Disruptive Technology(Joseph L. Bower, Clayton M. Christensen) Issue lies at the heart of the paradox: They close too close to their customers. Companies listen to their customers, give product performances they were looking for, but in the end, were hurt by the technologies their customers led them to ignore. 2 Characteristics of the technological changes that damage established companies: 1) They typically present a different package of performance attributes (at the onset, not valued by existing customers 2) The performance that existing companies value improve at a very rapid rate (often too late now for established companies) Performance trajectory -> the rate at which the performance of a product has improved, and is expected to improve. Every industry has a performance trajectory (disk drives -> storage)(photocopiers -> number of copies / min) Sustaining technologies-> maintains a rate of improvement (Give customers something better in attributes they already value) Disruptive technologies -> introduce a very different package of attributes from the one mainstream customers historically value, and they often perform far worse along one or two dimensions that are particularly important to those customers. * Mainstream customers are usually unwilling to use disruptive technologies * Disruptive technologies only valued in new markets
Generally, disruptive technologies look unappealing financially. (Due to difficulty of forecast) Companies have two choices:
1) Downmarket -> accept the lower profit margin and invest in the disruptive technologies. (High costs) 2) Upmarket -> stay at the sustaining technologies (profit margins seemingly high) Key Lesson: Pay careful attention to potential disruptive technologies, and do not miss them. The problem is that managers keep doing what has worked in the past. Companies investment processes:
Use analytical planning and budgeting systems. But, disruptive technologies (hard to forecast) -> receive low investments. Furthermore, managers -> goal is to stay at the job. Low performance -> cut from the job. Therefore, they choose projects that are less risky (risk-averse) Example) disk drives
Seagate forecasted that they would capture more sales with 5.25 inch disk (more capacity). Executives did not invest in the new 3.25 inch disk market. In the end, it failed. Companies (employees frustrated with management’s decision) that invested in the 3.25 inch -> successful. * At first 3.25 inch (small capacity) -> improved 50% every year. Often times, engineers at leading companies have already produced new technologies before management gave a formal go-ahead. (But too late) Framework:
1) Determine whether the technology is disruptive or sustaining One method: examine internal disagreements. Marketing / financial managers usually does not support the disruptive technology (managerial and financial incentives). On the other hand, technical personnel with outstanding track records will often argue a new market will emerge. (Such phenomenon signals a disruptive technology.) 2) Define the strategic significance of the disruptive technology * Asking mainstream customers (works for the sustaining technologies /inaccurate for disrupt tech) * Therefore, communicate with specialists rather than current customers * Another method, is to use the graph-> Draw a line depicting the level of trajectory of performance improvement * Knowledgeable technologists can determine slope. Then, determine whether the new technology can address customers’ needs tomorrow. * Many managers compare the anticipated rate of performance improvement of the new tech to that of the established tech – wrong! In fact, * Many of the disruptive technologies never surpassed the capability of the old technology. * Critical Point: It is the trajectory of the disruptive technology compared with that of the market that is significant *...
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