The Innovator's Dilemma

The central paradox of Christensen’s work is that "good" management is often the root cause of corporate collapse. Successful companies are designed to listen to their most profitable customers and invest in "sustaining innovations"—incremental improvements that make products better for the people already buying them. By doing everything "right," these firms inadvertently ignore small, low-value markets where new competitors are quietly gaining a foothold.

New entrants typically start with "disruptive technologies" that are actually worse than the incumbent’s product by traditional metrics. Because these products offer low margins and appeal only to niche or "low-value" customers, the industry leaders feel no pressure to compete. This creates a vacuum where the disruptor can refine their technology without interference from the dominant players.

Innovation follows an S-shaped trajectory: progress is slow at first, then becomes vertical as the technology matures, and eventually flattens out. Incumbent firms often find themselves at the top of this curve, where they must spend massive amounts of capital for diminishing returns. They are trapped in a cycle of "over-serving" their market, adding features that customers no longer value or even notice.

Meanwhile, the disruptive entrant is at the bottom of a new S-curve. Their product may be crude, but it improves at a much faster rate than the incumbent’s mature technology. By the time the disruptor’s product is "good enough" for the mass market, they have hit the near-vertical part of their growth trajectory. At this point, the incumbent cannot catch up; the rate of improvement is too fast to bridge the gap.

The "dilemma" is as much about math as it is about mindset. A $100 million company can maintain its growth by finding a $10 million new market, but a $10 billion company needs a $1 billion market to move the needle. Because disruptive technologies always start in tiny, unproven markets, they are systematically deprioritized by large organizations in favor of larger, "safer" bets.

This is compounded by "resource dependence," where a company’s freedom is limited by its customers and investors. Every dollar spent on a risky, low-margin disruptive technology is a dollar taken away from the high-margin products that satisfy the current base. Over time, a firm’s processes and values become so rigid that they literally cannot function in a low-margin, high-uncertainty environment.

Christensen argues that you cannot change the "values" of a large organization to fit a disruptive threat; you must instead change the environment in which the work happens. He recommends that large firms create separate, autonomous units with their own cost structures and customer bases. These divisions are allowed to "fail early and often" to find the right market fit without the pressure of meeting the parent company’s massive revenue requirements.

The goal is to replicate the startup experience internally. These small divisions are rewarded for "small wins" and are encouraged to seek out the "wrong" customers—those who aren't currently served by the flagship product. By the time the technology matures, the parent company already owns the disruptor, effectively cannibalizing its own business before a competitor does it for them.

Since its publication in 1997, The Innovator’s Dilemma has become a cornerstone of Silicon Valley culture, influencing everything from education to healthcare. Empirical studies, particularly in the hard disk drive industry, have supported Christensen’s claim that incumbents innovate less because they fear cannibalizing their existing products.

However, the theory is not without critics. Some scholars, like Jill Lepore, have questioned the historical accuracy of Christensen’s case studies and argued that "disruption" has become a misunderstood buzzword used to justify any kind of change. Despite the critiques, the book’s central warning—that success breeds the very conditions for failure—remains one of the most influential ideas in management history.