The_Innovators_Dilemma__Clayton

Finally, there is substantial evidence that growing companies find it much easier to justify investments
in new product and process technologies than do companies whose growth has stopped. 10
Unfortunately, companies that become large and successful find that maintaining growth becomes
progressively more difficult. The math is simple: A $40 million company that needs to grow profitably
at 20 percent to sustain its stock price and organizational vitality needs an additional $8 million in
revenues the first year, $9.6 million the following year, and so on; a $400 million company with a 20
percent targeted growth rate needs new business worth $80 million in the first year, $96 million in the
next, and so on; and a $4 billion company with a 20 percent goal needs to find $800 million, $960
million, and so on, in each successive year.
This problem is particularly vexing for big companies confronting disruptive technologies. Disruptive
technologies facilitate the emergence of new markets, and there are no $800 million emerging markets.
But it is precisely when emerging markets are small—when they are least attractive to large companies
in search of big chunks of new revenue—that entry into them is so critical.
How can a manager of a large, successful company deal with these realities of size and growth when
confronted by disruptive change? I have observed three approaches in my study of this problem:
1. Try to affect the growth rate of the emerging market, so that it becomes big enough, fast
enough, to make a meaningful dent on the trajectory of profit and revenue growth of a large
company.
2. Wait until the market has emerged and become better defined, and then enter after it “has
become large enough to be interesting.”
3. Place responsibility to commercialize disruptive technologies in organizations small enough
that their performance will be meaningfully affected by the revenues, profits, and small orders
flowing from the disruptive business in its earliest years.
As the following case studies show, the first two approaches are fraught with problems. The third has
its share of drawbacks too, but offers more evidence of promise.
CASE STUDY: PUSHING THE GROWTH RATE OF AN EMERGING MARKET
The history of Apple Computer’s early entry into the hand-held computer, or personal digital assistant
(PDA), market helps to clarify the difficulties confronting large companies in small markets.
Apple Computer introduced its Apple I in 1976. It was at best a preliminary product with limited
functionality, and the company sold a total of 200 units at $666 each before withdrawing it from the
market. But the Apple I wasn’t a financial disaster. Apple had spent modestly on its development, and
both Apple and its customers learned a lot about how desktop personal computers might be used. Apple
incorporated this learning into its Apple II computer, introduced in 1977, which was highly successful.
Apple sold 43,000 Apple II computers in the first two years they were on the market, 11 and the
product’s success positioned the company as the leader in the personal computer industry. On the basis
of the Apple II’s success Apple went public in 1980.
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