[Book Review] Why Do Even Top-Tier Companies Fail?

Professor Clayton Christensen's 'The Innovator's Dilemma'

[Asia Economy Reporter Jin-Young Hwang] ‘The Innovator's Dilemma,’ written by Clayton Christensen, a Harvard University professor known as the ‘guru of management,’ tells the story of companies that fail to maintain their top position when faced with technological and market changes. It is not about companies that failed due to factors like reckless management, hereditary succession, reckless business ventures, or bureaucracy, but about top-tier companies whose CEOs, appointed after fierce competition, quickly responded to customer demands and aggressively invested in new technologies but still lost market dominance. Professor Christensen begins this book with the question, ‘Why do even great companies fail?’

This book concretely introduces the theory of ‘disruptive innovation,’ which has made a significant mark in the history of management studies. Professor Christensen first introduced this theory in the Harvard Business Review in 1995, but it did not receive widespread attention at the time. The theory gained prominence after the book, published in 1997, became a sensational hit.

The innovator's dilemma refers to the situation where companies that succeed with innovative products or services become so focused on protecting their existing markets due to inertia that they end up being outcompeted and phased out. To overcome this, Professor Christensen proposed the disruptive innovation theory, which involves using technology that is significantly inferior to what existing customers demand but shines in entirely different fields, attracting a new class of customers.

The core of the disruptive innovation strategy can be summarized as follows: ▲Do not rely on customers and investors ▲Focus on small markets ▲Do not over-plan ▲Individual capabilities and organizational capabilities differ ▲Technology supply may not align with market demand.

Professor Christensen illustrated the disruptive innovation theory with examples from the disk drive and excavator industries. Although the book’s title includes ‘innovator,’ it does not cover companies like Google, Apple, or Facebook because it was first published in 1997. The newly published Korean edition is a revised version with improved translation to make it easier for readers to understand. Jeong So-Yeon, editor at Sejong Books, said, “There were criticisms that the sentences were rough, so we refined the sentences to make it easier for readers to read.”

The first edition of The Innovator's Dilemma was published in 1997, the year when the Asian financial crisis hit Korea hard. Now, with the revised edition released, COVID-19 is striking not only Korea but the entire world. As the world holds its breath due to the COVID-19 virus, companies’ utmost concern is how COVID will change everyday life. There is no disagreement with the forecast that COVID-19 will fundamentally change the lifestyle of people worldwide. Many people nod in agreement with the idea that BC (Before Christ) and AD (Anno Domini, meaning ‘the year of our Lord’ in Latin) will be replaced by BC (Before Corona) and AD (After Disease) starting from 2020.

A change in lifestyle means a market restructuring from a company’s perspective. So how will it change? There is no clear answer to this question. The Innovator's Dilemma, published 23 years ago, does not provide a direct answer to this question. Professor Christensen passed away in January, so we cannot ask him. However, this book can inspire readers to find answers.

The idea that disruptive innovation, which destroys the past and seeks new opportunities for innovation, can be a breakthrough for growth was valid during the Asian financial crisis and has become even more urgent now as the world suffers from COVID-19. No one can confidently answer what innovation strategy should be adopted to overcome a greater crisis.

Professor Clayton Christensen

◆Who is Professor Christensen?

Professor Christensen majored in economics at Brigham Young University and Oxford University. He earned his Ph.D. from Harvard Business School and taught students at Harvard University from 1992. He worked as a consultant at Boston Consulting Group and co-founded CPS Technologies, a new materials development company, with professors from MIT, serving as its chairman. He also directly managed consulting firm Innosight and venture capital firm Innosight Ventures, which he founded with his students.

He served as a White House policy analyst during the administration of former U.S. President Ronald Reagan. He won the McKinsey Award, given to authors of the best articles in the Harvard Business Review, five times. He was named twice consecutively among the top 50 management thinkers worldwide by Thinkers50, known as the ‘Oscars of management.’

He also had a special connection with Korea. Born in Salt Lake City, Utah, USA, and a devout member of The Church of Jesus Christ of Latter-day Saints (Mormon Church), he served as a missionary in Korea from 1971 to 1973, working in Chuncheon and Busan. It is known that he had a deep affection for Korea, even adopting the Korean name ‘Gu Chang-seon’ during his missionary work.

He visited Korea several times afterward to give lectures. When he visited Korea in 2010 at the invitation of LG Group, he warned, “Just as Japan faced stagnation after its growth period from the 1960s to the 1980s, Korea will face fierce challenges from China and India over the next decade unless companies find business opportunities that allow growth without risk of failure and pursue innovation.”