Disruptive Technologies And The Innovation Dilemma

Disruptive Technologies And The Innovation Dilemma Disruptive technology was first introduced in Clayton Christensen article Disruptive Technologies: Catching the Wave (1995) which was co-wrote with Joseph Bower. [1] In view of business and technology fields, as discussed by Clayton Christensen, disruptive technology is a technology initially in a form of simple application, then improves and dominates dramatically in the markets, where the markets do not expect. Disruptive technology typically improves in a way that by being lower priced and designed for various disciplines of consumers. [2] Instead of allowing consumers with lots of money or lots of skills to use it, disruptive technology is designed in which allow whole new population of consumers to use it, access its services. [3] For leaders of the existing markets, disruptive technology makes potential threats on them. It is because it competes with the existing leaders of the market in such an unexpected trend. Leaders of the existing markets sometimes fail to compete with disruptive technology since they do not expect disruptive technology can improve and dominate dramatically in the markets. Generally, disruptive technology dominates the existing markets by moving into a new market where the older technology fails to follow. In additional, it enhances and makes improvements in its performance until finally displace the market incumbents. [2] There are lots of examples of disruptive technology such as personal computers, digital memory cards, digital photography, and Liquid Crystal Displays (LCD). Personal computers displaced the original mainframes computers. The dominant of digital memory cards has displaced the floppy disks which were widely used in the past. [4] Endnotes: [1] Bower, Joseph L. Christensen, Clayton M. (1995). Disruptive Technologies: Catching the Wave Harvard Business Review, January-February 1995 [2] http://en.wikipedia.org/, Wikipedia, Disruptive Technology (accessed on 6 January 2010) [3] http://www.claytonchristensen.com (accessed on 6 January 2010) [4] http://en.wikipedia.org/, Wikipedia, Examples of disruptive innovations (accessed on 6 January 2010) What is sustainable technology? How does it differ from disruptive technology? (1/2 to one page) Sustainable technology improves established products performance without replacing them. Sustainable technology is usually developed by well-established company which usually holds a leadership position in the corresponding industries. Generally, most of the new technologies and innovations improve the performance of products. The term sustainable technology was introduced by Clayton Christensen in 2003: What all sustaining technologies have in common is that they improve the performance that mainstream customers in major markets have historically valued. [1] In general, sustainable technology does not create side effect on the existing markets. Sustainable technology can be classified into two categories: Revolutionary or Evolutionary. For Revolutionary technology, customers are allowed to deal with a problem in a radically mean while for Evolutionary technology, products in an existing market are improved in such ways that customers are expecting. [2] Sustainable technology aims to sustain the organizations focus, and sustainable technology usually satisfies current customers needs, while disruptive technology does not initially improve the focus of an organization. They sometimes do not have a market when they are created. In view of the difference between incumbents and entrants in terms of technology adoption, since sustainable technologies are well established together with the domination of strong players in their markets, an entrant may choose to begin with alternative technologies. Besides, disruptive technologies have lower gross margins, smaller size of target markets and simpler products, which allow them to carry out by either firm. [3] Nevertheless, when compared to disruptive technology, products of sustainable technology are usually regarded as too expensive to be adopted and preferred instead of too cheap that no one want to adopt and prefer. [4] Endnotes: [1] Christensen C. 2003. The Innovators Dilemma, Harper Collins Press [2] http://en.wikipedia.org/, Wikipedia (accessed on 7 January 2010) [3] http://www.claytonchristensen.com (accessed on 6 January 2010) [4] Xiao Huang Greys Sosic 2008. Sustaining vs. Disruptive Technology: Industry Equilibrium under Technology Evolution, Marshall School of Business, University of Southern California, Los Angeles, CA 90089 Managers in successful, on-going business are more comfortable with which type of technology disruptive or sustainable? Explain your answer. Illustrate it with examples. (One page) Instead of disruptive technology, sustainable technology which serves the present customers and puts emphasis on incremental improvements is more comfortable to develop and maintain from the point of views of managers who are doing on-going and successful business. Since the majority of advances are sustainable technologies, with the established technologies, developed good reputation of the organizations and relationship with the customers