1. Technology Acceleration, Disruption & the Innovator’s Dilemma

3. Disruptive innovation
An innovation that helps create a new market and value network, and eventually goes on to disrupt an existing market and value, displacing an earlier technology.
Innovations that improve a product or service in ways that the market does not expect, typically first by designing for a different set of consumers in the new market and later by lowering prices in the existing market.

4. Sustaining innovation
Does not create new markets or value networks but rather only evolves existing ones with better value, allowing the firms within to compete against each other's sustaining improvements.

5. Market disruption has been found to be a function not of technology itself but rather of its changing application.
Sustaining innovations are typically innovations in technology, whereas disruptive innovations change entire markets

6. Automobile
Early automobiles were expensive luxury items that did not disrupt the market for horse-drawn vehicles. The market for transportation essentially remained intact
Ford Model T mass-produced automobile was a disruptive innovation, because it changed the transportation market. The automobile, by itself, was not.

7. The Idea

8. Unique Dynamics in the Economics of Innovation
The activities of idea-focused firms differ from other businesses, due to:
network effects;
brand and reputation effects;
technology acceleration;
disruptive innovation;
labor substitution and organizational scaling;
geographical substitution and scaling (‘the world is flat’ effect); and
Open source alliances.

9. Technology Acceleration
Many if not most science and technology advances through the work of communities of scholars who organize into social networks
When areas of research show promise of being marketable, these networks, and performance will grow with the network and its research output
Research in many different arenas has shown that performance-to-price of commercially viable technologies tends to grow in a constant proportion annually over long periods of time
This growth is called technology acceleration,
and is the basis of industry rules of thumb such as Moores’ Law, which predicts a doubling of semiconductor chip performance to price every 18 months

10. Technology Acceleration in Microcomputer Components

11. Technology Acceleration in Lighting

12. Technology and Productivity Extending Moore’s Law
Technological change is exponential
Multi-platform Moore’s Law
In the past sixty years, life has changed almost beyond recognition
This pattern will culminate in unimaginable technological progress in the 21st century, leading to a singularity
Raymond Kurzweil, The Age of Spiritual Machines
Exponential
Growth

13. Acceleration in a Variety of Technologies

14. Exponential Increase in Technology Creation
Patents Granted
Technology Penetration Years until used by ¼ of population

15. Technology Acceleration in Motorcycles

16. Technology Acceleration in Motorcycles

17. Technology Acceleration in Motorcycles

18. Even agricultural technology accelerates
Since 1980, global food production has increased more than 69 percent,
with only a slight increase in total crop acreage, thanks to new strains of crops.
nearly 500 patents related to cloning of biological material have been awarded in the US alone over the past few years.

19. Technology Acceleration across Platforms
The Rate of Acceleration tends to Remain Constant as new Technologies substitute for Old

20. Disruptive Innovations
Disruptive innovations are
new products, services, or business models
that initially target small, seemingly unprofitable customer segments,
but eventually evolve to take over the marketplace
For example
Digital cameras like the Sony Mavica in the late 1990s

21. Disruptive Innovations

22. Look for ‘Disruptive’ Innovations
Memory and the Music Market
Bandwidth and the Media Market

23. Example of Disruptive Innovation in Disk Drives 5 MB of Storage in 1952

24. Example of Disruptive Innovation in Disk Drives 5-10 Megabytes in 1973 (14”)‏

25. Example of Disruptive Innovation in Disk Drives Shrink …shrink …shrink
20MB Seagate (5.25”) c
100MB Conner (3.5”) c
1000MB IBM (1”) c. 2000

26. Example of Disruptive Innovation in Disk Drives New Markets

27. Example of Disruptive Innovation in Disk Drives New Markets

28. Example of Disruptive Innovation in Disk Drives Entrance and Exit of Disk Drive Manufacturers
Between 1976 and 1995
129 Disk drive manufacturers entered the market
109 Disk drive manufacturers existed
1970s (after DL/1)‏
Plug Compatible and OEM
IBM,Diablo, CDC, DEC, Storage Tech, Ampex
2/3rds never introduced 8” drives
1980s (8” Winchester)‏
Shugart Assoc., Micropolis, Priam, Quantum
1985+ (5.25” Winchester)‏
Seagate, Miniscribe, Computer Memories, Intl. Memories
1987+ (3.5” Winchester)‏
Conner, etc.
1989+ (2.5” Winchester)‏
Prarietek, etc.
1992+ (1.8” Winchester)
… and so forth

29. Example of Disruptive Innovation in Disk Drives Innovators Dilemma
This is what is called ‘the innovator’s dilemma’
Technology acceleration reduces the price/performance of a product market so rapidly
That incumbents get locked into a higher gross margin (a variation of ‘shipping the good apples out’)‏
And cannot develop cheaper, better performing products

30. Technology Cost-to-Performance accelerates
Example of Disruptive Innovation in Disk Drives The Industry Dynamics of ‘Attack from Below’
Technology Cost-to-Performance accelerates
At an exponential rate
With a constant year-on-year growth
Substitute products accelerate on new performance parameters
Creating a sneak attack
At the low profitability end of an established firm’s market
As substitute technologies accelerate, they consume all of the market of established firms
Driving previously successful firms out of business

