and against competitors”.  The critical message here, is that strategies need to be about winning, and winning needs a playing field.  Without a clear understanding of who the judges are (the customer / consumer) or who you’re playing against (the competition), you are likely to be making choices that are a long way from best serving the consumer base to create maximum shareholder value.

2. Strategy is about increasing the odds of success.  There is no such thing as the perfect strategy.

Many companies, and indeed strategists, believe that the more analysis they put into planning, the greater the chance of success.  Instead Martin proposes that by first understanding the various strategic possibilities available, and only then adding thoughtful analysis, we can increase the odds of success with targeted analysis rather than casting a wide net and hoping that something relevant becomes apparent.

3. Successful strategy making combines analysis and creativity.

Martin proposes that taking a purely analytical approach limits decisions based on a past that is unlikely to be repeated.  This is particularly true in these times of rapid disruption and innovation.  Rather he posits, strategy should be the intersection of the creative and scientific.  It is about generating new hypotheses, potential futures, just as much as it is about testing and critically analysing them.  This is the root of the design thinking movement.

4. Strategy should always start with a problem and a choice.

As strategy is about making winning choices, you cannot have a strategy if there is no choice to be made, and that choice will relate to a problem.  “Framing the problem is as important as, and often more difficult than, solving the problem.”  Attempting to ‘do strategy’ is a waste of time if it doesn’t exploit an opportunity to create value.

5. Strategy is the answer to five interconnected questions – the strategic cascade.

The answers to these five choices should create a unique position “so as to create sustainable advantage and superior value relative to the competition.”  In other words, your choices should be purposefully different to your competitors’ choices.

The five choices are:

  • What is our winning aspiration?
    What is the guiding purpose of this entity.
  • Where will we play?
    The geographies, customer segments, channels, products, and stages of production in which we choose to compete.
  • How will we win?
    The competitive advantage we need to win in our chosen market.
  • What capabilities must we have?
    What we will need to do at the highest level, in order to win in that way.
  • What management systems do we need?
    How we will build, support, and measure those capabilities.

Furthermore, these choices do not just happen at the top of an organisation, they should cascade down through all levels in an inter-connected way.

“At P&G, for instance, there is a brand strategy that articulates the five choices for a brand such as Olay or Pampers. There is a category strategy that covers multiple related brands, like skin care or diapers. There is a sector strategy that covers multiple categories, for example, beauty or baby care. And finally, there is a strategy at the company level, too. Each strategy influences and is influenced by the choices above and below it.  The result is a set of nested cascades that cover the full organization.”

Strategic Cascade

In summary, strategy is not complex wizardry held close by the upper echelon, and it is definitely not separate from execution.  It is merely the art and science of making choices that increase the odds of success to create value, and it should be present at every level of an organisation.

The link to purchase the book: https://www.amazon.com/Playing-Win-Strategy-Really-Works-ebook/dp/B00AJVJ1HI/ref=sr_1_1?s=books&ie=UTF8&qid=1468960408&sr=1-1&keywords=playing+to+win

A summary article with a great example of why a winning aspiration is important: http://www.playingtowin.us/sites/leadingauthorities.drupalgardens.com/files/aPlaybookForStrategy.pdf