Disruptive technolgies

Clayton M. Christensen, The Innovators

Dilemma, HarperBusiness, 2000 og The
Innovator's Solution: Creating and Sustaining
Successful Growth, 2003, Harvard Business
Press
Dramatic, "disruptive" changes in technology
What happens to organizations when such
changes occur?
They can adapt to new technology or die out

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Examples
Mainframe to minicomputer
Mini-computer to PC
Development of disk technologies
From cable-management to hydraulic
excavators in American steel industry
Photocopy (Xerox)
Internet?

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Case: Digital Equipment
Corp-
from
60s: IBM success
dominance (mid -80s)
70s: New technology, a new type machines, mini
computers
Many manufacturers: Digital, HP, Prime, Norwegian
Data
1986 "Taking on Digital these days is like standing
in front of a moving train. The $ 7.6 billion computer
maker has been gathering speed while most rivals
are stalled in a slump. "Warning to IBM ...
One of the most prominent companies in McKinsley
study that led to the book "In Search of Excellence"

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 to fiasko (end of the 80s)

Digital has major problems: "Sales are drying up in its key

microcomputer line. A two-year Restructuring plan has
failed miserably ... The real misfortune may be DEC's lost
opportunities. It has squandered two years trying halfway
Measures two RESPOND two low-margin personal
computers that have transformed the computer industry
Norwegian Data bankruptcy
The PC wins-out over the mini-computer
Compaq buys Digital (2000)
Digital (and the Norwegian Data) were leading "world
class" companies, why it can go so wrong so fast?

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New technology can be
the reason
We can distinguish between:
"Sustaining" Maintaining
technologies. These preserve
corporate and market structures.
"Disruptive" technologies. There may
be major changes in corporate and
market structures

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Sustaining (maintaining)
technology
All technologies are constantly evolving to better
performance and lower cost
Radical or more incremental change, but the common
features are:
Increasing the performance of established products

Within the main dimensions that customers want

Example: cars, planes, computers, television sets

Most innovations in a given industry are "sustaining

Radical changes in a "sustaining" technology, which
propeller planes to jets

VLSI development in the PC industry

LP to cassette, to CD, to DVD

rarely lead to bankruptcies of leading companies.

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Disruptive
(breakthrough)
technologies
The characteristics of innovation that leads to
performance degradation:
Mainframe to minicomputer

Mini Machine for PC

Cable-driven to hydraulic excavators

From major to minor physical hard disks? (14 -> 8"

-> 5 ->3 " -> cloud)

But the technology may have other properties:
Less expensive, more robust, smaller, lighter,

requires less energy, more flexible, easier to

maintain, easier to use ...
Like opening the way for new markets
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The new technology comes
into traditional markets
New markets provide good income
Revenues are used for new research and
development
The development is as good as the technology
is also appropriate for the traditional markets
But since the new ("disruptive") technology
has numerous other benefits it will undermine
the market for traditional products.
Therefore, we have (almost) no: Mainframes,
Mini Machines, Cable-operated excavator,
Physical large disk, today.

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Mini-computer til PC
PC brukte ny teknologi (VLSI)
Lavere kapasitet, men
billigere, mer robuste, mindre, lettere, ...
Enbruker-filosofi
Brukes direkte av sluttbruker, programvare som var
enklere bruke (Apple Mac, s Windows)
Prosessor, maskinvare, operativsystem og
applikasjon fra forskj. leverandrer (Intel, Compaq,
Windows, Office/Lotus/Quicken). Det gir fleksibilitet,
strre konkurranse, lavere priser, bedre kvalitet

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 Personal experiences

Introduces the architecture for a system of health care in

1978:
A machine per physician (NPC)
A common database server (computer with 20 Mb disk)
Comment from Norwegian Data were alternative supplier,
"complete unrealistic
But we argued that our solution was
safer (more machines)
cheaper and more future oriented (computer technology)
more efficient (one per processor. doctor)
more robust (run without an operator in a normal environment)
more user-friendly
Implemented in 1979, the world's first disk solution for PC

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PC Market development
From one alternative for mini-computer (for
end users and small companies)
In substitute for mini-computer:
greater capacity
Networking connections
The market for mini machines disappeared in a
few years:
In 1986, the Norwegian Data seen as the flagship of
the Norwegian industry, they earned good money.
Two years later they were gone.

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Were the mini-computer
manufacturers sleeping in
class?
No, Digital, Norsk Data and the others
had built their busines based on
competent engineers, program
developers and sales force
They were all examples of world class
businesses
They invested also in new technolgy.
Digital was early out with a PC-series
Even so, it didnt go well.. .
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 Development of
disruptive technologies

e to
u
Disruptive
e ss de es
technological r ogur ptilvogi
P isrhno
innovation d ec
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 Mini-computer producers
Were expert
Did nothing wrong
However, it had a structure and a market adapted for a
different technology:
New Forms (analyze customer needs)

Sales margins

Profits p.r. sale

1987 Discovery Project (Ministry of Industry + Norwegian

Research + SND + Norwegian Data):
IT centers in rural areas

Mini-computers from the Norwegian Data

Panic Reaction to rescue Norwegian Data

DN-chronicle: "U-help, latest in a bygone technology

Must the Norwegian Data go into bankruptcy?