31. Example of Disruptive Innovation in Disk Drives Successful Transition through Creative Disruption
Control Data
60% of 14” market from
Missed the 8” market
Set up 8” production in Oklahoma city, for successful entry
Conner for 5.25”
Spin-off from Seagate and Miniscribe
Compaq pushed their market
Quantum retains 80% of spin-off Plus Development Corp (for 3.5” drives)‏
Plus consumes Quantum
1994 largest producer in world
Micropolis: Transition by Managerial Force
Founded in 1978 by Stuart Mabon for 8” drives
1982, Mabon read the trajectories, and retooled for 5.25”
They walked away from existing customers and nearly broke the firm

32. Disruption

33. Disruption
Steam shovels (mechanical excavators) were invented in the early 1800s,
cable operated arms powered by portable steam engines.
The first general design change occurred in the 1920s, when the new gasoline engines replaced steam as a power source.
For most manufacturers, this did not constitute a disruptive innovation, as they could merely swap out the steam engine for a gasoline engine, and keep the rest of the mechanics intact.
Diesel and electric power followed, again with no disruption of the industry.
These machines where huge, and designed for general contracting such as road building, sewer excavation and building site preparation – these required large bucket sizes, and the ability to move huge amounts of soil quickly.

34. Excavator Bucket Size and Markets

35. Disruption
Disruptive change in the excavator came from an unlikely quarter – aircraft technology developed for fighters in World War II
Hydraulics activators were developed both for retraction of landing gear, as well as control of wing shape and attitude.
Early hydraulic actuators were not very powerful, limited by the sealing material that was used; but their power was increasing at a 23% annual rate.
The first hydraulics to the arm and shovel of an excavator was developed in 1947, but was too small for commercially viable tasks.
Caterpillar devised a new business model, and targeted a new market. Caterpillar‘s small excavator arm was built as an attachment for the back of small industrial and farm tractors.
They called them ̳backhoes,‘
and identified residential jobs for contractors, farmers and so forth to dig narrow ditches for sewer, cable, flower beds, and other jobs done by hand in the past

36. Disruption
Limited by the power and strength of available hydraulic pumps‘ seals,
he capacity of Caterpillar‘s early machines was minuscule and of no use in the more lucrative general contracting markets.
Caterpillar developed new metrics to advertise their products.
Rather than measuring the quantity of earth that could be moved as the cable- driven manufacturers advertised; they emphasized:
shovel width (narrow being better for contractors); and
speed and maneuverability of the tractor.
To bigger companies like Link Belt, they were not even a competitor, because the spoke an entirely different language to a different clientele.
Steady acceptance by the residential market sustained, and eventually grew Caterpillar‘s business, as there excavators grew as well.
They introduces steadily larger diesel-tractor excavators until they could handle general contracting jobs as well.

37. Disruption
By 1974, the hydraulic excavators had the muscle to lift 10 cubic yards of dirt, a rate of improvement that outstripped demand in any of the excavator markets.
In contrast, the largest makers of cable-driven excavators, Bucyrus Erie and Northwest Engineering, concentrated on building better cable-driven machines,
for their most profitable customers
to do otherwise was not profit-maximizing and
They logged record profits until 1966.
But after that, their business plummeted as hydraulic excavators reached competitive capacities.
Much of the shift was driven by labor unions and operators;
hydraulics where significantly safer than cable-driven excavators
when a cable snapped due to an overloaded bucket, operators could be killed. And hydraulic excavators were less prone to breakdown.
The shift to hydraulic excavators occurred quickly in the early 1970s. Only 4 of the top 30 excavator manufacturers in the 1950s survived this transition into the 1970s.

38. Organizational Scaling
Automation, global transportation and communication networks have brought about fundamental changes in the structure of organizations
by substituting existing jobs
with machines or outsourced labor
Technology acceleration plays a major role in organizational scaling
technologies that were once too expensive for organizational processes
eventually improve their performance,
and drop their price sufficiently to replace human labor

39. Organizational Scaling
Technology Acceleration influences work in three ways.
Flattens the hierarchy or firms,
Eliminates vertical ‘stovepipes’ by enabling communication across and around organizational lines
Firms have become inured to the speed and efficiency of horizontal communications

40. Example of Organizational Scaling Disk Drives become to Small for Human Production
Before the early 1980s,
most hard disks had 8-inch or 14-inch platters,
required an equipment rack and lots of floor space
the reason they were large was that tolerances were not very tight
The advent of minicomputers and then PCs brought a demand for smaller 3.5 inch disk drives;
at the same time, rising factory costs forced firms to move production off- shore to lower cost Asian countries – especially Malaysia and Thailand
In the early 1990s, Asian disk drive industry employed around 50,000 people assembling these drives
But as technologies advanced, and 2.5 inch, then 1.3 inch drives, the drives themselves became too small for human hands
and factories were forced to automate, even if costs of production went up
By 2000, factory employment in the disk drive industry had dropped to around 5000 people, with almost no human hand ever touching a disk drive

