The_Innovators_Dilemma__Clayton

CHAPTER FOUR
What Goes Up, Can’t Go Down
It is clear from the histories of the disk drive and excavator industries that the boundaries of value
networks do not completely imprison the companies within them: There is considerable upward
mobility into other networks. It is in restraining downward mobility into the markets enabled by
disruptive technologies that the value networks exercise such unusual power. In this chapter we will
explore these questions: Why could leading companies migrate so readily toward high-end markets,
and why does moving downmarket appear to have been so difficult? Rational managers, as we shall
see, can rarely build a cogent case for entering small, poorly defined low-end markets that offer only
lower profitability. In fact, the prospects for growth and improved profitability in upmarket value
networks often appear to be so much more attractive than the prospect of staying within the current
value network, that it is not unusual to see well-managed companies leaving (or becoming
uncompetitive with) their original customers as they search for customers at higher price points. In
good companies, resources and energy coalesce most readily behind proposals to attack upmarket into
higher-performance products that can earn higher margins.
Indeed, the prospects for improving financial performance by moving toward upmarket value networks
are so strong that one senses a huge magnet in the northeast corner of the disk drive and excavator
trajectory maps. This chapter examines the power of this “northeastern pull” by looking at evidence
from the history of the disk drive industry. It then generalizes this framework by exploring the same
phenomenon in the battle between minimill and integrated steel makers.
THE GREAT NORTHEAST MIGRATION IN DISK DRIVES
Figure 4.1 plots in more detail the upmarket movement of Seagate Technology, whose strategy was
typical of most disk drive manufacturers. Recall that Seagate had spawned, and then grew to dominate,
the value network for desktop computing. Its product position relative to capacity demanded in its
market is mapped by vertical lines which span from the lowest- to the highest-capacity drives in its
product line, in each of the years shown. The black rectangle on the line measuring each year’s
capacity span shows the median capacity of the drives Seagate introduced in each of those years.
Figure 4.1 Upmarket Migration of Seagate Products
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