Understanding the Innovator’s Dilemma in 2025
- Pietro Gatti
- Mar 31
- 5 min read
Updated: Apr 3
Why Great Companies Struggle to Innovate — And What to Do About It
1. What’s the Innovator’s Dilemma, Really?
Why do smart, successful companies with brilliant people still get blindsided by new players?
That’s the question Clayton Christensen answered in his now-classic book, The Innovator’s Dilemma. His core insight: big companies often fail not because they’re doing something wrong—but because they’re doing everything right for their current customers.
They listen to their best clients, plan for incremental improvements, align R&D with demand, and avoid risky ventures that don’t promise immediate ROI. And yet, these best practices trap them.
This is the paradox: By following the rules, listening to customers, and managing execution carefully, they miss out on disruptive innovation. In fact, they systematically ignore it—because in the early days, it doesn’t seem to matter.
2. Why This Was So Relevant When the Book Was Written
By the 1990s, technological progress had started accelerating exponentially—particularly in electronics, computing, and telecommunications. Industries that once evolved over decades were now shifting in just a few years. The traditional planning cycles and product development timelines of large companies couldn’t keep up.
Yet no one had clearly articulated why these companies were failing until Christensen did. His insight landed hard because the cases were so familiar—and so painful.Let’s break down three of them:
Digital Equipment Corporation (DEC): Once a giant in minicomputers, DEC dismissed the rise of personal computers as underpowered and amateurish. By the time PCs got good enough, they had already eaten DEC’s lunch. The company couldn't pivot fast enough and was eventually acquired.
U.S. Steel vs. Mini Mills: Mini mills started by producing low-grade rebar—something the big players didn’t care about. But over time, they improved quality and moved upstream. U.S. Steel stuck to high-margin segments and ceded more and more of the market. The response came too late.
Nokia & Blackberry vs. the iPhone: Both companies saw smartphones as a niche, expensive novelty. They underestimated the power of the ecosystem model—the idea that a phone could be a platform, not just hardware. By the time they realized it, Apple had changed the game.
3. How to Break the Bottleneck (according to the Book)
Christensen didn’t just observe the problem—he offered specific strategies to escape the trap. What he proposed was counterintuitive:
Separate teams for disruptive projects, operating outside the core business.
Different success metrics for those teams—because disruptive innovation looks like failure by traditional standards.
Freedom to experiment in unattractive markets, with small budgets and lower performance expectations.
The key insight: disruptive innovation needs a different environment to grow. Left inside the mainstream organization, it gets smothered.
A Real-World Example: Apple
Apple has historically made bold moves that resemble Christensen’s advice. When it launched the iPod, then the iPhone, these weren’t driven by its Mac business. Each product had its own P&L, roadmap, and disruptive potential—targeting new user behaviours rather than improving old ones. The Apple of the 2000s succeeded not just because it innovated, but because it protected those innovations from internal inertia.
4. Does the Concept Still Apply in the 2020s?
Absolutely—but the battlefield has changed. In today’s market, disruption moves at digital speed. It’s no longer just about physical products or manufacturing—it’s about platforms, data, and user networks.
Let’s unpack what’s changed:
Platforms > Products
Instead of just selling a tool, disruptors now create ecosystems (e.g., Apple’s App Store, Amazon AWS, Google Cloud). This makes them harder to displace—and gives them exponential reach.Data > Distribution
In the 2020s, owning the channel isn’t enough. The edge now comes from understanding user behaviour and optimizing in real-time. Think of how Tesla’s fleet learns while driving—or how Spotify builds music discovery.Speed > Scale
Speed of iteration beats size of infrastructure. Small teams with cloud access, APIs, and user feedback loops can ship and test faster than traditional giants can meet.Recent examples:
Figma challenged Adobe by rethinking collaboration in design—Adobe had to buy it for $20B.
Canva grew from niche to mainstream by making professional design radically accessible.
OpenAI’s ChatGPT overtook entrenched productivity tools by delivering a fundamentally new UX model.
5. Are the Strategies Any Different Now?
Yes—but not in the way you might think. At its core, the Innovator’s Dilemma is still very real. But today’s innovation strategy is less about guarding the core and more about designing an organization that can operate at two speeds: one focused on executing the current business, the other free to explore what’s next.
We’re seeing this in three key shifts:
First, forward-thinking companies are turning to external collaboration as a driver of agility. For example, Unilever doesn’t try to reinvent everything in-house—it partners with startups through its Foundry program, tapping into emerging ideas without the usual corporate drag. It's faster, cheaper, and often more impactful than traditional R&D.
Second, the idea of fractional leadership is gaining momentum. Instead of hiring full-time execs for every new initiative, companies bring in expert operators—interim CTOs, product leads, or venture builders—on a mission-specific basis. This brings fresh thinking without the weight of long-term headcount or politics.
Third, some companies have gone a step further, creating internal “venture studios” that function like mini startups. Google’s X, Amazon’s Lab126, or IKEA’s SPACE10 are examples of corporate structures built to incubate radical ideas without forcing them to justify ROI too early. They use different KPIs, governance, and timelines—because disruptive bets need different rules.
But here’s the catch: these strategies aren’t plug-and-play.
They only work if the organization is truly set up to support them. The companies that make this dual-speed model work tend to share a few key traits:
Strong executive commitment to long-term vision (Amazon’s “Day 1” mindset comes to mind)
Clear structural separation of new ventures, so innovation isn’t crushed by the core
A culture of experimentation where smart failure is seen as progress
And those that struggle? They tend to fall into familiar traps:
Short-term incentives that punish risk
Rigid org charts where new ideas compete with legacy revenue
Fear of cannibalization that keeps disruptive products locked in R&D
The bottom line:
Innovating from inside a large company is possible—but only if you’re willing to rethink how the company itself operates. Strategy alone isn’t enough. You need systems, structures, and leadership willing to bet on tomorrow—before today stops working.Wrapping Up: Innovation Is Hard—but Not Impossible
In this post, we’ve explored why even the best companies can fall behind—how the very systems that make them successful can also blind them to what’s next. We looked at the structural, cultural, and strategic changes needed to not just survive disruption, but lead it.
But we’ve only scratched the surface.
Innovation doesn’t fail for lack of ideas. It fails because most organizations aren’t built to nurture them.Future posts will dive deeper into how to design organizations for innovation—how to align incentives, protect disruptive teams, and build governance models that allow exploration without derailing execution.
This is the work I do—and what I love doing. If you’re thinking about how to future-proof your company, rethink your innovation strategy, or just want a second opinion on a tough call, reach out. Let’s make sure you’re building not just for today, but for what comes next.
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