in the mainstream markets, it is no doubt that managers in on-going business will feel more comfortable in those sustainable technologies. [1] In the mainstream markets, there are enough suppliers willing to develop and support the new technology and customers to buy it. In the computer industry, as a manager of Intel Corporation, it is more comfortable for them to perform continuous advancement on the processing power of Intels integrated chips as a sustainable technology since there are enough suppliers such as Tenco Electronics Co. and IT Market Web to support their development and large groups of mainstream customers to buy them. [2] As a manager in an organization, a stable and sustainable market is preferred. In the healthcare industry, applications which are used to manage the assets and traditional supply chain are usually considered as sustainable applications. It is nothing but the improvements and enhancements in the existing processes for the mainstream customers such as the large hospitals. Suppliers of these applications include the large hospital suppliers and Radio Frequency Identification (RFID) consultants. [3] With the large supports behind, managers are much used to prefer sustainable technology. Sometimes, if an organization chooses to adopt disruptive technologies instead of sustainable technologies, rapid technology improvements may overshoot the mainstream markets. This is a significant perplexing problem for a manager in an organization. Taking the producer of graphics cards Nvidia as an example, the development of technologies and products were good initially. [4] However, a large difference to their customers requirement was finally reached when the number of polygons rendered per second was increased rapidly every successive improvement. From the perspective of managers in an on-going, successful business, sustainable technology is more preferred in general. Endnotes: [1] http://www.hartnall.com (accessed on 9 January 2010) [2] http://www.alibaba.com/suppliers/Intel (accessed on 9 January 2010) [3] Karen Crooker, Dirk Baldwin, Suresh Chalasani, RFID Technology: Applications in the Healthcare Industry, European Journal of Scientific Research, 2009 [4] http://en.wikipedia.org/, Wikipedia, Nvidia (accessed on 9 January 2010) What does Christensen mean when he asserts that many great companies went out of business because they were too focused on satisfying their customers stated needs? How can the example of Digital Equipment Corporation (DEC) be used to illustrate this point? Explain your answer. Illustrate with additional examples. (1 2 Pages) Many great companies were too focused on satisfying their customers stated needs, actually, they do not have much difficulties on succeeding this objective in order to develop their sustainable technology. It is hardly for managers in a good business to pursue in worse margins. But this is the problem, they were too focused on their high-end markets and the low-end disruptive technologies markets sometimes do not make sense to them. Thats why DECs leaders and engineers viewed PCs as underpowered toys. However, DEC finally went out of business. [1] DECs PDP and VAX products were considered the most popular minicomputers for both scientific and engineering industries during the 1970s and 1980s. [2] Their management team was considered as the best team in the industry. However, the emergence of microcomputers had destroyed DEC finally. This was the problem of their business model. The mainstream market for DEC was customers who brought high-end minicomputers at high margins. These computers were wealth to buy powerful computers. In contrast of DECs minicomputers, microcomputers were mass produced to customers who were expected to use low-cost computers with little help from the manufacturers at low margins. Initially, microcomputers could not meet the high-end markets but over a successive improvement, they met the most demanding markets. The reason of the collapse of DEC rather than the microcomputers corporations such as Apple, Dell was that DEC was too focused on their high-end markets and could not develop new markets for their products. DEC was forced by those microcomputers corporations to concentrate on their high-ends markets and customers in which the margins were considered as better and more profitable. However, after improvement of microcomputers performance, most of the microcomputers could do the most jobs as well as the minicomputers did. The dream of DEC was finally over and the most-demanding market was low cost microcomputers ultimately. [3] The other example was Eastman Kodak which missed out the digital photography revolution. In the past, Kodak dominated the chemically based photographic process markets. Their only competitor was the Japanese company, Fuji, but actually did not make too much threat to Kodak at that moment. In the past, Kodak had put hundreds millions of dollars into a chemically based system which focused on satisfying their mainstream customers needs. Nevertheless, an emergence of a disruptive technology digital photography revolution had made a huge punch to Kodak chemically based photographic process business. Digital photography technology was created in