---
description: "Rational resource allocation and value network filters systematically blind incumbents to disruptive opportunities — the perceptual apparatus is tuned to the current network's frequencies"
type: claim
domain: teleological-economics
created: 2026-02-21
source: "Clayton Christensen, The Innovator's Dilemma (1997)"
confidence: likely
tradition: "Christensen disruption theory"
revised: 2026-03-07
revision_reason: "Consolidated value-networks claim (perceptual filter mechanism + disk drive evidence) into this claim. 4→2 Christensen condensation."
---

# good management causes disruption because rational resource allocation systematically favors sustaining innovation over disruptive opportunities

This is the core paradox of The Innovator's Dilemma: the firms that fail are not poorly managed -- they are excellently managed. They do exactly what business school teaches. They listen to their best customers. They invest in the highest-margin opportunities. They allocate resources to products that promise the greatest returns. They study market trends and respond to competitive dynamics. The problem is that every one of these rational practices creates a systematic bias against disruptive innovations. When a disruptive technology emerges, it looks unattractive by every measure a well-managed firm uses: the target market is small, the margins are low, existing customers do not want it, and it underperforms on the metrics the company tracks.

The steel mini-mill example illustrates this perfectly. When mini-mills entered at the bottom of the steel market making rebar -- the lowest-quality, lowest-margin product at just 7% gross margins for integrated mills -- the integrated mills were happy to cede this business. Their spreadsheets told them the rational move was to shift capacity toward higher-margin products. Each retreat up-market made perfect financial sense on the CFO's spreadsheet until the integrated mills ran out of higher markets to retreat into. No integrated steel company was able to successfully deploy mini-mill technology inside their business model, even with a 20% cost advantage, because it always made more financial sense to re-orient production capacity to higher-margin products. This is the innovator's dilemma in its purest form: rationality at each step produces catastrophe in aggregate.

This mechanism is a specific instance of [[companies and people are greedy algorithms that hill-climb toward local optima and require external perturbation to escape suboptimal equilibria]]. Good management is greedy optimization -- maximizing the objective function (returns to shareholders) at each decision point. The disruption comes from below precisely because the greedy algorithm has no mechanism to evaluate opportunities outside its current value network. Since [[proxy inertia is the most reliable predictor of incumbent failure because current profitability rationally discourages pursuit of viable futures]], the better the management, the more reliably it optimizes for current profitability, and the more vulnerable it becomes to disruption from a different definition of value. This is also why [[the arc of enterprise runs from tight design through resource accumulation to strategic drift as success enables the laxity that creates vulnerability]] -- the resources accumulated through good management become the very anchor that prevents strategic reorientation.

The value network deepens this: a company's customers, suppliers, employees, and partners collectively determine which innovations it can perceive. The disk drive industry demonstrates this across five generations (14" → 8" → 5.25" → 3.5" → 2.5"). When 5.25-inch drives appeared offering 10-50MB for the PC market, 8-inch makers supplying 200MB+ mainframe drives could build them — but their value network told them there was no market. Of four leading 8-inch manufacturers, only Micropolis survived the 5.25-inch transition. Each time, established firms failed not because they lacked technical capability but because their value network filtered out the signal.

The asymmetry of motivation compounds this. New entrants are motivated to move up-market toward better margins, while incumbents are motivated to retreat from low-margin segments. Both sides act rationally given their position, yet the aggregate outcome is the incumbent's displacement. This is [[the universal disruption cycle is how systems of greedy agents perform global optimization because local convergence creates fragility that triggers restructuring toward greater efficiency]] operating at the industry level: individual firms optimizing locally create the systemic fragility that enables restructuring.

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Relevant Notes:
- [[companies and people are greedy algorithms that hill-climb toward local optima and require external perturbation to escape suboptimal equilibria]] -- good management IS greedy optimization, which is why it causes disruption
- [[proxy inertia is the most reliable predictor of incumbent failure because current profitability rationally discourages pursuit of viable futures]] -- the specific mechanism by which rational resource allocation becomes fatal
- [[the universal disruption cycle is how systems of greedy agents perform global optimization because local convergence creates fragility that triggers restructuring toward greater efficiency]] -- the industry-level pattern that emerges from individually rational firm behavior
- [[disruptors redefine quality rather than competing on the incumbents definition of good]] -- the complement: what disruptors do while incumbents are blind

Topics:
- [[competitive advantage and moats]]