Very curious book - relatively old, quite famous, and probably one of the most misrepresented in Media in the ‘innovation’ area, at least that was my perception.

If you’ve ever worked with digital products, and/or with startups; ‘Disruptive innovation’ is the term that’s been hard to ignore. And that one is not at all about examples of innovations, or approaches to do them, or corporate mistakes, but rather elegant theory on business as an upmarket/downmarket cycle, and only that.

The most revealing thing - how fundamental an argument the author is making. In essence - Established companies physically can’t bring a completely new product (read-innovative) to market, it’s close to impossible for them to do so.

However, the intriguing part is in the punchline - It’s a well-run company that can’t, and the misrepresented reason lies not in ‘slowness/bureaucracy/low affinity to new tech/etc.’ but in the whole structure of the business, contrary to the incremental improvements, which they’re great at.

Even though it’s written in 90s, feels like not a bit of relevance is lost (Goodreads). The core research underneath is about the development cycles in Hard Drive markets, occasionally sprinkled with less detailed cases ranging from Motorcycle sales to Biotech.

And the structure develops on a few levels (I don’t think any kind of pyramid is highlighted in the book), but picking just 2.5:

• Financial - a) established cost structure has a required level of margins that are set. b) The required scale for the new products to meaningfully move the needle is very high.
  • It’s almost always more reasonable to invest in existing things, there’s a nice example of choice presented: well-researched, known to be working incremental model vs. completely unknown with no customers, projections, or market confidence.
  • No CFO in their right mind would approve a large spend for a less-marginal product, no CEO would drive a product line that “ALL” of existing customers have no use for.
• Incentive - throughout the efficient established organization, it’d be a gargantuan effort to turn its attention to something unproven - not in an economical sense, but in the career one. People on every level would organically tend to associate their work with the top products, most important customers, and markets.
  • It’s that simple - precisely because of sound reasoning, no rational people in mid-level would invest/risk their career for pushing the less-marginal, less-important projects.
• Network - least practical and even mythical thing. The argument goes that even when the barriers above are overcome with sheer will and an innovative product is born, if the business hasn’t been reinventing itself for it - it’d likely fail. (Example: for generations, hard drives were innovating in jumps for smaller and smaller form factors. Some firms noticed and did create a product ahead - the trick is, it was impossible to know that selling for 10-15-20 years to computer manufacturers, that new factor was needed in the auto industry this time.)

All are good reasons, the argument goes that any efficient company happily goes upmarket (higher avg. check/revenue), to have better customers, etc.. and can’t go downmarket.

Going upmarket is a sure way to build a premier Blue Chip with X% gross margin (Company A) - For example: In the modern software world, pick any B2B SaaS that sooner or later went the SMB→Enterprise route.

The bad part is, that somebody else (Company B) would start with a new product on worse customers with X/2% gross margin (Route/Opportunity of new entrants).

In a way - it’s closed to a portrayal of one idea, and even though it has many chapters, sometimes the message feels repetitive and scarcely structured.

However, underneath it all one can perceive an attempt to generalize innovation cycles, corporate behavior, and incentive structures - as fundamental management topics as they probably get.

Directionally - the argument does not get more complex than ‘Invisible Hand’, and it feels like the proper mathematical and formal foundation for those ideas might’ve elevated the decision-making in the corporate world since the release in 97’, the last I heard it didn’t happen.

And if the thought sequel from someone is in order, I’d be for one, looking forward to reading that.