Japan. When the first Japanese VHS and Betamax camera systems were available in the markets, Kodaks Polaroid chemically based system no longer made sense when compared to digital photography. Nevertheless, Kodaks did nothing and tried to ignore this tidal wave approaching on them. Finally, they missed the chance of digital photography revolution and lost hundreds millions of dollars of investment which was equivalent to billions dollars today. [4] Although digital photography was developed finally in Kodak nowadays, Kodak had to pay a huge price for their delay in digital photography revolution. The digital transformation required a series of layoffs and facilities closure, cutting 12,000-15,000 jobs around the world. A 20%-25% reduction in its workforce was happened since 2000. [5] In conclusion, refer to Christensen and the examples of DEC and Kodak illustrated in the previous paragraphs it is not a good practice for successful, on-going companies too focused on satisfying their existing customers stated needs. They should develop their wider field of views into a new market and make significant preparation to resist the tidal wave from others disruptive technologies. Endnotes: [1] http://www.alumni.hbs.edu/bulletin/1999/april/qanda.html (accessed on 10 January 2010) [2] http://en.wikipedia.org/, Wikipedia, Digital Equipment Corporation (accessed on 10 January 2010) [3] http://www.datasentinel.com/files/dataSentinel (accessed on 10 January 2010) [4] http://www.articlesbase.com/, Stock Research Eastman Kodak And The Power Of Disruptive Technologies (accessed on 10 January 2010) [5] http://en.wikipedia.org/, Wikipedia, Eastman Kodak (accessed on 10 January 2010) Explain how lowly disruptive technologies can ultimately surpass successful existing dominant technologies in sales, technical capability, and profitability. Illustrate your answer, using either the example of computer disk technology, power shovel technology, or steel production technology. (1 2 pages) In low-end disruptive technologies, at the beginning, disrupters aim to serve the least profitable customers who are satisfactory with good enough products. These types of customers do not intend to pay lots in improving the functionality of the products. Later, the disrupters try to improve their profit margin by seeking customers who are going to pay little more for better quality of the products. Therefore, the disrupters are required to innovate. It is common for incumbents try to be away from not so profitable margin and move to serve more attractive customers. After successive encounters, the incumbents are pressed out into a smaller market. Finally, the disrupters reach the most profitable markets and expel the established organizations out of the markets. [1] Taking computer disk drives technology as an example, NAND Flash is a typical low-end disruptive technology. [2] NAND Flash has a great impact on computer storage business in view of technical and economic aspects. For the purpose of low storage application, FAND Flash is actually cheaper than the hard disk drives. In terms of random I/O operations, FAND Flash has a higher performance than hard disk drives. A single NAND SSD can have a 10-30K random I/O operations per second (IOPS), while a single hard disk drive can only have 250 IOPS. At the markets where customers interest in low storage capacity rather than high storage capacity, FAND Flash is much more cost effective than hard disk drives. In order words, FAND Flash has squeezed hard disk drives out of the low-storage business market. The cost of mechanical components of a hard disk is around $20, while the disk controller costs around $3. [2] The smallest capacity of a hard disk is a single platter and additional platters provide incremental capacity. Say, the smallest capacity platter of a modern 2.5 hard disk drive is 160GB and capacity will increase over time when technical capabilities improve. The cost of a single NAND Flash chip is generally between $1 and $8, depending on performance and density. Currently, a 4GB NAND chip using multi-level cells (MLC) costs around $7 while the controller is the same of that in hard disk drives. [2] For certain capacities, say lower storage capacity, NAND Flash actually costs less than the minimum cost of a hard disk drive. This is the reason behind why USB storage drives usually adopt the use of NAND Flash. Now, it can be explained that below the cross-over point, FAND Flash is much more cost effective while above the cross-over point, hard disk drives are much more cost effective. However, it is of great importance that we should be noticed that the shifting of the cross-over point towards a higher storage capacities. Moores law has a long history in the application of computer hardware. The capabilities of many electronic devices are strongly related to Moores law, such as the storage capacity. [3] NAND Flash which is made of semiconductor is benefited from Moores law. With the improvement of performance of semiconductor, the storage capacity of FAND Flash has exponentially increased, and so the hard disk drives do. Therefore, FAND Flash will not squeezed hard disk drives out of high-storage capacity. Nevertheless, the cross-over point is moving