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Digging machine
manufacturers
After World War II, remotely
operated excavator
Large capacity
Costly
For mining, M. M.

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Hydraulic machines
The first hydraulic
excavators:
Small capacity
Could be connected
to tractors
Small and flexible
Reliable

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Hydraulic as a disruptive
technology
Hydraulic uninteresting to the established, their
customers that would have greater, not lesser
capacity
The established manufacturers took the customers
needs for granted
Many newcomers come in with hydraulic
technology
These took the characteristics of technology for
granted
Found new markets, municipalities, contractors,
farmers,

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What happened?
Hydraulic-technology underwent
fast development
Increasingly large bucket capacity
Won new markets
Went into the established market
Broke most of the established
manufacturers
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Could the established
have done anything
differently?
They knew the technology
Try it out, often in hybrid solutions with
existing customers
Were skilled developers
Were locked into its established customer
base, unfortunately hydraulic was a
technology customers did not need
They competed with other companies that
used the same technology (cable)

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Standard solutions do not work
against disruptive technology

Work harder
be smarter
Listen to your customers
Invest more aggressively
Develop technology
Drive in the wrong ...!

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 Disc-technology
Very rapid development from
the 1950s to the present day
Been through many
"generations" of
technologies
The trend has been clear
"disruptive" effects
Prof. Christensen points out
that the development
follows a definite pattern,
with easily identifiable steps

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6 steps in development of
discruptive technology
1. New, "disruptive" technology were first
developed in the established companies
1) Control Data (14 "manufacturer) developed 8" technology
2) Seagate, executive producer of the 5 "technology
developed 3 " model

2. Marketing requested feedback from

customers
1) IBM would not have 3 "model for its XT and AT
computers (they wanted more capacity)
2) Weak sales forecasts
3) Management cut out the product (explicitly or implicitly)

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 Further development and
new companies
3) Established company focus on the development of
existing ("sustained") technology
Ruled by the customers (large capacity) and market
In order to generate revenue and profits
4) New companies are formed based on the new
"disruptive" technology
For example, Connie Peripherals, formed by staff from
Seagate
unable to sell to existing customers
had to find new markets
through trial and error
For example, the laptop market (but this was small and
highly uncertain in the late 80's)
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newcomers are taking market share,

the established get problems

5) The new technology developes for larger capacity

Start market (for example) increases in size
The capacity is so great that technology also gains entry at
the high end of the market (e.g. Stationary PC)
6) The established attempts to defend their markets:
Seeing that the new technology is introduced also in their
(high capacity) market
Taking up the prototypes from research labs
But now this has become a "sustained" technology, where the
competition is competing on performance and price
Newcomers often have advantages here

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 Handling a "disruptive"
technology requires
Knowledge of the new technology
Willingness and ability to develop a technology
for new customers, as well as a need to
develop the "sustained" technology
Willingness to accept new forms of marketing,
sales and production
Willingness to accept new profit margins for
each sale
Willingness to terminate the existing staff,
hiring new employees instead

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Impossible?
Christensen finds few examples of
companies that have managed to
survive "disruptive" changes
IBM is an exception. Have had mixed
success, but it did best when the PC
division was isolated from its parent
company
Best solution is to start a new company
to handle the new technology
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 Is Internet such a
technology?
Allows for new sales channels (banking, insurance,
retail, auctions ...)
Radical change in costs per. transaction (from
manual to automatic)
However, the pioneer (first mover) advantage is
debatable, it is easy for others to come by and
take market share
"Click & Mortar" may be the best solution in many
markets, where they have established an
advantage
Both" it is possible here, but was difficult in the
other cases we have analyzed
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 Survival examples
Traditional industries for the production of watches
(Swiss):
Quality in appearance, clock necklace and watch that
functions
Quality linked to price
New technology, digital watch:
Very cheap in production
High quality mechanisms (functions)
Low quality jewelry?
Traditional industry managed to adapt to the
development, (are jewelry characteristics more
important than the functionality?)

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Disruptive technologies
Is not common (fortunately?)
But in many industries, the new technology can
have a "disruptive" effect on parts of the business:
Flight and bus for NSB (trains)
Numerically controlled machine tools in manufacturing
IT in Telecom (mobile technologies) (Internet on Telecom)
Internet for banking
Email for the postal industry
Laser surgery to correct vision
Digital Cameras

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Prognoses (by Kai)
Libraries will disappear in its traditional
form, collections, purchases, loans will
be irrelevant in a digital world

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 Prognoses (by Kai)
All work to handle cash will disappear

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 Prognoses (by Kai)
Newspapers will have competition when
these are produced digitally

Shops will feel the competition from

online

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 Prognoses (by Kai)
Newspapers will have competition when these are

produced digitally (eAvis)

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 Prognoses (by Kai)
Shops will feel the competition from online
http://www.kelkoo.no/infosenter/faq

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