How Can Great Firms Fail

How Can Great Firms Fail?
Insights from the Hard Disk Drive Industry by Clay Christensen
Presentation by Helge Dring

How disk drives work: -A hard disk contains of platters, spindle, engine, actuator arm with a read and write head
-The components above work like a record player. Read and write head on the actuator arm functions like the phonographic arm and needle of a record player
-Today's engines spin the platters with an average of 10000 rpm (rounds per minute) in 0.05 m height over the medium -Binary Data is transferred into positive and negative magnetic force

Price Development in the Hard Drive Industry:
Price per Megabyte (Constant 1982 Dollars)
Average Computer 80286 20 MB HD Price 4000$ Average Computer 80486 200 MB HD Price 2500$
1.000,00 1977 100,00

Average Computer 8086 10 MB HD Price 6000$
1980 1985
Average Computer 80386 40 MB HD Price 3000$
10,00
1,00
1990 1994
Average Computer Pentium 1 GB HD Price 3500$
0,10 10 100 1000 10.000
100.000
Cumulative Terabytes Produced

Price Development in the Hard Drive Industry: -The number of megabits (Mb) put in a square inch has increased by 35% per year. From 50 Kilobytes (Kb) in 1967 to more than 1 Gigabyte (Gb) in 1995 -Today seagate manages to put 100 Gb on one single platter -My own 160 Gb Samsung hard disk costs 0,0005$ per Mb 80$ -With each doubling of cumulative terabytes sold in the market the cost per megabyte fell by 53%. That`s an outstanding performance no where else to be found. -Dimensions: The average 3.5 Floppy Disk has a capacity of 1.44 Mb or 1.509.949 bytes / 100 Gb equal 107.374.182.400 bytes or 71111 of the above mentioned 3.5 Floppy Disks

Improvements in Recording Density:
Magneto-resistive heads
Arial Recording Density (Millions of Megabits per Square Inch)
1000
100
Ferrite-oxide heads Thin-film heads 10
1975
1980
1985 Year
1990
1995

Innovations in the recording industry: -In 1973 IBM develops the first hard disk of modern kind; the winchester 14 model based on ferrite oxide heads (incremental improvements are made by increasing the density) -There is no other technique until 1985 when thin film heads emerge (this can be named a radical new technology) -The performance data of ferrite oxide heads then is much higher, than the new thin film heads, but the last named has much more potential (incremental improvements vs. radical improvements) -By 1993 magneto-resistive heads emerge and outperform both other techniques after a short while (next radical step up the ladder) -Today's tests base on glass fiber as the material of the future (a radical innovation again)

The technology mudslide hypothesis:
Market
Leading Company
Market development direction

Behind the mudslide hypothesis: -Which companies lead, which stay behind? -What have the leading companies got that enables them to lead the market? -Which innovations lead to a revolution in the market (make the established firms fall behind and catapult the entrant firms in front)? -Is market pace or a companys ability responsible for success? -Are passiveness, arrogance or a risk-averse strategy the reasons for failure in this economy?

Portfolio of the computer and disk drive evolution:
Mainframe Computer
- uses 14 drive - later 8 and smaller
Minicomputer
- uses 8 drive
clockwise: the evolution of the computer
- uses 3.5 drive - later 2.5
- uses 5.25 drive - later 3.5
Portable / Notebook
Desktop Computer

Portfolio of the computer and leading disk drive manufacturers:
Mainframe Computer
IBM / Diablo / Ampex / Memorex / EMM/ Wang / Western Digital / Read Rite / Control Data / Burroughs / Univac / Micropolis
Minicomputer
IBM / Western Digital / Micropolis / Seagate / Fujitsu / Hitachi / NEC
At first 129 companies
clockwise: the evolution of the computer

Quantum / Connor / Maxtor / Samsung / Toshiba / Kalog / Mitsumi / IBM / Western Digital / Seagate / Micropolis/ Fujitsu / Hitachi / NEC
Excelstore / IBM-Hitachi / only 20 Fujitsu / Maxtor / left Samsung / Seagate / Toshiba / Western Digital
later
Portable / Notebook
Desktop Computer
90 s
80 s

Boston Consulting Group Portfolio:

Disruptive Innovations vs. Sustaining Innovations: -Sustaining technologies foster improved product performance (be it a incremental, discontinuous or radical one) -The disk in focus has a higher density, is faster, but still 5.25 in size -An established product is being improved by sustaining technology -Disruptive technologies are sometimes worse than the established product and under perform them in the near term -Disruptive technologies are typically cheaper, simpler, smaller and sometimes more convenient to use -The disk in focus here is smaller (2.5), slower, needs less power and is used in a completely different market (portable computers)

Evil Customers: -Disruptive Technologies are not wanted by todays customers, but by tomorrows customers -The market is usually ahead of customers needs -Customers want the product they already know -Markets that dont exist today cant be analyzed -In 1980 a portable Computer wasnt even in sight, in 2004 its a common good
-If you stick to your customers you might miss the chance to enter tomorrows markets

Established firms vs. entrant firms: Established firms: -are responsible for their customers -use mostly incremental / sustaining innovations (to keep customers happy) -depend on their customers -have only a biased inside view of the market Entrant firms: -are independent -use mostly radical / disruptive innovations (to access new markets) -have an unbiased outside view of the market If you cant beat your competitor on his own ground take the battle to another level!

Critical inquiry: -129 companies in the past reduced to 20 at present; a familiar process of evolution that can be found in many other industries e.g. Software, Automobile, Brewery Business etc. -The companies didnt fade away but merged like Seagate/Connor or IBM/Hitachi (joint venture) or concentrated on different subjects and later returned to the same market again like IBM, Wang and Mitsumi -p.21 Quantum is still a significant manufacturer of hard disks and didnt perish

Discussion: -Is it so easy to differentiate between disruptive and sustaining techs?
-Isnt it poor management if you do the same mistakes your competitor did when you overtook him?

How Can Great Firms Fail

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How Can Great Firms Fail

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How Can Great Firms Fail?

Insights from the Hard Disk Drive Industry by Clay Christensen

Presentation by Helge Dring