The Six Countries’ Conference on Disruptive Technologies DISRUPTIVE TECHNOLOGIES, FIRMS’ STRATEGIES, AND GOVERNMENT POLICIES Professor Y.L. Doz The Timken Chaired Professor of Global Technology and Innovation INSEAD, Fontainebleau, Singapore VANCOUVER, CANADA, June 5th 2003 Professor Y. Doz

Three core questions What is a disruptive technology? What are its strategic implications, for incumbents? For challengers? Why does it matter to governments? Technology, Innovation, Discontinuity, Radical Innovation, Architectural Innovation, Transilience, Competence enhancing, destroying…… Professor Y. Doz

What is a disruptive technology? Performance Third technology Second technology First technology Source: Adapted from Foster (1986) and from Christensen (1992) Time / Resources devoted Professor Y. Doz

What is a disruptive technology? Performance (log. Scale) First technology What the technology offers What the market needs Third technology Second technology Source: Adapted from Christensen (1993) Time Professor Y. Doz

A well researched example: hard disk drives Intersecting Trajectories of Capacity Demanded versus Capacity Supplied in Rigid Disk Drives Source: Christensen, 1993 Professor Y. Doz

Disruptive, or not? Some key questions Innovation or Technology? . Social “technologies” (low cost airlines) . Value innovations (regional jets) Mainframe Mini Desktop Portables . Architectural vs modular / elemental . Same or different technological trajectory 14” 8” 5.25” 3.5” Winchester 2.5” Supportive or disruptive? 3. Radical / substitutive or incremental / complementary? . Bio technology and pharmacy Professor Y. Doz

Disruptive, or not? Some key questions For Whom? (e.g., small office copiers) new XEROX base market access Same new CANON competence Same Professor Y. Doz

Disruptive, or not? Some key questions How fast: Tornado or mild breeze? - Dynamics of diffusion: Network effects and critical mass - Misguided incumbent response “Happening” or “created”? - Innovations are “created” - Creative destruction - Strategic innovation - New technologies are resources / tools for innovation Professor Y. Doz

Why are incumbents (often) sitting ducks? Economic interest . Better-off funding incremental supportive innovation . Risk of accelerating substitution and destroying value . Increasing returns to competence/installed base, trajectory lock-in Organizational logic . Structural “fit”, interaction routines, collective tacit skills . Successful strategies grow into mindless recipies . Orthodoxies, rigidities, cultural homogeneity . Internal resource allocation processes . Lack of relevant, and well-located absorptive capacity Social heritage . Network embeddedness (customers, suppliers, partners) . “Ties that Bind”, unwillingness to challenge past commitments . “Value networks” require collective agreement on change across firms Professor Y. Doz

The incumbent's weak response Late, slow, half-hearted, tentative and ineffective On the “wrong” trajectory (accelerate their own, ignore the new) Lacking critical mass, under funded, under supported Expensive . Time compression diseconomies . Lasting stalemate Often strategically flawed . Transfer of “old” value creation system Professor Y. Doz

To challengers, disruptive technologies open a window of opportunity: They are disruptive for incumbents, supportive for challengers They mix technical , social and value innovations, making them difficult for incumbents to emulate … They create / open vast new “low-end” markets to use a staging areas... They originate and spread below / beyond the radar screen of incumbents They draw on distant and diverse sources of knowledge They rely on new, or hard to enter, social networks Professor Y. Doz

Incumbents that respond successfully Widely distributed prospecting for and active sensing of new knowledge, worldwide, including emerging / latent market needs Cultivating absorptive capacity and knowledge melding Professor Y. Doz

Mobilizing Globally Dispersed Knowledge Prospecting and accessing distant innovative competencies and lead market knowledge LOGIC: Discovery & Reconnaissance Melding dispersed capabilities and lead market opportunities to pioneer new solutions LOGIC: Entrepreneurship & Mobilization Optimising the scale and configuration of Operations LOGIC: Efficiency, Flexibility, & Financial Discipline (Source: Doz, Santos, Williamson - "From Global to Metanational” - HBS Press, 2001) Professor Y. Doz

STMicroelectronics in HDD electronics Engineering and Design skills in fast microprocessors: Bristol, U.K. Process Technology R&D in BICMOS (mixed) and CMOS (digital); Manufacturing(Front End): Grenoble, France Joint Design center with Seagate: Scotts Valley, CA Engineering and Design skills in digital servo controllers: (JV) SSD - Dublin, Ir. Process Technology R&D in Bipolar and BCD; Design competence on analog and mixed chips: Milano, Italy Lead Customers R&D and Engineering: Seagate, Western Digital (California,Colorado, ...) Competence on R/W technology: (JV) EXAR, CA Coordination and strategic capability: Geneva, Switzerland Engineering and Design Capability / Close understanding of customer application / Design Center: S. Jose CA Customers’ Manufacturing: Singapore, and other Far East sites Design of ‘packaging’, testing and final assembly (Back End) capability: Malaysia, Singapore

The Innovation Turbine MetaCorp 29 The Innovation Turbine Sensing Magnet Magnet Crucible Crucible Attracting Relay Relay Leveraging Professor Y. Doz

Tapping the world for new knowledge (Shiseido in Fragrance) Carita Sensing “Les Salons” French Suppliers Zouari Gien Plant (France) Beaute Prestige International Chantal Roos Issey Miyake Jean-Paul Gaultier Melding Product Development Process Yokohama: Product Strategy Managers Worldwide Distribution Ofuna (Kamakura) Plant Leveraging Professor Y. Doz

Incumbents that respond successfully Widely distributed prospecting for and active sensing of new knowledge, worldwide, including emerging / latent market needs Cultivating absorptive capacity and knowledge melding Sustaining a pluralistic dialogue, internally and externally Creatively challenging existing orthodoxies and business models Letting “autonomous” strategic processes flourish, and select, at various levels, from their outcomes Fostering Internal differentiation of organization Professor Y. Doz

Why should disruptive technologies matter to governments? Open, close opportunities for local industries, obsolete some, create new ones Geographically displace knowledge bases of given industries, markets … May change the rootedness of underlying knowledge, and, hence, the need for knowledge clusters May call for new knowledge networks, and hence new knowledge “hubs” (co-located core, global links) May change the social regime of an industry (e.g., from products to networks), and its value creation and value capture points and drivers Professor Y. Doz

PixTech: A Metanational Start Up Research & Development Futaba Motorola Raytheon US Financial Market TI F.E.D. Alliances Capital Research LETI Materials Tech. PixTech Rhone-Poulenc Nichia Manufacturing Distribution Unipac Sumitomo SAES Getters Professor Y. Doz

Small and medium entreprises What is “selected” by new “disrupted” conditions: - cultural “memes” - strategic initiatives, proposals, commitments - individual firms - networks _Creating an internal strategic ecology does not work when you are small! Are SMEs more or less adaptive than larger firms? Can global knowledge prospecting, sensing, accessing and melding be achieved by SMEs? How? Are networks adaptive mechanisms or straightjackets? Professor Y. Doz