The legacy problem
Author Clayton Christensen describes how disruptive technologies shape the competitive landscape for companies within their respective markets in this classic book. In it, he describes how companies introduce new products into the low end of markets and eventually displace their high-end competitors and the technologies that those competitors employ to service their customers. The book describes a nearly inescapable pattern in which successful companies, with established product lines, try - and usually fail - to keep from being pushed aside by newer, cheaper products that are offered by smaller, more nimble companies. These new entrants do not initially appear to provide much competition, since they only serve a small portion of available customers. However, over time, their products improve, extend their reach, and become a serious threat, since they are based upon updated approachs, and are not bogged down with the many constraints of servicing older customers. Even the best-managed companies, paying attention to customers and continually investing in new technologies, are susceptible to this pattern, no matter what their industry, simply because it is so hard to get momentum from inside a company that displaces an existing product line of a successful business.
Low-end technologies and companies can target customers that require less functionality or performance than customers at the high end of markets. Their competitors, higher-end companies, provide considerably more capabilities than others, and are able to command a higher price accordingly. New technologies which enter this environment are often able to change direction and expand their product reach more rapidly than the more established firms, since they are able to serve customers who were previously not addressed by these existing incumbents. However, over time, these companies who focus on the high-end focus on a smaller and smaller pool of customers, and therefore have less and less capital to invest in new features for this declining pool of customers.
I have the utmost respect for Dr. Christensen and his insights about how these challenges manifest themselves within established businesses. For an example of how he applies these ideas to his own life, see his speech to the Harvard Business School graduating class this year.