towards a higher storage capacity, say today it is around 16GB but four years later, it is around 64GB, and eight years later, the cross-over point might even reach to around 400GB. [2] As a result, the low-end market of FAND Flash is expanding continuously. The markets below the cross-over point of FAND Flash are expanding while putting the markets of hard disk drives below cross-over point into pressure and diminished. It gives us an implication that wh en the cross-over point exceeds the amount of storage capacity needed, people will move to buy the cheaper one computer memory storage disk, that is the FAND Flash. Therefore, hard disk drives will finally be out of business. In conclusion, taking the example of FAND Flash and hard disk drives in computer disk technology, low-end disruptive technologies can ultimately surpass successful existing dominant technologies. Endnotes: [1] http://en.wikipedia.org/, Wikipedia, Disruptive Technology (accessed on 12 January 2010) [2] http://www.realworldtech.com/, NAND Flash: A Classic Disruptive Technology by David Kanter, 30th December 2009 (accessed on 12 January 2010) [3] http://en.wikipedia.org/, Wikipedia, Moores law (accessed on 12 January 2010) For each of the following categories of employees in a successful company, explain why individuals in these categories are reluctant to champion disruptive technologies in their organization: Senior executive (1/2 to one page) Middle managers (1/2 to one page) Sales people (1/2 to one page) Senior executive From the point of views of senior executives, the change of the developed mature organizational structures is irrelevant and they found difficult in changing their mature organizational structures. A director in a global grocery business said that: One of the most difficult challenges I face is going into the board room and asking for changes in our operations and structures, since the original manuals were written by three main board members about 15 years ago. [1] In additional, when consider the investment of new technology, senior executives have to ensure that the investment in new technology is appropriate. This technology should keep track with the current technological systems. It is a difficult task for senior executives to write off previous investment and invest into a new technology. However, it is the most important decision they have to make. Middle managers In a maturing organization, middle managers usually tend to become too comfortable on their normal works. They are not willing to champion disruptive technologies since it is not worth for them to taking risks outside their comfort zone. They are not willing to champion disruptive technologies since it is not worth for them to take risks outside their comfort zone. Most of the middle managers are too focused within their disciplines to give their work assignments. They are not willing to take risks to identify ideas or technologies outside their disciplines. In additional, they find that it is of a great challenge to manage and lead an interdisciplinary team. [1] In a maturing organization, since the knowledge has been accumulated for many years, this knowledge developed from past experiences is the routines and behaviors for middle managers to follow. From the point of views of middle managers, it does not make any sense to discard this knowledge. Middle managers are usually unwilling to get rid of their routines and behaviors. Sales people Similarly, sales people in a maturing organization are reluctant to champion disruptive technologies in their organization. As they are used to sell their products and technologies based on their major disciplines, it is not comfortable and does not make sense to sell new technologies to customers who are out of their current disciplines. [2] A well and stable relationship between sales people and clients is developed and established in a maturing organization, it is difficult for them to sell new technologies or the unexpected disruptive technologies to their long-term customers without support indeed. From the point of views of sales people, disruptive technologies are new technologies which are required to explore a new market of customers. As a sales people, they are reluctant to develop relationship with an unexpected group of customers, sometimes, it is difficult for them to find new customers if the disruptive technologies are not successful. They do not want to take risk to explore into those unexpected region. Endnotes: [1] http://www.allbusiness.com (accessed on 15 January 2010) [2] Albert Harold Rubenstein, Eliezer Geisler, Installing and managing workable knowledge management systems, Greenwood Publishing Group 2003 What can organizations do to encourage the fostering of disruptive technologies? (One page) From the management point of views, there are several managerial recommendations for organizations to encourage the fostering of disruptive technologies. These recommendations for organizations are discussed in the following paragraphs. First, it is of great importance for organizations to know that options are not limited. Organizations should not be fixed in the ground, where just fulfill their current customers needs. They should keep searching for