KV Patri, Mgmt of Tech Inn., Disk Drives Case Study 1 Case Study on Disk Drive Industry Adapted from Clayton, M. Christensen, The Innovator’s Dilemma: When New technologies Cause Great Firms to Fail, Harper Business, 2000.

KV Patri, Mgmt of Tech Inn., Disk Drives Case Study 2 Primary Components of a Typical Disk Drive

KV Patri, Mgmt of Tech Inn., Disk Drives Case Study 3 Brief History : IBM’s San Jose research laboratories developed RAMAC (random Access Method for Accounting and Control) which was the size of a large refrigerator incorporating 50 disks of 24 in. size. Total storage 5 MB.

KV Patri, Mgmt of Tech Inn., Disk Drives Case Study 4 RAMAC: The first disk drive

KV Patri, Mgmt of Tech Inn., Disk Drives Case Study : IBM introduced removable packs of rigid disks 1971: IBM introduced the floppy disk drive 1973: IBM introduced the Winchester architecture In the 1960s: A few firms developed the plug- compatible-market (PCM) selling copies of IBM drives directly to IBM customers at discount prices. At the same time, IBM competitors (Control Data, Burroughs, and Univac) were integrated vertically into the manufacture of their own disk drives.

KV Patri, Mgmt of Tech Inn., Disk Drives Case Study 6 In the 1970s: Smaller non-integrated computer makers such as Nixdorf, Wang and Prime developed OEM for disk drives. In 1976: US$1 billion worth of disk drives were produced (50% PCM and 25% OEM). There were about 17 firms. All were relatively large and diversified corporations such as Diablo, Ampex, Memorex, EMM, and Control Data. By 1995: Production rose rose to $ 18 billion, PCM almost vanished, and OEM became 75%. Almost all the 17 corporations except IBM failed or were acquired by IBM. Meanwhile, additional 129 firms entered, of which 109 failed (Fujitsu, Hitachi, and NEC survived).

KV Patri, Mgmt of Tech Inn., Disk Drives Case Study 7 During 1978 to 1993, the smallest available 20 MB drive shrank from 800 cubic inches to 1.4 cubic inches -- 35% annual rate of reduction. During 1977 to 1994, the price per megabyte in 1982 dollars from $900 to a reduction rate of 53% pa (although other microelectronic devices fell only at the rate of 70%).

KV Patri, Mgmt of Tech Inn., Disk Drives Case Study 8 Which technological developments contributed to this spectacular improvement in performance of disk drives? Materials: Ferrite-oxide heads  Thin-film heads  Magneto-resistive heads Architecture: Removable disc-pack drives  Winchester Drives Embedded servo systems RLL and PRML recording codes Higher RPM motors Embedded interfaces

KV Patri, Mgmt of Tech Inn., Disk Drives Case Study 9 1. Innovations in Read-Write Head Materials In the period 1975 to 1992, mainly ferrite-oxide heads were used. Incremental innovations within this technology such as -grinding the ferrite head to finer and more precise dimensions, and -more finely dispersed oxide particles helped improve areal recording density from 1 to 30 terabyte per sq. in. This growth was approximately following the S-curve pattern (an initial accelerating growth followed by steady growth followed by saturation).

KV Patri, Mgmt of Tech Inn., Disk Drives Case Study 10 Around 1985, a new thin-film head technology was developed. -Super-thin films of magnetic metal on aluminum was achieved by sputtering thin films of metal on recording head and then using photolithography to etch much finer electromagnets than could be achieved by ferrite technology. The technology was adapted from integrated-circuit industry. Burroughs and IBM led in this development. -Meanwhile entrant firms such as Maxtor and Connor Peripherals continued to rely on refining ferrite technology. -Established firms such as IBM, Control Data, Digital Equipment, Storage Technology, and Ampex -- each spent some $50 million in 8 years. Most new entrants perished.

KV Patri, Mgmt of Tech Inn., Disk Drives Case Study 11 In the 1990s magneto-resistive heads were developed which accelerated the performance improvement. IBM, Seagate, and Quantum led the race. Established firms beat out entrants. Moving up an S-curve is made possible through incremental innovations. Jumping from one S-curve to another is the result of radical innovations.

KV Patri, Mgmt of Tech Inn., Disk Drives Case Study 12

KV Patri, Mgmt of Tech Inn., Disk Drives Case Study 13 Between 1976 and 1988: The number of established firms offering drives with thin- film heads increased from 0 to 22. Likewise, the corresponding number of entrant firms increased from 0 to 22. Between 1984 and 1988: The number of established firms offering drives with thin- film disks increased from 0 to 12. Likewise, the corresponding number of entrant firms increased from 0 to 27.

KV Patri, Mgmt of Tech Inn., Disk Drives Case Study Innovations in architecture In the period, 1965 to 1978, removable disk pack drives dominated. This trend followed an S-curve with regard to areal density. Around 1978, 14-inch Winchester drive was substituted for the removable disk packs. This was a radical innovation (not incremental).