41. Yamaha Piano Case Study

42. Precursors

43. Complements: Harmony
From

44. Progress
From this
To this

45. Ideas that didn’t make it to market

46. Disruptors

47. Yamaha Piano Case Study Example of Disruptive Innovation

48. Geographical Scaling
Each new technology has the potential to remap the ‘distances’ between people and places
this in turn demands that firms restructure the tasks they perform to remain competitive
Distances should be thought of here as any impediment that makes a particular business model infeasible
it could be cost, geographical distance, or risk
In general, the remapping enabled by new information and communications technologies makes the world smaller and flatter

49. Remapping the Distance from New York to Boston

50. ‘Jobs’ The Changing Nature of Corporate Work
The “job” is a recent social artifact
It emerged about the same time as the pendulum clock, and widespread consumption of coffee – both requisites for the synchronicity required of complex economies
It packaged the work that needed doing in the factories of the industrial revolution
Power was not portable, and factories were set up next to the streams or woods that fueled their production
People were expected to show up for their “jobs” when the machines required it
By changing the cost of managing people, information and geography,
work is gradually becoming unstructured and asynchronous,

51. Jobs, Geographical and Organizational Scaling A U.S. Story
Twenty-five years ago Jill and Ken Greer started Greer & Associates,
their Minneapolis, Minnesota based photography firm specializing in developing commercials for TV and doing commercial photography for retail catalogs
They built up a nice business in Minneapolis, with more than forty graphic artists and Web designers, and their own studio, with a local and national clientèle
But over the past several years Ken saw their competition change dramatically.

52. Ken Greer’s thoughts on Geographical Scaling
“...today the dynamic is totally different.
Our competition is not only those firms we always used to compete against. Now we have to deal with giant firms, who have the capability to handle small, medium, and large jobs,
and also with the solo practitioners working out of their home offices, who, by making use of today's technology and software, can theoretically do the same thing that a person sitting in our office can do
What's the difference in output, from our clients' point of view,
between the giant company who hires a kid designer and puts him in front of a computer,
and our company that hires a kid designer and puts him in front of a computer,
and the kid designer with a computer in his own basement?

53. Ken Greer’s thoughts on Geographical Scaling
The technology and software are so empowering that it makes us all look the same
In the last month we have lost three jobs to freelance solo practitioners who used to work for good companies and have experience and then just went out on their own
Our clients all said the same thing to us:
`Your firm was really qualified. John was very qualified. John was cheaper'
We used to feel bad losing to another firm, but now we are losing to another person!”

54. Ken Greer’s thoughts on Organizational Scaling
Every part of the photographic process has now gone
digital,
virtual,
mobile, and
personal
Digital cameras for professional photographers achieved a whole new technical level
that made them superior to traditional film cameras
And raw photos can be made instantly available anywhere in the world
notably places with lowest labor costs – through the Internet

55. Ken Greer’s thoughts on Organizational Scaling
"We bought a digital camera, it was incredibly liberating at first. All of the thrill and excitement of photography were there—except that the film was free.
Because it was digital, we didn't have to buy film and we didn't have to go to the lab to have it processed and wait to get it back.
If we were on location and shooting something, we could see if we got the shot right away. "
For a year or so there was this new sense of empowerment, freedom, creativity, and control.

56. Ken Greer’s thoughts on Organizational Scaling
"We discovered that not only did we now have the responsibility of shooting the picture and defining the desired artistic expression,
we had to get involved in the technology of the photograph
We had to become the lab
We woke up one morning and said, `We are the lab ... in addition to being the photographer, we had to become the processing lab and the color separator"
Once the technology made that possible, Greer's customers demanded it.

57. Ken Greer’s thoughts on Organizational Scaling
Because Greer could control the image farther down the supply chain, they said he should control it, he must control it.
The clients said, `We will not pay you extra for it,"' said Greer.
"We used to go to an outside service to touch up the pictures
to remove red-eye or blemishes
but now we have to be the retouchers ourselves also
They expect red-eye to be re-moved by us, digitally, even before they see it
Now we had to learn to be good at all these other things
It is not what we signed up for, but the competitive marketplace and the technology forced us into it."

58. Ken Greer’s thoughts on Organizational Scaling
"Things were supposed to get easier
Now I feel like I'm going to McDonald's,
but instead of getting fast food,
I'm being asked to bus my own table and wash the dishes too
If we put our foot down and say you have to pay for each of these services,
there is someone right behind us saying, `I will do it all'
So the services required go up significantly and the fees you can charge stay the same or go down."

59. Greer on Organizational Scaling
"What we sell now
"is strategic insight, creative instinct, and artistic flair
We sell inspired, creative solutions, we sell personality
Our core competence and focus is now on all those things that cannot be digitized
We have hired more thinkers and outsourced more technology pieces.
In the old days, said many companies “hid behind technology.”
You could be very good, but you didn't have to be the world's best.
There was a horizon out there and no one could see beyond that horizon.
Three years ago it was inconceivable that Greer & Associates would lose a contract to a company in England, and now we have.
Everyone can see what everyone else is doing now, and everyone has the same tools, so you have to be the very best, the most innovative thinker."