options, although taking the chances randomly is a little bit risky. However, taking the opposite point of views, it is worth to keep discover options to defend the threats from other disruptive technologies. [1] Second, a knowledge-based organization must be developed continually in nowadays markets. Organizations should look further, be proactive and have a wider sight of views. The internal and external environments in an organization should be closely monitored. Once there is a sudden change or threat come from, the organization can respond to the change appropriately for both internal and external environments. Executive management should be dynamic, keep track with the change of business ecosystem such that they can set up the proper and latest organizational strategies to guide the organizations. [1] The third focus is the organizations structure which has a great impact on how the firm can respond to change appropriately. Actually, organization structure is the most important factor to determine the operation of a business. A well executive leadership and management plans can hardly succeed if there is no flexible organization structure which responds and adopts effectively and efficiently to the changes. [1] Leaders at the executive level should have a clear mind on the organization structures and the implications of that structure in order to develop and foster a disruptive technology successfully, enhance the competitiveness of the organization in the markets. In additional, it is important to analyze the relationship between radical research and the established business units. Establishing some distance between these two is critical. Organizations should aware that there is a potential risk of creating a sustainable product instead of a disruptive product, if the business units are allowed to affect the end product too much. [1] Eventually, according to Bower and Christensens article, Disruptive Technologies: Catching the Wave, a potential disruptive technology is sometimes considered as unpleasant by traditional project management systems. [2] Therefore, the systems should encourage employees to have a wider sight of view. Employees at all levels of the organizations should be interested about advance technologies for both inside and outside their industries. In order to be successful, goals and values should be incorporated into the organizations guiding principles. Endnotes: [1] Dr. LEE, TERADYNE CASE, BUSA 541. The JKF Group, 12th October 2002 [2] Bower, Joseph L. Christensen, Clayton M. (1995). Disruptive Technologies: Catching the Wave Harvard Business Review, January-February 1995 Essay Lets say you have been asked to write a book review of The Innovators Dilemma by a leading scholarly business journal. This should be an in-depth review of roughly five pages length (single space). In the review, you should do the following: Highlight key points raised by Christensen Discuss how Christensens views are revolutionary, in the sense that they go against much of what we have been taught by business schools (e.g., Do all you can to satisfy the customer) Discuss how Christensens insights reveal a major reason that organizations resist change Discuss possible weaknesses of Christensens approach for example, are there technologies and/or areas of business and government where his viewpoints dont make sense? (Hint: The answer is yes.) Use the book review as an opportunity to showcase your personal views (the best book reviews always do this) A book review on Clayton Christensens book, The Innovators Dilemma In this book, Christensen has highlighted some key points regarding the term disruptive technologies. Sometimes, it could be called disruptive innovations. Disruptive technologies or innovations were considered as technologies or innovations overturning the existing order in an industry. Initially, customers who were not served by the current market were the main target of disruptive technologies and innovations. Under successive capacity or performance improvements, the low-end innovations squeezed out the incumbents in the mainstream markets. Christensen criticized incumbents were not sensitive to the disruptive technologies and incumbents usually focused on satisfying the needs of their mainstream customers. In general, incumbents did not respond sensitively to resist the threat brought from others disruptive technologies until it were too late to do anything, say an organization finally went out of business. Sometimes, managers were not comfortable and not interested in those low margins. They were not willing to develop disruptive technologies or innovations as they considered exploring a new market was taking a risk. Christensen have explained the reason behind why organizations collapsed and failed in their business in spite of being the top position in the markets, having the ability to develop the best and capable sustainable innovations and technologies in their industries. This is a problem of their business model. Sustainable technologies improvement was not the reason for the leaders went out of business in an industry. At the time being, they developed their ability and capability to compete in their high-end market. Nevertheless, it was