The_Innovators_Dilemma__Clayton

Consider, for example, the product evolution model, called the buying hierarchy by its creators,
Windermere Associates of San Francisco, California, which describes as typical the following four
phases: functionality, reliability, convenience, and price. Initially, when no available product satisfies
the functionality requirements the market, the basis of competition, or the criteria by which product
choice is made, tends to be product functionality. (Sometimes, as in disk drives, a market may cycle
through several different functionality dimensions.) Once two or more products credibly satisfy the
market’s demand for functionality, however, customers can no longer base their choice of products on
functionality, but tend to choose a product and vendor based on reliability. As long as market demand
for reliability exceeds what vendors are able to provide, customers choose products on this basis—and
the most reliable vendors of the most reliable products earn a premium for it.
But when two or more vendors improve to the point that they more than satisfy the reliability
demanded by the market, the basis of competition shifts to convenience. Customers will prefer those
products that are the most convenient to use and those vendors that are most convenient to deal with.
Again, as long as the market demand for convenience exceeds what vendors are able to provide,
customers choose products on this basis and reward vendors with premium prices for the convenience
they offer. Finally, when multiple vendors offer a package of convenient products and services that
fully satisfies market demand, the basis of competition shifts to price. The factor driving the transition
from one phase of the buying hierarchy to the next is performance oversupply.
Another useful conception of industry evolution, formulated by Geoffrey Moore in his book Crossing
the Chasm, 3 has a similar underlying logic, but articulates the stages in terms of the user rather than the
product. Moore suggests that products are initially used by innovators and early adopters in an
industry—customers who base their choice solely on the product’s functionality. During this phase the
top-performing products command significant price premiums. Moore observes that markets then
expand dramatically after the demand for functionality in the mainstream market has been met, and
vendors begin to address the need for reliability among what he terms early majority customers. A third
wave of growth occurs when product and vendor reliability issues have been resolved, and the basis of
innovation and competition shifts to convenience, thus pulling in the late majority customers.
Underlying Moore’s model is the notion that technology can improve to the point that market demand
for a given dimension of performance can be satiated.
This evolving pattern in the basis of competition—from functionality, to reliability and convenience,
and finally to price—has been seen in many of the markets so far discussed. In fact, a key characteristic
of a disruptive technology is that it heralds a change in the basis of competition.
OTHER CONSISTENT CHARACTERISTICS OF DISRUPTIVE TECHNOLOGIES
Two additional important characteristics of disruptive technologies consistently affect product life
cycles and competitive dynamics: First, the attributes that make disruptive products worthless in
mainstream markets typically become their strongest selling points in emerging markets; and second,
disruptive products tend to be simpler, cheaper, and more reliable and convenient than established
products. Managers must understand these characteristics to effectively chart their own strategies for
designing, building, and selling disruptive products. Even though the specific market applications for
disruptive technologies cannot be known in advance, managers can bet on these two regularities.
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