Companies that Introduced Disruptive Innovations Black & Decker Canon HP Inkjet Pixar Jet Blue Nucor Connor Peripherals

What Do These Innovations Have in Common? New product cost less, but its performance was inferior on dimension that mainstream customers valued New product attracted “over-served” customers or customers who previously could not afford it or lacked the skills to use it Incumbent competitors initially ignored or rejected it

What is the Innovator’s Dilemma? Should the firm invest (a) in a new market with limited and uncertain demand, or (b) in a market segment with its lowest margins and most price sensitive customers? OR Should the firm invest in segments in which its current customers pay a premium for superior products?

Sustaining Technologies Sustaining technologies improve products that current customers want. Companies with sustaining technologies are willing to make necessary capital and skill training investments to improve attributes that current customers say they want most.

Disruptive Technologies Tend To Develop in Emerging Markets Customers in established market segments don’t value the new bundle of attributes in the product as much as new customers do. One critical disk drive attribute was storage capacity, in which 3.5” disk drives were initially inferior. Seagate management judged that 3.5” drives would never meet profit targets based on low volume estimates. Therefore, there was little opportunity for learning or spread fixed costs. Seagate’s 5.25” drives had $300 million annual sales versus $50 million for 3.5” disk drives.

Why Customers Who Initially Reject a Disruptive Technology May Eventually Come to Accept It Disruptive technology is initially inferior on attributes that mainstream| customers value, but improves fast enough to eventually meet their needs Improvement is motivated by trying to capture mainstream customers. This often succeeds because growth in mainstream customers’ needs is slower than rate at which disruptive technology improves In work station market, this "catch and surpass " phenomenon didn’t apply because its customers continuously demanded that disk drives increase storage performance. The established firms in this segment were moving fast enough not be be overtaken by makers of 3.5 disk drives.

Performance Improvement Versus Performance Demanded

Evaluating Performance Improvement of Two Technologies Expected trajectory of performance improvement TIME

An Independent Organization is Less Likely to Overlook a Disruptive Technology Doesn’t have high cost structures Doesn’t risk losing current customers Doesn’t have to spread costs over other products Can focus on a new or different customer group. Can accept a lower profit margin on its products. Doesn’t have to fight cannibalization with established lines. Fewer resource fights.