A lot of people talk about radical new technologies upsetting the existing order, bringing big companies down, creating opportunities for newcomers to take over. Sometimes it happens. Sometimes it doesn't.
ClaytonChristensen looks at the disk drive industry to attempt to build a model. He then compares other industries to test the model.
His conclusion. The existing market leaders fail, NOT because they screw up through :
- getting lazy,
- bad management,
- failing to understand or master the new technology
Christensen sees new innovations falling into two types : sustaining and disruptive.
Sustaining technologies, however radical, do not bring down the market leaders, they are quickly adopted by them. In contrast, disruptive
technologies often cause a wholesale extinction of many previous generation companies and their replacement by new ones.
But what distinguishes a DisruptiveTechnology from a sustaining innovation is not technological but related to its structural position in the market.
- A sustaining technology is an innovation which, however radical in other ways, unambiguously improves the price / performance ratio of a product.
- A disruptive technology is one which, initially has a lower price / performance ratio but typically has some other desirable feature. For example, it is cheap enough or small enough to allow a new class of people to start using it. Examples include 5.25 inch format hard disk drives which were slower and had less capacity than state of the art 8 inch disk drives but were cheap enough and small enough to be used with personal computers. (Wheras 8 inch drive makers sold to mini-computer makers.)
Q : Why can't big companies handle disruptive technologies?
Big, succesful companies typically get big and succesful by being attentive to their customers' needs. They, therefore, don't get into these disruptive technologies because their customers don't want them to. Demand from existing customers for disruptive technologies is initially zero. (The new technology offers them no advantage; and might even create a new class of competitor.)
Therefore customers pull their suppliers away from disruptive technologies and in the direction of sustaining technologies. It is only later, when the customer has realized the importance of the new technology, or the new technology has improved its price / performance sufficiently to compete with the old technology that this customer becomes interested - by then it's typically too late, as a newer, more innovative company has established itself with the new technology.
- Q : Why are large, market leading companies so easily led by their customers?*
- the most profitable customers exert the largest pull on a supplier
- it's easier to collect statistics from a mature market of existing customers, hence any organization which is driven by numeric forecasts, close attention to market research, will ignore the market for the disruptive technology as being unknowable, annecdotal rather than statistically significant.
It's a good heuristic to check whether a new technology is really :
- a) going to invent a new customer base and
- b) not going to please someone else's existing customer base
Ironically, only then is it a likely to be genuinely disruptive innovation, and a genuine oportunity.
Example disruptive technologies which saw new companies significantly challenge previous market leaders ...
- a) 5 1/4 inch disk technology - sold to PCs rather than Minicomputers
- b) 3 1/2 inch disk technology - sold for portables rather than desktops (significantly, Seagate had a 3 1/2 inch disk before their rivals (1983), but customers IBM, Compaq etc. weren't interested and Seagate killed the research into this area until Connor had won the laptop market with their 3 1/2 disks 3 years later.
- c) 1 1/4 inch disk technologies (which were sold for heart monitoring machinery and later, MP3 players)
But NOT 2 1/2 inch technology, which the existing market leader simply adopted (their own laptop customers could understand the benefit)
Importantly none of these new innovations were strictly technical. The technical innovations in disk drive manufacture : thin film heads, tripple density writing techniques were sustaining, in that market leaders quickly adopted them and sold them to the customers.
In the software world, giving away FreeAsInBeer copies of older versions of your software is a way to keep out the "worse but possibly disruptive" competitors. Your customers will still buy the new version. But you starve the followers who are making worse, cheaper versions that may one day become good enough to compete.
This notion of good companies failing through good management sets me thinking like this :
- 1) companies start with a disruptive technology, and attack upwards, riding the up-draft of the technology's general acceptance. Until they are at the top, and are eaten from underneath.
- 2) in a sense, companies consume their niche of opportunity.
- 3) is there a connection here with ReactionDiffusion models? In other words, this growing with the new technology is a reaction, which eventually consumes it's fuel, and the company has to wait for a new influx of diffusing opportunity before it can succeed again?
Jill Lepore has a good criticism of Christensen's theory including the disc-drive data : http://www.newyorker.com/magazine/2014/06/23/the-disruption-machine?currentPage=all
- GregCostikayan on GrognardCapture in games.
- NickCarr gets the wrong end of the stick : http://www.nicholasgcarr.com/digitalrenderings/archives/conservativeinnovation.shtml
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