Cross-Sector Implications of the Innovator’s Dilemma

Cover of 'The Innovator's Dilemma'

I read constantly. I find that perspectives from different fields, as well as the expertise of various authors, push my thinking related to my own work. It was that reasoning – and the suggestion of a friend – that led me to pick up The Innovator’s Dilemma by Clayton Christensen, a well-respected and well-known book from the world of business and management.

The thesis of the book is relatively simple: the reason most companies eventually fail is because of the same good management that previously led to organizational success. The continuous pursuit of growth makes emerging opportunities and/or markets less and less attractive. For this reason, these companies succeed in dealing with sustaining technologies, but are derailed by disruptive technologies—such as the movie rental industry failing to capture the market potential of online streaming.

In recent years, there has been a significant focus on the ways that business strategy can contribute to success in the nonprofit sector. But, this focus has been overwhelmingly superficial in nature, mostly focusing on the potential for markets and profit-driven organizations to solve problems. While we’re busy arguing about whether problems can be solved profitably (the answer, as always, is that it depends), there is significant learning to be done if we truly dig into business literature like Christensen’s.

So, what applications might this “Innovator’s Dilemma” have for the government and nonprofit sectors?

  • The larger a company gets, the more likely it will be to pursue sustaining opportunities rather than disruptive opportunities. Disruptive opportunities create new markets and drive larger revenue growth. So, the health of the economy would be better supported by the pursuit of disruptive opportunities. For this reason, shouldn’t the government use regulatory and incentive structures to encourage pursuit of such opportunities? This could be done by simply putting a cap on the size of a company. By capping the revenue of any single company, spinoffs would be encouraged.
  • Similarly, Christensen’s work would seem to inform the nonprofit sector as well. In today’s age of “proven” solutions, we work to “scale” organizations that can demonstrate evidence of success. Because we equate growth and success, these organizations are also incentivized to continually pursue opportunities for sustaining growth. To support organizational growth, it is unlikely that an established organization would pursue emerging opportunities for impact. Why would Teach for America, the Salvation Army, or the American Red Cross pursue a new, potentially promising, intervention? Given their current size, a pilot program impacting a small number of people wouldn’t attract the resources needed while embedded inside the larger organization. In the for-profit world, Christensen would suggest spinning off a smaller company. Could something similar happen in the nonprofit community?
  • Lastly, these factors must impact the way we fund social good. In the for-profit world, disruptive technology gets funded when early investors feel the potential return might support the risk. But, Christensen notes, “Those that run out of resources or credibility before they can iterate toward a viable strategy are the ones that fail.” What does this mean for disruptive opportunities in the nonprofit space? When resources and credibility both require immediate success, how many opportunities are we missing? How might different funding practices allow for the discovery of additional opportunities for good?

Each sector has the opportunity to learn from others, but this won’t be done if our explorations remain surface level. Markets won’t solve our problems – especially those problems with the least opportunity for financial return. The business world, however, can contribute to our learning and inform our work in creating social good.

photo credit: Library Journal