Book Review: The Information Developer’s Dilemma

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October 2004

Book Review: The Information Developer’s Dilemma

CIDMIconNewsletter Bill Hackos, Vice President, Comtech Services, Inc.

Because The Innovator’s Solution, by Clayton M. Christensen and Michael E. Raynor, is the book chosen to support the theme of this year’s Best Practices conference, JoAnn asked me to discuss why this book is important to information developers in the United States.

I found that there were two books I had to read. First, I needed to read Christensen’s The Innovator’s Dilemma to fully understand the issues raised in The Innovator’s Solution. What I found was a whole new way of looking at the world of technology and business competition. Both books explore the processes of disruptive and sustaining innovation.

After reading Christensen, I realize that the American technical communication discipline is in the midst of an attack coming from third-world countries. Technical writing is not at risk, but jobs are. I want to make a careful argument that this attack is real and serious, and I want to try to apply some of the ideas from Christensen to how Americans and Europeans can protect our investment in the discipline. I’ll start by describing Christensen’s theory of disruptive innovation.

Sustaining innovations are the kinds we all strive to make. Can we find new technology or other ways to make our products better? Can we improve our processes of creating products to make them better or less expensive? Big companies are masters of sustaining innovation. In the field of information development, we are constantly finding ways to improve the effectiveness and efficiency of our information product development. Comtech makes a living educating organizations about the best ways to make these sustaining innovations.

Christensen’s books are about a different kind of innovation-disruptive innovation. Unlike sustaining innovations, large market-leading companies (incumbents) do not have a natural advantage over small startups (entrants). Instead, they are at a disadvantage and may even be destroyed by the entrants.

Before I give you a detailed description of disruptive innovation, I’d like to explain the four principles of disruptive innovation described by Christensen.

Principle #1: Companies depend on customers and investors for resources.
We think of companies and their management as being in control of their destinies. Companies succeed because management is brave and smart. Companies fail because of management mistakes. Christensen claims these notions are completely wrong. Instead, companies are completely dependent on their customers and investors, even when management is doing all the right things. If a company doesn’t satisfy customers, they don’t bring in revenue that is crucial to company operations. Similarly, if companies don’t satisfy stockholders’ goals for growth, they don’t get the capital they need for investment. No matter how hard companies try to violate this principle, all they really can do without customers or investors is go out of business. In fact, companies that produce products with features customers want and growth that investors demand will thrive. The best performing companies market products or services with features that exactly match what customers want, and no more.

Principle #2: Small markets don’t solve the growth needs of large companies.
Disruptive innovations result from new technology and are developed for small or non-existent markets. Generally, the disruptive products or services are not as good for existing upscale customers, but they are cheap and convenient. They are usually developed by small entrant companies. Because of the small market and low cost (and small markup), they are not attractive to the large incumbent companies. After all, why should large companies fool with products with small markets and low profitability. It is better for them to improve existing products for their large and high-markup customers. If large companies try to move into the disruptive products market niche they are likely to slow rather than accelerate their growth. However, small entrant companies can thrive on revenue that is of little value to the established companies.

Principle #3: Markets that don’t exist can’t be analyzed.
Large, established incumbent companies are typically experts at market research. They are not able to throw resources into non-existent markets because they have no way to do market research on those markets. Small companies can afford to aim toward non-existent markets on the expectation that their disruptive product will create a market. Of course, many small companies aim wrong and go out of business before we know they ever existed.

Principle #4: Technology supply may not equal market demand.
Most companies, large and small, make continuing improvements in products because they can enter new, more upscale markets and take advantage of the greater markup in these markets to increase revenue as well as profit margin. The large incumbent companies may improve their products to the point that the improvements are of no additional value to any customer group. Sometimes we refer to this as “feature creep.” Christensen calls it “over-serving” the customer. Small companies take the same route of moving upscale, but their improvements enable their disruptive products to serve some of the same markets as the incumbent’s products but at a lower cost. At this point, the products become commodities and the entrant company begins to erode the incumbent’s market based on price. What happens next is often not pretty. Once this process begins, it may not be possible for the incumbent to recover.

Christensen goes through case study after case study to show how these four principles explain disruptive innovation in the real world. To be brief, I will give a single hypothetical scenario of a disruptive innovation event.

Typical Innovator’s Dilemma Scenario

We start with an incumbent company that has achieved considerable success in a technology and maintains a large market share. The company continues to make improvements in its products based on customer and end-user research. Customers are happy and seemingly loyal. A new technology emerges, not necessarily high-tech, but maybe a new process or business model. An entrant company seizes on the technology and creates a product that is at the low end of the market or even in a non-existent market. Its low price, improved simplicity, or convenience creates a new market or may make inroads into the lowest margin market of the incumbent.