mentioned by Christensen that these were sustainable technologies and innovations which were already utilized by the best organizations in the industries. Following an s-curve, improving performance was already expected by their customers. With the well established relationships with clients, well developed reputation, sufficient money and more advance technological power in the market, leaders usually did not fail. Until the emergence of disruptive technologies, the story had changed. Disruptive technologies were even a nightmare of managers. In the contrary, disruptive technologies are so much cheaper, where they explored and opened a new market in which the mainstream incumbents did not consider to explore. But at the moment the rate of improvement of performance of the disruptive technologies and innovations exceeds the users demands, they surpassed the high-end and mainstream technologies and innovations ultimately. Christensens views were revolutionary in view of technological and innovative business. He mentioned that great firms succeeded because they listened to their customers needs and invested aggressively in the technologies and innovations. Nevertheless, at the mean time, great firms failed with the same reason, listened to their customers and put their great effort to satisfy their customers. It was revolutionary compared to the traditional concept of business schools, which sold the concept of doing all the best to satisfy your customers. Christensen did research on the history of disk drive industry. He showed the reasons behind why the leading established drive markers were unable to reach the 8-inch drive market. It is because of the delay of strategic commitment to enter into the emerging market. Christensens insights had revealed a major reason why great established firms in the markets resist to changes. Christensen had mentioned that since established organizations structure and groups working together were facilitating the design of its dominant technologies and innovations, the organizations structure and the groups learning to work together could be affected and could not design new products. Organizations required very different technological capabilities called radical change. Actually, established firms were sensitive, aggressive and innovative in terms of their sustainable technologies and innovations. But the reasons why they resisted changes were the problem of downward vision and mobility in terms of Christensens trajectory map. Finding changes and new technologies markets for each of the firms seemed to appear once when they were first established and then apparently lost finally. This resistance to changes kept going continuously. Despite there were much supportive commentaries on Christensens approach regarding the issue on disruptive technologies and innovations, but nothing is perfect. There were some weaknesses of his approach. It seemed that Christensens view did not consider the overall socio-political environment and human factors in reality. In this book, the large integrated steel mills industries displaced by those mini-mills steel industries was taken as an example by Christensen. Christensen put emphasis on how mini-mill first entering into the low margin markets and then squeezed out the integrated mills when mini-mill technology, performance and quality improved. Nevertheless, the relieving effects of labor-management relationships were not considered in this case by Christensen. He did not consider if the unions want to accept new labor rules requiring more flexible job descriptions. Whether management willing to adjust pay scales with workers who were trained in and able to perform jobs was not considered. However, obviously, Christensen did not consider the effects of labor-management relationships. Moreover, for the example of replacement of steam shoves by hydraulically operated equipment, one question should be asked, Were labor unions, and management, averse to retraining equipment operators who had many yea rs invested in becoming adept in operation and use of, a particular technology? In general, in view of human nature, people approached to keep away from changes, especially unexpected changes from disruptive technologies. However, disruptive technologies required people to accept and adopt the changes. It did not a must for people being reluctant to disruptive technology. There were small portions of people who chasing the latest technologies and placed cost into lower level of consideration. These were the first groups of people to accept disruptive technologies. Taking personal computers as an example, actually, they were expensive and did not have too many functions when they were first introduced in 1970s. (Wikipedia, 2010) Most people did not recognize the use of personal computers at home. But with those groups of people who like chasing the latest technologies, eventually, prices went down and performance of personal computers climbed up. Ultimately, people began to use personal computers in home and workplaces. Christensen in his book mentioned that disruptive technologies came from a low cost margin and displaced the high-end margin. However, Christensens disruptive technologies or innovations did n