Disruptive Technology: Use and Abuse of the Concept Dr. Michael Bell Chief of Naval Operations (N61F) Presentation to the Information Age Metrics Working Group 23 April 2004

The Innovator’s Dilemma

The Dilemma “One of the most consistent patterns in business is the failure of leading companies to stay at the top of their industries when technologies or markets change.” “Why is it that companies like these invest aggressively – and successfully – in the technologies necessary to retain their current customers but then fail to make certain other technological investments that customers of the future will demand? Undoubtedly, bureaucracy, arrogance, tired executive blood, poor planning, and short-term investment horizons have all played a role. But a more fundamental reason lies at the heart of the paradox: leading companies succumb to one of the most popular, and valuable, management dogmas. They stay close to their customers.”

Definitions Performance trajectory – the rate at which the performance of a product has improved, and is expected to improve, over time Sustaining technologies – tend to maintain a rate of improvement; that is, they give customers something more or better in the 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. Performance trajectory – the rate at which the performance of a product has improved, and is expected to improve, over time

Disruptive Technology The Impact of Sustaining and Disruptive Technological Change Source: C. Christensen, The Innovator’s Dilemma Time Performance demanded at the high end of the market Performance demanded at the low end of the market Progress due to Sustaining technologies Disruptive technological innovation Product Performance

Managing Disruptive Technology 1.“Marketing and financial managers, because of their managerial and financial incentives, will rarely support a disruptive technology.” 2.“Lead customers are reliably accurate when it comes to assessing the potential of sustaining technologies, but they are reliably inaccurate when it comes to assessing the potential of disruptive technologies.” 3. “Small, hungry organizations are good at placing economical bets, rolling with the punches, and agilely changing product and market strategies in response to feedback from initial forays into the market.” 4.“In the history of the disk-drive industry, every company that has tried to manage mainstream and disruptive businesses within a single organization failed.”

Value Networks “A company’s revenue and cost structures play a critical role in the way it evaluates proposed technological innovations.” Value network – the context within which a firm identifies and responds to customers’ needs, solves problems, procures input, reacts to competitors, and strives for profit “Within a value network, each firm's competitive strategy, and particularly its past choice of markets, determines its perceptions of the economic value of new technology.”

Sample Value Network Modems, etc. Word processing and spreadsheet software Thin-film disks CISC microprocessor Displays, etc. AT/SCSI embedded interface, etc. Notebook Computers 2.5-inch Disk Drives Metal-in-Gap Ferrite Heads Portable Personal Computing Zenith Toshiba Dell Light and compact Rugged Easy to use Ruggedness Low power consumption Low profile Cost Availability in high unit volumes Connor Quantum Western Digital Applied Magnetics

Skunkworks “The strategy of forming small teams into skunk-works projects to isolate them from the stifling demands of mainstream organizations is widely known but poorly understood.” “Creating a separate organization is necessary only when the disruptive technology has a lower profit margin than the mainstream business and must serve the unique needs of a new set of customers.”

Questions What drives and maintains a rate of capability growth in the technology beyond what is demanded by the market? How does technology cross the “valley of death” between markets (value networks) if there is no market in the gap?

Asymmetry Mobility is upward because development costs must be recovered or justified Attack is from below because that is how the value networks are merged

What’s Wrong with this Picture? The Impact of Sustaining and Disruptive Technological Change Source: C. Christensen, The Innovator’s Dilemma Time Performance demanded at the high end of the market Performance demanded at the low end of the market Progress due to Sustaining technologies Disruptive technological innovation Product Performance No technology, no market Disruption at bottom of market

Improved Picture The Impact of Sustaining and Disruptive Technological Change Source: C. Christensen, The Innovator’s Dilemma Time Performance demanded at the high end of the market Performance demanded at the low end of the market Progress due to Sustaining technologies Disruptive technological innovation Product Performance

Implications for Defense What is our (DoD’s or DoN’s) value network? Do we have multiple value networks? –Aviation, surface warfare, undersea warfare, expeditionary warfare, special operations… Asymmetry –Attack is from below –Mobility is upward –This could “explain” the blurring we have seen between scales of conflicts

Competition vs. Conflict Companies compete to satisfy their customers; the market decides –VHS format meets customer needs better than Beta Militaries attack one another; the battlefield decides –Improved precision (air) strike is not the same as better air/missile defense

The Defense “Market” High end – high-intensity conflict Low end – whatever we are told (generally assumed to be a “lesser included case”) Is this really a single market? In peacetime, our “customers” are internal –E.g., the UK Equipment Capability Customer

Unclassified19 USJFCOM DRAFT Delivering Innovation Rapid Decisive Operations (RDO) - featured Millennium Challenge 2002 (MC02) concept (CJCS Guidance, 17 April, 2000) Joint Concept Development Focus, FY03-05 (Joint Chiefs of Staff and Combatant Commanders Approval - Jan 03) Future Prototype Decisions Prototype Decision: SJFHQ and its enabling concepts (Chairman’s Guidance letter, 26 November, 2002) Hand-off to institutionalize

Capability Growth “The typical framework of intersecting S-curves… is a conceptualization of sustaining technological changes within a single value network.”

Anti-Disruptive Technology J. H. Helms, Ford Research Lab.