Sunday, June 18, 2017

Capitalizing on Technological Innovations


The Innovator’s Dilemma outlines how big, successful, well-managed firms fail to capitalize on major market innovations. Disruptive technological changes bring new products to market. Oftentimes well-established firms fail to invest in these innovative new products that are smaller, cheaper, and provide lower margins. Christensen cites IBM missing out on mini-computers, Xerox missing desktop copiers, and large steel producers missing the shift to mini-mills.

Technological innovation has continued at a rapid pace since this book was published in 1997. To avoid missing out on lucrative investment opportunities, many large firms are simply acquiring smaller rivals. When Instagram emerged as a simpler alternative to sharing photos with friends, Facebook shelled out roughly $1billion for it (https://techcrunch.com/2012/04/09/facebook-to-acquire-instagram-for-1-billion/). Similarly, when Snapchat offered a new way to share content privately with friends, Facebook acquired them for $5billion (http://abcnews.com.co/facebook-buys-snapchat-five-billion-dollars/).  These examples reflect a large wave of mergers and acquisitions of the past 10-15 years. Rather than investing in research and development, large firms seem to prefer letting the market test new technologies. When a successful, innovative product emerges, they simply buy it and use their existing resources and management strategies to deliver it to the market more efficiently.

Christensen also outlines the difference between sustaining and disruptive technological innovations. Well-established firms are generally better at harnessing sustaining innovations than disruptive ones. Even if firms focus heavily on market research, Christensen points out that “Markets that don’t exist can’t be analyzed.” Oftentimes, firms whose investment processes require careful quantification and analysis before entering a new market will miss out on innovation opportunities. This reminded me of the shift in the television market as companies like Netflix, Hulu, and Amazon deliver content directly to consumers. The major cable companies are hurting as cord-cutters opt for these new innovative products. Major cable companies who have invested billions installing cable are now competing with companies that simply deliver content through the internet. They seem to have missed an opportunity to respond to market innovations.

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