Customer power, strategic investment, and the failure of leading firms
CLAYTON M. CHRISTENSEN and JOSEPH L. BOWER
기술경영협동과정
석사과정오신호
●Summary
The article argues that incumbents fail in the face of radical innovation because their strong connections to existing customers make it difficult to allocate resources to innovation in new and untested markets that are not, but will become, major sources of business in the future.
That is, the authors, Christensen and Bower, say that incumbents have the resources to capitalize on disruptive innovations but their existing market connections act as liabilities. This article tries to make connection between resource dependence theory and resource allocation. They argue that resources play a critical role in framing firm action but managers in the leading firm are not constrained by these connections and still have agency to act.
Using data from magazines, the authors examine the rigid disk drive industry. The authors explore major changes in the disk drive industries and categorize innovations into either sustaining or disruptive technological changes. Sustaining changes appeal to existing customers in mainstream markets while disruptive changes did not, and the leading firms lead in the adoption of every sustaining technology in component and architecture. However, in the face of disruptive changes, most firms are supposed to be failed. Furthermore, to explain why the leading firms lose their position of industry, the authors introduce data from interviews of key managers who played key roles in the leading firms. The data show that new technology associated with disruptive innovation was never difficult in established firms because the first prototypes of new disruptive innovation were developed within established firms. However, they argue that existing customers were not interested in the new innovations at first. As a result, incumbents diverted resources to the established markets and existing customers.
●Main contribution
Through the data, the authors defined a model that patterns associated with disruptive changes. Engineers who work in established firms developed the new disruptive innovation as the prototype. In order to make sure it would be successful, the existing firms tested the appeal of the new technology with existing customers, but current customers were uninterested. As a result, incumbents allocated resources to sustaining technologies instead of the disruptive innovation. New entrants were founded by employees who had spun out of the existing firms. They served new products at niche market. These niche markets became more enlarged and process of the products improved. It began to challenge the new mainstream technology. Incumbents were too late to try to compete with new entrants.
I think that the author provide us some important information in relation to strategies or decisions within the organization in order to keep pace with the industry. As we looked at the article, wrong strategic investment by decisions of managers let leading companies fall in their markets.
●Critiques
The author focused on why firms subsequently lose their positions of industry leadership when faced with technological change. They presented a model in a study of the world disk drive industry making a connection between theories of resource dependence and resource allocation. From theories of resource dependence, leading firms tended to carry out decision-making process by current powerful customers. I wonder that why leading companies do business with new technology although they have competitive prototypes. In the procedure of decision-making, impetus from customers to develop that competence was sufficiently strong. I think that is so myopia perspective. By understanding the processes that link customer needs, impetus, and resource allocation, senior managers can align efforts to commercialize disruptive technology which entails a change in strategy such as fast-second strategy.