KV Patri, Mgmt of Tech Inn., Disk Drives Case Study 15

KV Patri, Mgmt of Tech Inn., Disk Drives Case Study 16 Between 1974 and 1979: The number of established firms offering drives with with Winchester architecture increased from 2 to 9. Likewise, the corresponding number of entrant firms increased from 0 to 19. Between 1984 and 1988: The number of established firms offering drives with RLL recording codes increased from 4 to 20. Likewise, the corresponding number of entrant firms increased from 5 to 31.

KV Patri, Mgmt of Tech Inn., Disk Drives Case Study 17 All the disk-drive innovations described thus far were of the sustaining type irrespective of whether they were incremental or radical, expensive or cheap, software or hardware, component or architecture, or competence-enhancing or competence-destroying. A major characteristic of a sustaining innovation is that leading practitioners of prior technology continue to dominate. The business is not disrupted. Progress happens along historically anticipated lines.

KV Patri, Mgmt of Tech Inn., Disk Drives Case Study 18 Further architectural improvements aimed at shrinking the drive size (from 14-inch to 8-inch to 5.25-inch to 3.5-inch to 2.5-inch to 1.8-inch) turned out to be disruptive, i.e., they displaced the industry leaders (irrespective of they were well- managed or not)

KV Patri, Mgmt of Tech Inn., Disk Drives Case Study inch Winchester Drives Until the mid-70s, 14-inch removable disk packs accounted for all disk drives. Then 14-inch Winchester drive emerged to sustain performance. Most were used for mainframes. In 1974, typical median-priced mainframe had a drive of 130 MB. This increased for 15 years at 15% per year. At the same time, the capacity of average drive increased at 22%. Capacity was outstripping demand and reaching beyond mainframe into scientific and super computers.

KV Patri, Mgmt of Tech Inn., Disk Drives Case Study 20 The advent of 8-inch drives Between 1978 and 1980, Shigart Associates, Micropolis, Priam, and Quantum developed 8-inch drives with 10, 20, 30, 1nd 40 MB capacity. These were of no interest to mainframes which, at that time, asked for around 40MB. These disruptive innovations were however suited for minis used/produced by DEC, Data General, Prime, and HP.

KV Patri, Mgmt of Tech Inn., Disk Drives Case Study 21 Partly because of the availability of suitable disk drives, minis gained over mainframes. A median-priced mini shipment grew at 25% per year. Meanwhile 8-inch saw further innovations that resulted in capacity growth at the rate of 40% year although the computer requirements themselves grew at about 20%. Again, capacity outstripped demand. Cost per MB of 8-inch became lower than that of 14-inch and other advantages became apparent, e.g. less vibration sensitive. Hence, established 14-inch manufacturers began to fail. 2/3 never introduced 8-inch. The 1/3 were 2 years behind new entrants.

KV Patri, Mgmt of Tech Inn., Disk Drives Case Study 22 Why did 8-inch disrupt the dominance of the established 14-inch suppliers? 14-inchers were not toppled by technology because the 8-inch drives mainly used off-the- shelf components. The reason for failure was delay in making the strategic commitment to switch to 8-inch. This was because mainframes did not need 8-inch drives as told by their established (mainframe) customers. It appears listening to current customers is not always good.

KV Patri, Mgmt of Tech Inn., Disk Drives Case Study 23 A similar story was repeated when 5.25 gave way to 3.5 to 2.5 to 1.5. All were disruptive. As the size reduced minis gave way to desktops which in turn partly gave way to portables and then Palms. Newer versions were not superior in the established market whereas they were attractive to fringe customers interested in an emerging technology.

KV Patri, Mgmt of Tech Inn., Disk Drives Case Study 24 A disruptive innovation: The 5.25 inch drive (1981)

KV Patri, Mgmt of Tech Inn., Disk Drives Case Study 25 Product Performance Time Performance demanded at the high end of the market Performance demanded at the low end of the market Disruptive Technological Innovation Progress due to sustaining technologies Progress due to sustaining technologies The Impact of Sustaining and Disruptive Technological Change

KV Patri, Mgmt of Tech Inn., Disk Drives Case Study 26 What are the typical characteristics of disruptive innovations? Worse product performance at least in the near term Other attractive features that a few fringe (often new) customers value Simpler and cheaper. Architectural: New functionality achieved through a clever arrangement of ‘off-the shelf’ components or technologies. Promise lower margins First commercialized in emerging insignificant markets Generally not wanted by leading firms’ most profitable customers (hence listening exclusively to one’s best customers may not always be good)

KV Patri, Mgmt of Tech Inn., Disk Drives Case Study 27 DA CB Poor fit (disruptive) Strong fit (sustaining) Autonomous Organization is required Mainstream organization is responsible Fit with Organization’s values Who should be responsible New Customary Heavyweight teams Lightweight teams Functional teams Fit with organizational processes Structure of development team Fitting Innovation’s Requirements with Organizational Capabilities

KV Patri, Mgmt of Tech Inn., Disk Drives Case Study 28 Characteristic Cost Structures of Different Value Networks % 25 to 30 % 41 % 40 % 56 % 60 % Desktop OEMs 5.25-inch disk drive makers Minicomputer OEMs 6-inch disk drive makers Mainframe OEMs 14-inch disk drive makers Desktop PC Value Network Minicomputer Value Network Mainframe Computing Value Network

