Why established firms lose their ability to innovate?

There is a recurring question (and observation) regarding the ability of established companies to innovate within their established organization; albeit within their core business or far from their market boundaries.

Harvard Professor Clayton Christensen has tried to explain this phenomenon. His explanations seem sometimes somewhat radical though. Some of the most astonishing ones are the following:

• “The way we teach ‘Marketing’ at school causes innovation to fail.” Amazing, isn’t it? Coming from the mouth of one of the most prestigious Harvard Business School Professor.
• The idea of understanding the customer and give the customer what he/she needs contributes to the failure of new innovation.”
• “The unit of analysis of coming with innovative ideas is “the jobs sitting out there and waiting to be done”, for which our products and services might get hired.”

Innovations in established firms

Every innovative idea pops out of the innovator head in a half built condition, not in the form of a complete business plan.  So the idea has to go into the established process. By the time the idea gets to the market, it has been twisted and shaped to confirm the firm's business model.  Very often companies lose their ability to innovate, not only because there are no good ideas, but because the innovative ideas have to go through the established processes with which the companies are familiar, companies are good at doing; as opposed to confirming and developing a business plan that fits to the market needs.

From Innovative idea to normalized idea 

What type of Market Segmentation?

According to Clayton Christensen, 75% of the products introduced into the market fail. After they have done market research, built business cases, tested the products, etc... Even one of the best among the best companies in Marketing like Procter & Gamble’s, has a success rate in product introduction of around 15%, only 15%!

Why is that? What causes this high failure rate? According to Christensen, it is due to the way companies segment their market into products and customers, instead of to be structured in terms of jobs customers need to get done.

This is how Christensen explains it “When companies look at the market, it appears to be that the market is structured by product category and customer category.  If you’re in the car industry, your market is segmented into SUV, compact, mid-sized, mini vans, etc… they can tell you exactly how big each of those segment is and who’s got what share. They also segment their market by demographic segment 18-34 year old female with or without children or male 18-25; but if you are in the market
 ‘a customer’, that’s not how the market is segmented for you.

That’s not what the market looks like at all.  If you’re a customer, stuffs just happen to you.  Jobs are raising your lives and you hire them to get the job done!”.