Disruptive Technologies MIS 5105 Dr. Garrett

Resource The Innovators Dilemma, by Clayton M. Christensen (2003) The Innovators Dilemma, by Clayton M. Christensen (2003)

Technology …the processes by which an organization transforms labor, capital, materials, and information into products of greater value. …the processes by which an organization transforms labor, capital, materials, and information into products of greater value. Innovation refers to a change in one of these technologies.Innovation refers to a change in one of these technologies.

Sustaining vs. Disruptive Technologies Sustaining technologies foster improved performance of established products Sustaining technologies foster improved performance of established products Most technological advances in a given industry are sustaining Most technological advances in a given industry are sustaining Disruptive technologies are those that result worse product performance, at least in the near-term Disruptive technologies are those that result worse product performance, at least in the near-term

Disruptive Technologies Bring new value propositions to market Bring new value propositions to market Underperform established products in mainstream markets Underperform established products in mainstream markets Have characteristics that appeal to fringe or new customers Have characteristics that appeal to fringe or new customers Products are typically cheaper, simpler, smaller, less capable, but more convenient to use Products are typically cheaper, simpler, smaller, less capable, but more convenient to use

Disruptive Technologies …disruptive technologies that may underperform today, relative to what users in the market demand, may be fully performance-competitive in that same market tomorrow. …disruptive technologies that may underperform today, relative to what users in the market demand, may be fully performance-competitive in that same market tomorrow.

Disruptive Technologies vs. Rational Investments Disruptive products are generally simpler and cheaper, with less margin, not greater profits Disruptive products are generally simpler and cheaper, with less margin, not greater profits Disruptive technologies are typically first commercialized in emerging or insignificant markets Disruptive technologies are typically first commercialized in emerging or insignificant markets Leading firms most profitable customers generally dont want, and initially cant use, products based upon disruptive technologies Leading firms most profitable customers generally dont want, and initially cant use, products based upon disruptive technologies Initially embraced by the least profitable customers in a market Initially embraced by the least profitable customers in a market

Principles of Disruptive Innovation Companies depend upon customers and investors for resources Companies depend upon customers and investors for resources Small markets dont solve the growth needs of large companies Small markets dont solve the growth needs of large companies Markets that dont exist cant be analyzed Markets that dont exist cant be analyzed An organizations capabilities define its disabilities An organizations capabilities define its disabilities Technology supply may not equal market demand Technology supply may not equal market demand

Companies depend on customers and investors for resources Established firms stay atop wave after wave of sustaining technologies (technologies that their customers need), while consistently stumbling over simpler, disruptive ones. Established firms stay atop wave after wave of sustaining technologies (technologies that their customers need), while consistently stumbling over simpler, disruptive ones. Theory of Resource Dependence – Companies depend upon their customers and investors to survive Theory of Resource Dependence – Companies depend upon their customers and investors to survive

Small markets dont solve the growth needs of large companies Successful companies need to continue to grow Successful companies need to continue to grow …the larger and more successful and organization becomes, the weaker the argument that emerging markets can remain useful engines for growth. …the larger and more successful and organization becomes, the weaker the argument that emerging markets can remain useful engines for growth. Small organizations can most easily respond to opportunities for growth in a small market Small organizations can most easily respond to opportunities for growth in a small market

Markets that dont exist cant be analyzed Companies whose investment processes demand quantification of market sizes and financial returns before they can enter a market get paralyzed or make serious mistakes when faced with disruptive technologies. Companies whose investment processes demand quantification of market sizes and financial returns before they can enter a market get paralyzed or make serious mistakes when faced with disruptive technologies.

An organizations capabilities define its disabilities The very processes and values that constitute an organizations capabilities in one context, define its disabilities in another context. The very processes and values that constitute an organizations capabilities in one context, define its disabilities in another context.

Technology supply may not equal market demand In their efforts to stay ahead by developing competitively superior products, many companies dont realize the speed at which they are moving up- market, oversatisfying the needs of their original customers as they race the competition toward higher performance, higher margin markets. In their efforts to stay ahead by developing competitively superior products, many companies dont realize the speed at which they are moving up- market, oversatisfying the needs of their original customers as they race the competition toward higher performance, higher margin markets.

Technology supply may not equal market demand In doing so, they create a vacuum at lower price points into which competitors employing disruptive technologies can enter. In doing so, they create a vacuum at lower price points into which competitors employing disruptive technologies can enter. Only those companies that carefully measure trends in how their mainstream customers use their products can catch the points at which the basis of competition will change in the markets they serve. Only those companies that carefully measure trends in how their mainstream customers use their products can catch the points at which the basis of competition will change in the markets they serve.

What can managers faced with disruptive technologies do? Give responsibility for disruptive technologies to organizations whose customers need them so that resources will flow to them. Give responsibility for disruptive technologies to organizations whose customers need them so that resources will flow to them. Set up a separate organization small enough to get excited by small gains. Set up a separate organization small enough to get excited by small gains.

What can managers faced with disruptive technologies do? Plan for failure. Dont bet all your resources on being right the first time. Think of your initial efforts at commercializing a disruptive technology as learning opportunities. Make revisions as you gather data. Plan for failure. Dont bet all your resources on being right the first time. Think of your initial efforts at commercializing a disruptive technology as learning opportunities. Make revisions as you gather data.

What can managers faced with disruptive technologies do? Dont count on breakthroughs. Move ahead early and find the market for the current attributes of the technology. You will find it outside the current mainstream market. You will also find that the attributes that make disruptive technologies unattractive to mainstream markets are the attributes on which the new markets will be built. Dont count on breakthroughs. Move ahead early and find the market for the current attributes of the technology. You will find it outside the current mainstream market. You will also find that the attributes that make disruptive technologies unattractive to mainstream markets are the attributes on which the new markets will be built.

Disruptive Technologies MIS 5105 Dr. Garrett