Both the entrant company and the incumbent company are thrilled. The entrant is finally making some revenue. The incumbent is happy because it is losing its low-end market, which has the lowest profitability. Its average profitability has increased. “Good riddance!” The marketing department does a thorough market analysis and concludes it is not worth getting into a technology to compete with the entrant because the entrant’s products will never be as good as the incumbent’s, the markup potential is small, and the market is not large enough to bother with.

After a time, the entrant company starts using its technology to improve its disruptive product and begins eroding some of the high-quality market of the incumbent. At first, it’s just pesky. The incumbent continues to improve its product by adding features that the customer likes but may not be willing to pay for. But the entrant continues to erode the market. Marketing is flabbergasted. “What is wrong with our customers?” “Why don’t they understand that our quality is better than theirs?” Eventually, things get bad enough for the incumbent that management decides to act to protect its customers from this competitive onslaught. “We must produce that low-end product and compete directly!” But it’s too late. Try as it may, the incumbent just can’t compete with the entrant. It doesn’t have the same expertise in the technology as the entrant. It is not as efficient, not willing to accept the lower markup, and has lost its brand advantage. It’s convinced that its products are still much better. But why are their customers not loyal?

You probably can think of many well-known companies that are no longer with us or are only skeletons of their old selves. In fact, you make work for one of the incumbents.

What, then, is the Innovator’s Dilemma? The dilemma occurs because incumbent companies react to the threat by pursuing sustaining innovations in their products that raise the price and may make the product more complex and less usable. The more market they lose, the more they try to compete by improving their product. It’s a dilemma because they lose if they don’t compete by improving their product and they lose if they compete by improving their product. The customer really wants a simpler, cheaper, more convenient product but the incumbent is unable to produce it.

What does this have to do with information developers?

The Information Developer’s Dilemma

The American information development community and other high-tech disciplines are currently under attack from a disruptive innovation. The new technology is high-speed, inexpensive communication. The competing organizations are technical communicators and other high-tech disciplines in third-world countries.

Because of the new communications technology, technical writers no longer need to be in close proximity to developers or end-users. In fact, unless direct physical contact is essential or heavy equipment or products are involved, jobs can be performed anywhere as long as workers have sufficient skills. Recall that we have proved this point through telecommuting arrangements here at home.

We didn’t notice the onset of this competition in the nineties because we were too busy making money. In fact, in the beginning, only the grunt jobs were offshored. Maintaining legacy documentation, data entry, formatting,… “Good riddance!” We could do all the fun stuff. Somewhere around the year 2000 or 2001, we began to notice that, because of the slowdown and because the offshoring had already made a beachhead with the grunt work, some of us were losing our jobs.

We reacted. “We need to improve our documentation products.” “Management will see that we are better than those pesky third-world writers.” Now we are asking, “Why don’t they realize that our information products are better than theirs?” We are between the horns of a dilemma. No matter how hard we try to improve our information products, management doesn’t seem to care. They think of us as a commodity and just want the least expensive option.

What Should We Do?

First, what will not work. Government, no matter who wins the election in November, will not be able to stop the disruptive competition. We have to do it ourselves. And we will never be able to convince management that third-world writers can’t do as high-quality work as we can. In today’s environment, upper management is generally looking to save money on information development in an effort to raise profits as well as stock prices.

What will work. We need to make a direct attack against the disruptive innovation. The only advantage that the third-world has is lower salaries. We need to work to make our information development in the United States less costly than the third-world competition.

We have many advantages. We reside in the world’s largest market, the United States. We use the products we write about. We have lots of technology available to us to lower costs. We are Americans-fearless, independent, resourceful, and diverse.

We’ve come up with some ideas, but we don’t have all the answers. We must

  • Understand the goals of our upper management with respect to information development. After all, as a technical communicator, our primary customer is our own management.
  • Understand that upper management rarely sees technical communication as the creative, artistic pursuit that we often do. We must be efficient as well as creative.
  • Educate ourselves to the hidden costs of outsourcing that seem to limit savings for offshoring to 20 percent or less and communicate these costs to upper management.
  • Save that 20 percent through process improvements such as minimalism, prioritization of projects, single sourcing, content management, and other technologies.
  • Look realistically at our salaries. Are overblown salaries left over from the boom helping the third world’s case?
  • Don’t telecommute. Offshoring is a kind of telecommuting. If we can do our jobs from home, they can be done in Africa, Asia, or South America
  • Find ways to increase our need to have closer physical contact. Be the knowledge management organization. Be the user and task analysis group. Make ourselves as visible as possible in our organization and across the corporation.

Christensen points out again and again in his books that if we understand the process of disruptive innovation, we can fight it on its own terms and win. Remember that our management prefers to use local Americans for its information development if it perceives that it can afford us.

JoAnn and I expect to continue exploring these issues during the Innovators’ Forum on Thursday, October 21, following the Best Practices conference. Hope to see you there. CIDMIconNewsletter

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