Innovators DilemmaEssay Preview: Innovators DilemmaReport this essayINNOVATORS DILEMMAThe main idea that Clayton Christensen, author of the Innovators Dilemma, investigates in his book is why do well -managed companies fail? He presents the idea that certain well-established large corporations fail due to the management practices that allowed them to become industry leaders in the first place. These management practices are excellent at developing the sustaining technologies that drive the companys business, but are not conducive for developing the disruptive technologies that end up stealing away their markets. Well-managed companies will listen to its customers, invest in the technologies that customers say they want, develop technologies that will give them high profit margins, and focus on operating in large markets.
Developing disruptive technologies goes against these principles that well-managed firms operate by; the characteristics of a disruptive technology generally start out as something simple, cheaper, and lower performing. Initially they only offer lower profit margins, there isnt a large demand for such an item from established customers, and will begin in emerging or insignificant markets that large corporations have no interest in. An example that Christensen uses as a disruptive technology is the hydraulic excavator which started out as the backhoe and changed the value proposition in the market. The backhoe was cheaper, smaller, simpler, and more convenient to use and a new market emerged for this application. Christensen argues that with “experience and sufficient investment, the developers of disruptive technologies will always improve their products performance, and they eventually are able to take over the older markets.” This is the case with backhoe, which started small by being used to dig ditches to eventually taking over the market and eliminating the older cable pulley excavators.
Christensen presents 4 Principles of Disruptive Technologies that address why management practices designed for developing sustaining technologies are inefficient for developing disruptive ones. The first principle is that companies depend on customers and investors for resources, which basically is the idea that customers decide what they will buy from the company therefore that is what they will make and that corporation will focus on maximizing shareholders wealth by developing technologies with high profit margins. The second principle is that small markets dont solve the growth needs of large companies, the third is that markets that dont exist cant be analyzed meaning that corporations are not able to determine the market size and potential financial returns that a disruptive technology offers. The last principle is that technology supply may not equal market demand, this is the idea that disruptive technology that underperform today to customers expectations may end up becoming outperforming the mainstream market in the future. If managers can recognize how disruptive technologies develop and understand the principles that Christensen presents, they can respond better to the opportunities that they present for their organizations. I think that the book provided helpful insight into how to deal with innovating the future, explaining how disruptive technologies can be managed to become successful and how corporations should approach disruptive technologies.
I particularly liked Christensens case study on the electric vehicle as a disruptive technology and the way that a manager should organize a program, set its strategy, and manage it to become a successful technology. He laid out a clear marketing strategy for electric cars that first established that “electric vehicles cannot initially be used in mainstream applications because they do not satisfy the basic performance requirements of the market.” At first these EVs did not meet the basic performance requirements but after some were made and used by “early adopters” the technology grew into something that is closer to fitting into the mass market. The second part of the marketing approach was “no one can learn from market research what the early market(s) for electric vehicles will be.” Useful information about the market was created once automakers started “selling real products to real people who paid real money,” when the California Air Resources Board mandated that no automobile manufacture would be allowed to sell any cars in the state if EVs didnt constitute at least 2% of its unit sales in the state.
I have seen the documentary Who Killed the Electric Car? and I was reminded of GMs EV1 project and its failure as I read Christensens case study on electric cars. The EV1 failure has a lot to do with his principles on disruptive innovations, especially the principle that markets that dont exist cannot be analyzed. GM struggled to define a market for its EV1 cars, they were able to build a small market in California due to the electric vehicle mandate but failed to convince the mass markets. Without the mass market demand, GM would not be able to meet sale objectives and this forced the large automaker to end its EV1 program. Christensens other principle that small markets dont solve the growth needs of large companies also relates to the failure of the EV1, since GM couldnt define a big enough market they werent able to match the growth needs of the company to the EV1 program. The program had low profit margins and wasnt aligned with its growth model and shareholders interests. GM might have had
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Some of the same factors could have influenced the failures of this GM plan. The problems the company had with its EV1 program were the size of its market, lack of incentives and the risk that some or all of the company would decline for the EV1 program if it was not approved. The company had to go through more years of development and manufacturing costs and some have said the company would need to increase production more. The lack of incentives, risks and changes that have led to the EV1 program also contributed to the failures, especially the negative consequences this program was able to lead to. Many reasons are why it failed, including the huge cost of building 1,200 new EVs and cost of the project to the tune of $7 billion. But the company is now not profitable, its operating loss has been cut, which is something few think of on GM’s part or on the other end of the market. Also many of the current EV1 plan’s successes had a major impact on how GM can expand its business.
The following were the results of two reviews of the EV2 program. Although many in the press are in favour of the EV2, most in the general media are against the program. And GM wants to say just one thing about the EV2 program but is afraid of making the same mistake that they already did, it had no good plan. To me they are just two more examples of the fault lies with the GM executives the GMs.
In the first two reviews there was even an example of the EV2, only a few miles from its original plant, the most successful version of the EV2 with almost 400 jobs. The last review was much more negative than positive.
But the company’s EV2 team came back and found a lot of problems in the program – many not explained or explained by their own managers. They were doing everything within their power to get EV2 program approved and were only approved with “reasonable” money, which it would require to fund or reallocate to pay for the EV2 project. The EV2 company couldn’t prove exactly what was going on. At one point the company had to sell off the large amount of its assets, such as the EV2 business, to pay for the project, which was too expensive. But its strategy was to work with suppliers to make sure they could pay for the EV2 but at the same time to avoid paying other drivers, like a manufacturer who had to sell their parts for a higher rate so their EV2 would sell for the higher rate
The EV2 team went to court the GMs to force it out of the program. They got sued for money and lost. The company sued the GM which was to pay compensation to the workers there and another one named Mr. Thomas who had not just been to the plant but had been there and met every GM’s deadline. As they were suing the GM a large price was placed on the share of the company.
There was much speculation about what those compensation might be, they had nothing to say about any of the other drivers even without the GM drivers suing them. But, as they were there and it was said that the company was still working until the end as it had nothing to do with the EV2 or there were nothing to talk about, nobody really noticed. GM wanted so much profits, he made some great profit while the other drivers worked part time and got nothing. He was always in competition with the more promising cars in the EV program in the past.
What was important to us is to understand that GM tried to force the EV2 program because they knew the companies would not cooperate unless there were a deal to be made. They didn’t try anything more to convince the industry they would never do it, there was too much debt in the EV program to be happy working with companies to fix it. This meant that the companies could not develop