Customer Power, Strategic Investment, and the Failure of Leading Firms

February 16, 2021 Jeremiah Hendren

Customer Power, Strategic Investment, and the Failure of Leading Firms

Christensen, Clayton M., and Joseph L. Bower*
Strategic Management Journal 17, no. 3 (1996): 197-218
https://www.jstor.org/stable/2486845

* Professors at Harvard Business School

Students of management have marveled at how hard it is for firms to repeat their success when technology or markets change, for good reason: there are lots of examples. For instance, no leading computer manufacturer has been able to replicate its initial success when subsequent architectural technologies and their corresponding markets emerged. IBM created and continues to dominate the mainframe segment, but it missed by many years the emergence of the minicomputer architecture and market. The minicomputer was developed, and its market applications exploited, by firms such as Digital Equipment and Data General. While very successful in their initial markets, the minicomputer makers largely missed the advent of the desktop computer: a market which was created by entrants such as Apple, Commodore and Tandy, and only later by IBM. [...] The failure of leading firms can sometimes be ascribed to managerial myopia or organizational lethargy, or to insufficient resources or expertise. For example, cotton-spinners simply lacked the human, financial and technological resources to compete when DuPont brought synthetic fibers into the apparel industry. But in many instances, the firms that missed important innovations suffered none of these problems. They had their competitive antennae up; aggressively invested in new products and technologies; and listened astutely to their customers. Yet they still lost their positions of leadership. This paper examines why and under what circumstances financially strong, customer-sensitive, technologically deep and rationally managed organizations may fail to adopt critical new technologies or enter important markets-failures to innovate which have led to the decline of once-great firms.

Clayton Christensen & Joseph Bower

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