2. Innovation B290

3. Tushman, M. and P. Anderson, 1986, Administrative Science Quarterly 31 439-465 Cement industry

4. Tushman, M. and P. Anderson, 1986, Administrative Science Quarterly 31 439-465 Computers

5. Tushman, M. and P. Anderson, 1986, Administrative Science Quarterly 31 439-465 Passenger Aircraft

6. The Technology Cycle Source: Anderson, P. and M. L. Tushman, 1990, Administrative Science Quarterly 35(4) 604-633

7. Technological change Discontinuity –Technology breakthroughs Competence enhancing –Transistors (for computer companies) –Float glass Competence destroying –Transistors (for valve companies) –Plastic –Flash memory –Xerography

8. Types of Innovation Incremental vs. Radical Competence enhancing vs. competence destroying Component vs. architectural Sustaining vs. Disruptive

9. Incremental vs. Radical Incremental –Small changes that improve the performance of a product (or service) Radical –Dramatic change in performance, an inflection point or discontinuity

10. Component vs. Architectural Component –Does not alter the basic product architecture Thermal Conduction Module in 3083 Multi-core microprocessors (Pentium Core 2) Architectural –Takes existing components and combines them in novel ways IBM PC, Apple’s iPhone

11. Competence enhancing/destroying Competence enhancing –Innovations that build on a company’s current knowledge and resource base Hybrid disk drives for Seagate Competence destroying –Innovations that require completely new skills and resources Digital image capture for Kodak (essentially a chemical company)

12. Sustaining vs. Disruptive Whether an innovation is sustaining or disruptive: –May have little to do with technology –More often, a function of the interaction of changing markets and organizational imperatives

13. Technological Discontinuity Technology S curves Time Technological knowledge

14. Three different technologies Ferrite heads Metal in Gap heads More recently: Magnetoresistive Giant Magnetoresistive Tunneling Magnetoresistive Thin film heads 1950 1990 1970 1995 Areal Density

15. IBM’s development trajectory IBM’s R&D scientists reported to management that different technologies (e.g., “Ferrite head”) had performance limits determined by the laws of physics As each technology ran out of steam the company had to be positioned to implement its successor

16. Fujitsu and IBM (continued) As IBM approached the predicted technological limit – funding for the next promising technology (e.g., thin-film) was increased –funding for further research into the existing technology (e.g., ferrite heads) was reduced Thin film head improved increasingly rapidly while progress in ferrite heads slowed…

17. …Fujitsu pushes on with Ferrite Ferrite heads Metal in Gap heads More recently: Magnetoresistive Giant Magnetoresistive Tunneling Magnetoresistive Thin film heads 1950 1990 1970 1995 Areal Density Ferrite heads

18. Technology S-curves May be a function of a particular technology Or may simply be a self-fulfilling prophesy

19. Disruptive Innovation Why do incumbent firms often fail? –Companies listen to their most lucrative customers –Emerging markets are too small (and risky) to pursue –Forecasts of emerging markets are generally wrong –A firm’s existing capabilities shape its approach –Progress may allow technology to ‘leap’ from one market to another

20. The Hard Disk Drive Industry “Of the seventeen firms in the industry in 1976-- all except IBM's disk drive operation had failed or had been acquired by 1995” (… and IBM sold it’s operation to Hitachi in 2003) “all of the producers remaining by 1996 had entered the industry after 1976” (Clayton Christiansen, HBS) Despite established firms' technological prowess, the firms that led in developing new, disruptive technologies were new entrants, not incumbents.

21. Supply exceeds demand Time Performance / price Segment demand “Old” technology “Disruptive” technology

22. The Value Network New products are needed for new markets –Different set of CSFs Smaller form factor disks Incumbents consider the technology for this market inferior to that needed for their major customers/markets –New entrants fill the gap –Technology price/performance improves faster than the small (new) market needs Enough to surpass incumbent’s technology New entrants supplant incumbents