Well-managed firms lose to inferior entrants because serving their best customers rationally rules out the low-margin new market.
Christensen's 1997 disk-drive study. The dilemma is that the incumbent's decision is correct at the time: the new market is small, low-margin and wanted by nobody they currently serve.
In practice
- A hosting company's best customers all want more reliability, so it declines to build the cheap unreliable tier the market moves to.
- A newspaper's subscribers want longer analysis, so it does not build the short-form product that takes its future readers.
- Further reading
- Wikipedia
- Subject
- Organizations & Bureaucracy
- Essay
- Why organisations learn, harden and decline