Why Great Companies Fail
In the annals of business history, there’s a paradox that repeatedly plays out: companies that do everything “right” still get disrupted. They listen to their customers, invest in the highest-margin segments, and relentlessly improve their existing products—only to wake up one day irrelevant. This is the essence of Clayton Christensen’s seminal insight in The Innovator’s Dilemma.
Understanding this mental model is essential for executives seeking to position their organization to survive and thrive in an era of accelerating change.
🧠 The Core Idea
The Innovator’s Dilemma describes the tension between sustaining innovation and disruptive innovation.
- Sustaining Innovations improve the performance of established products in ways that mainstream customers value. Market leaders excel here.
- Disruptive Innovations introduce simpler, cheaper, or more convenient alternatives—often with initially lower performance—but they create new markets or transform existing ones over time.
The dilemma is that market leaders often ignore disruptive innovations because:
- They underperform in the short term.
- Their margins are unattractive compared to existing segments.
- Their customers aren’t asking for them—yet.
As a result, newcomers eat away at the low end or create entirely new customer segments, eventually moving upmarket and toppling incumbents.
⚙️ Strategic Insight
The Innovator’s Dilemma offers a sobering but empowering insight: market leadership can be a trap if you only play the same game better. The best organizations don’t just optimize—they reinvent.
Three reasons why companies fall into the trap:
- Listening too closely to existing customers: This biases investment toward sustaining innovation.
- Prioritizing high-margin clients: Disruption often starts with low-end or unprofitable customers.
- Internal metrics and incentives: ROI calculations discourage exploring nascent or lower-margin ventures.
To thrive long-term, leaders must manage two parallel innovation engines:
- Core optimization (sustain the business).
- Disruptive experimentation (future-proof the business).
🔍 Real-World Examples
- Kodak invented the digital camera but failed to commercialize it, fearing cannibalization of its film business.
- Blockbuster laughed off Netflix’s mail-order and streaming models until it was too late.
- Nokia and BlackBerry stuck to hardware advantages while Apple and Google redefined the software and ecosystem layer.
Meanwhile, companies like Amazon, Apple, and Adobe have successfully cannibalized their own businesses (e.g., moving from licensed software to subscription models) to stay ahead.
🛠️ Executive Applications
For executives, the question isn’t “How do we beat the disruptor?” but rather:
“How do we become the disruptor—even if it means disrupting ourselves?”
Use this mental model to guide strategic choices:
| Area | Sustaining Innovation | Disruptive Innovation |
|---|---|---|
| Focus | Serve current customers better | Reach new or underserved segments |
| Metrics | ROI, NPV, market share | Learning velocity, adoption curve |
| Structure | Core business units | Autonomous, experimental teams |
| Mindset | Improve what is | Explore what could be |
📌 Takeaways for Strategic Leaders
- Don’t just protect your core—experiment at the edges.
- Design dual operating systems: one for optimization, one for exploration.
- Be willing to cannibalize your own business—before someone else does.
- Treat disruption as a pattern, not a surprise.
The Innovator’s Dilemma reminds us that in a world of rapid technological and market shifts, your biggest threat isn’t failure—it’s success that blinds you to what’s next.
🔮 Final Word
Clayton Christensen didn’t just write about why great firms fail. He gave us a playbook to avoid it.
In the next wave of business transformation, those who thrive will be the ones who build the next S-curve while still riding the current one. The innovator’s dilemma isn’t just a challenge—it’s an invitation to lead with courage and foresight.
Missed out on the over all series?
Murray Slatter
Strategy, Growth, and Transformation Consultant: Book time to meet with me here!
