Week 4 Book Reflection: The Innovator’s Dilemma: Ch. 4 What Goes Up, Can’t Go Down
Why could leading companies migrate so readily toward high-end markets?
Upmarket value networks are much more desirable than companies staying within their current market value. They can see the possibilities of growth and higher profit with a higher-end market. Companies search out customers with higher price points, but for this they must give up their current customers. With this they must create better quality higher performance products in order to earn higher margins. We have seen this upmarket migrations of the “northeastern Pull” of increasing the products performance as the years go on which increases the market value networks. This has been shown through the disk drive industry and the mechanical excavator industry trajectory maps.
Instead of sustaining markets fighting the disruptive technology they found it easier to just take their product up-market. Although in the example in The Innovator’s Dilemma, talking about the disk drive industry, “disruptive technologies have such a devastating impact because the firms that first commercialized each generation of disruptive disk drives chose not to remain contained within their initial value network. Rather, they reached as far upmarket as they could in each new product generation, until their drives packed the capacity to appeal to the value networks above them. It is this upward mobility that makes disruptive technologies so dangerous to established firms-and so attractive to entrants.”
Why does moving down-market appear to have been so difficult?
What lies behind this asymmetric mobility?
Almost always in the northeast corner rather than the southeast corner of the trajectory map. This is due to resources allocation to new product proposals that will produce a higher value market. Christensen explains the market mobility this way, “Sensible resource allocation processes were at the root of companies’ upward mobility and down-market immobility across the boundaries of the value networks in the disk drive industry.” Disruptive companies look in the next market value above them in search of higher profitability, they eventually are able to participate in the cost structure for the higher-end market, which also gets them farther away from downward market mobility.
In this model there are two different ways that resources can be allocated to create a higher market value. The first strategy comes from the senior managers who weigh the product proposals out based on the highest return on investment. The second strategy by Joseph Bower is characterized by ideas coming from the bottom and to be decided by managers to pass the idea on to supervisors to be approved. This puts a lot of pressure on the manager’s position because it could mean a raise or decline for their career based on a good or bad idea. This causes them to choose proposals that senior management would approve of. These allocation strategies are designed to stop disruptive enterprises from being created, by taking the ideas from the managers and having them make the personal decisions so they will not take their idea to start their own business on a low-cost basis, and eventually become the disruptive technology that competes with them.
Christensen, Clayton. The Innovator’s Dilemma: Ch. 4 What Goes Up, Can’t Go Down. Boston: Harvard Business School Press. 1997.
“Reading Graphics Actionable Insights in One Page: Book Summary – The Innovator’s Dilemma Part 1” July 11, 2015.Web. February 9, 2016. 2016 Skool of Happiness Pte Ltd.