The_Innovators_Dilemma__Clayton

Scott Cook, Intuit’s founder, surmised that most of these small companies were run by proprietors who
relied more on their intuition and direct knowledge of the business than on the information contained in
accounting reports. In other words, Cook decided that the makers of accounting software for small
businesses had overshot the functionality required by that market, thus creating an opportunity for a
disruptive software technology that provided adequate, not superior functionality and was simple and
more convenient to use. Intuit’s disruptive Quickbooks changed the basis of product competition from
functionality to convenience and captured 70 percent of its market within two years of its introduction. 7
In fact, by 1995 Quickbooks accounted for a larger share of Intuit’s revenues than did Quicken.
The response of established makers of small business accounting software to Intuit’s invasion, quite
predictably, has been to move upmarket, continuing to release packages loaded with greater
functionality; these focus on specific market subsegments, targeted at sophisticated users of
information systems at loftier tiers of the market. Of the three leading suppliers of small business
accounting software (each of which claimed about 30 percent of the market in 1992), one has
disappeared and one is languishing. The third has introduced a simplified product to counter the
success of Quickbooks, but it has claimed only a tiny portion of the market.
PERFORMANCE OVERSUPPLY IN THE PRODUCT LIFE CYCLE OF INSULIN
Another case of performance oversupply and disruptive technology precipitating a change in the basis
of competition—and threatening a change in industry leadership—is found in the worldwide insulin
business. In 1922, four researchers in Toronto first successfully extracted insulin from the pancreases
of animals and injected it, with miraculous results, into humans with diabetes. Because insulin was
extracted from the ground-up pancreases of cows and pigs, improving the purity of insulin (measured
in impure parts per million, or ppm) constituted a critical trajectory of performance improvement.
Impurities dropped from 50,000 ppm in 1925 to 10,000 ppm in 1950 to 10 ppm in 1980, primarily as
the result of persistent investment and effort by the world’s leading insulin manufacturer, Eli Lilly and
Company.
Despite this improvement, animal insulins, which are slightly different from human insulin, caused a
fraction of a percent of diabetic patients to build up resistance in their immune systems. Thus, in 1978,
Eli Lilly contracted with Genentech to create genetically altered bacteria that could produce insulin
proteins that were the structural equivalent of human insulin proteins and 100 percent pure. The project
was technically successful, and in the early 1980s, after a nearly $1 billion investment, Lilly introduced
its Humulin-brand insulin to the market. Priced at a 25 percent premium over insulins of animal
extraction, because of its human equivalence and its purity, Humulin was the first commercial-scale
product for human consumption to emerge from the biotechnology industry.
The market’s response to this technological miracle, however, was tepid. Lilly found it very difficult to
sustain a premium price over animal insulin, and the growth in the sales volume of Humulin was
disappointingly slow. “In retrospect,” noted a Lilly researcher, “the market was not terribly dissatisfied
with pork insulin. In fact, it was pretty happy with it.” 8 Lilly had spent enormous capital and
organizational energy overshooting the market’s demand for product purity. Once again, this was a
differentiated product to which the market did not accord a price premium because the performance it
provided exceeded what the market demanded.
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