How successful firms lose their market edge by doing everything they’re supposed to do right
About the Author and the Book
Clayton M. Christensen (1952–2020) was a professor at Harvard Business School, former consultant at BCG, and founder of multiple ventures. He was ranked several times as the world’s most influential business thinker by Thinkers50. His work on innovation has reshaped not only academic theory but also the practice of entrepreneurship, corporate strategy, and policymaking.
Published in 1997 by Harvard Business Review Press, The Innovator’s Dilemma introduced the now-classic theory of disruptive innovation. It became a foundational text in both business schools and startup circles. The book is frequently cited by tech leaders including Steve Jobs, Reed Hastings, and Andy Grove of Intel, who once said it “made me shake in my boots.”
It has received numerous accolades: it was named to The Economist’s list of best business books, selected by Forbes as one of the 20 most influential business books of all time, and remains part of required reading in many innovation and strategy courses.
That said, the book has faced criticism—particularly for the retrospective nature of its analysis and for the ambiguity in predicting which technologies will become truly disruptive. Scholars such as Jill Lepore have challenged the repeatability and empirical robustness of Christensen’s claims. Despite that, the framework remains influential and widely debated.
Chapter 1 – How Can Great Firms Fail? Insights from the Hard Disk Drive Industry
Christensen opens with an in-depth case study of the disk drive industry, chosen for its rapid technological turnover. From 14-inch drives in the 1970s to 3.5-inch drives in the 1990s, the sector witnessed constant waves of innovation—and repeated failure of market leaders to adapt.
Why? Because the innovations that displaced incumbents weren’t superior at the outset. They were cheaper, smaller, less reliable, and initially served non-core, low-margin markets. Incumbents correctly focused on their best customers and most profitable products—thus missing the early signals of disruption.
“The logical, competent decisions of management that are critical to the success of their companies are also the reasons why they lose their positions of leadership.”
The key paradox: established firms fail not because they’re poorly managed, but because they’re well managed—too focused on sustaining innovations and their most profitable customers.
Chapter 2 – Value Networks and the Impetus to Innovate
This chapter introduces the concept of value networks: the context within which firms define value, assess performance, and allocate resources. Disruption doesn’t fail because of bad technology—it fails because it doesn’t fit the logic of the incumbent’s value network.
“Each value network has its own metrics of what is acceptable in terms of profit margins, product performance, and customer expectations.”
For example, a leading drive manufacturer may reject a smaller drive because it doesn’t meet the storage needs of its high-end customers—even though a new market (such as early desktop computers) might find it adequate or ideal.
Thus, innovations that are disruptive in one value network may be sustaining in another. Startups succeed by creating or entering new value networks that incumbents are structurally unable or unwilling to enter.
Chapter 3 – Disruptive Technological Change in the Mechanical Excavator Industry
Christensen turns to a less tech-centric example: mechanical excavators. He shows how disruptive change also unfolded in heavy industry. Hydraulic excavators initially underperformed steam shovels in power and durability, but they were cheaper and easier to operate—making them ideal for small contractors.
Just like in disk drives, incumbents ignored hydraulics at first, focusing on their top-tier clients in mining and infrastructure. But as hydraulic systems improved, they overtook the older technology—and the firms that missed this shift vanished.
This example reinforces the cross-industry validity of the theory: it’s not about the speed of change or sector type, but about who the innovation serves first, and how its performance trajectory evolves.
Chapter 4 – What Goes Up, Can’t Go Down
In this critical chapter, Christensen explains why established companies find it nearly impossible to “go downmarket.”Their processes, cost structures, and investor expectations are optimized for high-performance, high-marginproducts.
Even when executives recognize the potential of disruptive technologies, they face internal resistance:
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Sales teams resist lower-revenue deals.
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Financial models deprioritize small or speculative bets.
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Customers reject early versions of the disruptive tech.
“Organizations have capabilities. But they also have disabilities… capabilities become disabilities when they are not matched to the new job at hand.”
Christensen illustrates that companies are not monolithic actors—they are collections of processes, people, and values, which cannot be easily reconfigured for radically different kinds of innovation.
Key Insight from Part I
The core argument in Part I is both elegant and unsettling: the very things that make companies succeed—customer focus, resource discipline, performance metrics—can make them vulnerable to disruptive change. Leaders don’t ignore innovation—they rationally reject it based on the logic of their current business.
This dilemma is not solved by better management, but by rethinking what kind of organizational structures, incentives, and experimentation are required to survive disruption.
“Good management was the most powerful reason they failed.”
Part II: Managing Disruptive Technological Change
How companies can structure, evaluate, and lead in the face of technologies that challenge their core business logic
While Part I exposed the dilemma—why well-managed companies fail when facing disruption—Part II seeks solutions. Christensen’s central premise is that organizations cannot organically absorb disruptive innovation into their mainstream operations. Instead, they must adopt deliberate structural and strategic separation to give disruptive technologies room to evolve.
