The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail. Clayton Christensen. Harvard Business School Press 1997.

Christensen observed that market-leading companies frequently are overtaken by new entrants, and he wondered whether the conventional explanations (lack of agility, arrogance, etc.) really explained this pattern. He studied, among many others, the disk drive industry. He discovered that, contrary to popular belief, the incumbent leaders were the ones to take best advantage of nearly every technological advancement. The exceptions were few but crucial. They were characterized by not actually improving the product along the dimensions of performance valued by the mainstream customers of the market leaders. Consequently, the incumbents spent relatively less of their resources developing these technologies and finding a market for them. New entrants, who believed in the value of the technologies, took them on and sought out new markets that would value the advantages they brought. Over time, the new technologies improved at a rate far faster than the performance demands of the market leaders' customers. Eventually, the new technologies became adequate in all the performance dimensions on which they previously had been inferior, yet they retained their additional advantages. Cut to the chase: the new entrants drive the previous leaders out of the markets they once led.

This sounds at first like the old saw about incremental vs. breakthrough technology improvements, but it is not. Even breakthrough technologies were best exploited by incumbent market leaders, as long as they were breakthroughs along performance dimensions that their customers valued. One key insight is that the leaders were hostage to the preferences of their customers, even when those preferences led, ultimately, to the demise of the firm.

There is much more to say about this book, but I will stop here as it is time to go. I cannot overstate my recommendation for this masterpiece! — Steve McManamin