KV Patri, Mgmt of Tech Inn., Disk Drives Case Study 29 Difference in Valuation of Attributes Across Different Networks (1988)

KV Patri, Mgmt of Tech Inn., Disk Drives Case Study 30 Market need Established Disruptive Time Capacity Market need Established Disruptive Time Physical Size Market need Established Disruptive Time Reliability Time Price Sustaining technologies Market need The basis of competitive success Phase 1 Competition based upon capacity Phase 2 Competition based upon physical size Phase 3 Competition based upon reliability Phase 4 Competition based upon price Innovations with regard to every performance variable have saturated. The product has become a Commodity Changes on the Basis of Competition in disk drive industry

KV Patri, Mgmt of Tech Inn., Disk Drives Case Study 31 Need in Tier 1 Need in Tier 2 Need in Tier 3 Performance RelaibilityConveniencePrice PerformanceReliabilityConvenience PerformanceReliability Technology Trajectory Strategy 1: Push Upmarket Towards Higher-End Customers Strategy 2: Stay with Customers Strategy 3: Change Market’s Demand for Functionality Time Functionality Managing Changes on the Basis of Competition

KV Patri, Mgmt of Tech Inn., Disk Drives Case Study 32 DISCUSSION

KV Patri, Mgmt of Tech Inn., Disk Drives Case Study 33 See Slide 12 In the period, , terabits/sq. in improved from 1 to 12 owing to improvements in ferrite.oxide technology. Is this due to  incremental innovation?  radical innovation?  disruptive innovation?  sustaining innovation?  process innovation?  product innovation?  architectural innovation?

KV Patri, Mgmt of Tech Inn., Disk Drives Case Study 34 See Slide 12 Around 1990, ferrite oxide technology started being replaced by thin film technology. Can this be classified as  incremental innovation?  radical innovation?  disruptive innovation?  sustaining innovation?  process innovation?  product innovation?  architectural innovation?

KV Patri, Mgmt of Tech Inn., Disk Drives Case Study 35 See Slide 12 Around 1994, thin film technology started being replaced by thin magneto-resistive technology. Can this be classified as  incremental innovation?  radical innovation?  disruptive innovation?  sustaining innovation?  process innovation?  product innovation?  architectural innovation?

KV Patri, Mgmt of Tech Inn., Disk Drives Case Study 36 See Slide 14 In the period, 1965 to 1978, removable disk pack drives dominated. Around 1978, 14-inch Winchester drive was substituted for the removable disk packs. Can this be classified as  incremental innovation?  radical innovation?  disruptive innovation?  sustaining innovation?  process innovation?  product innovation?  architectural innovation?

KV Patri, Mgmt of Tech Inn., Disk Drives Case Study 37 See Slide 15 Around 1976, removal disk-pack drives were replaced by Winchester drives. Can this be classified as  incremental innovation?  radical innovation?  disruptive innovation?  sustaining innovation?  process innovation?  product innovation?  architectural innovation?

KV Patri, Mgmt of Tech Inn., Disk Drives Case Study 38 See Slide 7 During 1977 to 1994, the price per megabyte in 1982 dollars from $900 to 0.2. Was this due to market pull?  Was this due to technology push?  Was this due to competition?  Name five technologies that contributed to this development.

KV Patri, Mgmt of Tech Inn., Disk Drives Case Study 39 See Slide 18 Architectural improvements aimed at shrinking the drive size (from 14-inch to 8-inch to 5.25-inch to 3.5-inch to 2.5-inch to 1.8-inch) turned out to be disruptive. Why are these labeled as ‘disruptive’? Whose businesses were ‘disrupted’? Why is the continued development of ferrite oxide technology not viewed as being ‘disruptive’? Why should it be viewed as ‘sustaining’? Whose businesses were sustained?

KV Patri, Mgmt of Tech Inn., Disk Drives Case Study 40 Some Broad and Open-ended Questions The companies ‘disrupted’ were large and having a good R&D as well as marketing infrastructures and cultures. Yet they were ‘disrupted’ by smaller players. Why? Listening to customers is the basic precept in the era of quality. Does this suffice when one transits to the era innovation? What are the general characteristics of disruptive innovations? What steps could the large and established companies take to avoid being ‘disrupted’?

KV Patri, Mgmt of Tech Inn., Disk Drives Case Study 41 Further Questions Can small firms hope to engage in incremental innovation?No!!No!Yes!Yes!! Can small firms hope to engage in radical innovation?No!!No!Yes!Yes!! Can small firms hope to engage in architectural innovation?No!!No!Yes!Yes!! Can small firms hope to engage in disruptive innovation?No!!No!Yes!Yes!!

KV Patri, Mgmt of Tech Inn., Disk Drives Case Study 42 What type of innovation is best suited for Hong Kong’s manufacturing sector? Insert a preference rating between 1 to 5 (5 for highest preference and 1 for lowest preference).  incremental innovation  radical innovation  disruptive innovation  sustaining innovation  process innovation  product innovation  architectural innovation