Let’s break it down chapter by chapter:
Chapter 5 – Give Responsibility for Disruptive Technologies to Organizations Whose Customers Need Them
Disruptive technologies initially appeal to emerging or low-end markets, not the existing customer base of established firms. Therefore, attempting to incubate disruptive innovations within the core organization is often fatal.
“A separate organization is required when the mainstream organization’s values would render it incapable of focusing resources on the innovation.”
Christensen argues that successful responses often occur when firms create autonomous business units tasked with pursuing new markets and performance criteria. These smaller teams are free from the overhead, expectations, and processes of the parent company.
Case example: IBM’s creation of an independent unit to develop the personal computer (the IBM PC) allowed it to compete in a nascent, fast-moving market without harming its core mainframe business.
Chapter 6 – Match the Size of the Organization to the Size of the Market
Large companies often require large opportunities to justify investments. Disruptive innovations typically begin in small, fragmented, or unprofitable markets, making them unattractive within the dominant firm.
“Organizations have to be the right size for their markets. Otherwise, the market won’t be able to provide the growth and profit the organization expects.”
To nurture disruption, Christensen recommends right-sizing the innovation unit to the opportunity. Small markets require small teams—otherwise, the financial expectations will distort the venture’s development or kill it prematurely.
Example: In the disk drive industry, startups succeeded with disruptive technologies because their scale matched the initial size of the market. They didn’t need billion-dollar revenues—they needed just enough traction to keep improving.
Chapter 7 – Discovering New and Emerging Markets
Disruptive innovations often don’t have clearly defined markets at the outset. Christensen challenges the idea that managers should only pursue innovations with demonstrable, quantified markets.
“Markets that don’t exist can’t be analyzed… managers who need numbers to make decisions are doomed to follow, not lead.”
In other words, disruption demands exploration and intuition, not just spreadsheets. The discovery process must include:
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Prototyping with early adopters
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Observing unexpected use cases
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Allowing user behavior to shape product evolution
He draws on the history of the mechanical excavator and disk drives again to show how firms that succeeded in emerging markets were willing to experiment, iterate, and learn.
Chapter 8 – How to Appraise Your Organization’s Capabilities and Disabilities
This chapter explores the framework of Resources, Processes, and Values (RPV)—Christensen’s model for understanding what a company can and cannot do.
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Resources are tangible assets (people, tech, cash).
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Processes are the patterns by which work gets done.
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Values determine how a company prioritizes decisions.
“An organization’s capabilities reside in its processes and values—not just in its people.”
Crucially, while resources can be hired or bought, processes and values are embedded, often rigid, and determine what kinds of innovation a firm can support. This is why simply adding smart people or acquiring startups rarely solves the disruption problem unless processes and values also adapt.
Chapter 9 – Performance Provided, Market Demand, and the Product Life Cycle
Christensen revisits a recurring pattern: technology often outpaces market demand. Established firms tend to overshoot customer needs by investing in sustaining innovations—leaving gaps for simpler, cheaper disruptive entrants.
“In every market, there is a trajectory of performance improvement that customers can absorb, and a trajectory of what technology can provide. When the two diverge, disruption is likely.”
This idea also explains why early-stage disruptive products may look underwhelming: they only satisfy customers with lower performance needs (think netbooks, Airbnb rooms, early digital photography).
The lesson is twofold:
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Don’t judge innovation by your current customers’ needs alone.
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Track performance trajectories over time—not just in the present.
Chapter 10 – Managing Disruptive Technological Change: A Case Study
This chapter presents a detailed case study on how a large electric motor manufacturer faced disruptive threats from smaller, cheaper motor technologies. Despite being aware of the technical merits of the new innovations, the firm failed to act because:
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Sales teams prioritized existing clients.
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Financial systems penalized low-margin products.
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Decision-making processes filtered out high-risk, low-volume initiatives.
The firm eventually lost significant market share to new entrants that were smaller, faster, and more willing to take risks.
The case distills Christensen’s key message: unless firms deliberately create a protected space for disruption, their own structures will kill it off.
“Managing disruption requires more than awareness—it requires structural separation, cultural permission, and managerial humility.”
Final Thoughts
The Innovator’s Dilemma remains a landmark work not only for diagnosing the causes of corporate failure in the face of innovation, but also for offering a clear, actionable framework to respond to it. Christensen’s lasting contribution is his challenge to the sacred pillars of traditional management: customer focus, profit maximization, and process efficiency.
“Disruption isn’t just a threat. It’s a pattern—and if understood, it can be a strategy.”
Today, as AI, biotech, and decentralized platforms challenge incumbents across every sector, the book’s insights are more relevant than ever.
Reflection Question
As you look at your own organization—or your own career trajectory—consider this:
Have you ever resisted a “worse” technology or idea because it didn’t seem ready or profitable, only to watch it improve and take over? What made it difficult to take it seriously at the start?