L09 Disruptive Technology

LECTURE L09DISRUPTIVE TECHNOLOGY

Why do start-ups exits?

Technology is one of the major factors in change

OPPORTUNITYTHREAT

Example: Digital Photography

Media companies

Tech Has No Feelings:Gary Vaynerchuk Crushes Old Media

The World is Changing

Technology has no feeling

Is this Good or Bad?

Kranzberg’s1. law of technology

1. Technology is neither good nor bad; nor is it neutral

Adjacent PossibleWhen in one room someone will open the next door

Western Union Telegraph Business

Bell offered the telephone patent for $100.000

Western Union turned Bell down

Bell went into business himself, founding AT&T

In 1900

AT&T had over million users AT&T revenues were $13 million while Western Union’s revenues were $6 million

Why would Western Unionmake such short-sighted

decision?

We tend to view technology based on past usages

but not the future potential

"This 'telephone' has too many shortcomings to be seriously considered as

a means of communication. The device is inherently of no value to us."

- Western Union internal memo, 1876.

Telephone (1876)

“What use could this company make of an electrical toy?”

- Western Union president William Orton.

Telephone (1876)

„Well informed people know it is impossible to transmit the voice over wires and that were it possible to do so,

the thing would be of no practical value.“- Editorial in the Boston Post.

Telephone (1876)

„Thus the telephone, by bringing music and ministers into every house, will empty the

concert halls and the churches…“- “The Telephone”, The New York Times, March 22, 1876

Telephone (1876)

“Rail travel at high speed is not possible because the passengers, unable to

breathe, would die of asphyxia” - Dr. Dionysus Lardner, Professor of Natural Philosophy and

Astronomy at University College, London

Railroads (1815)

Cars (1885) “The horse is here to stay, but the automobile is only a novelty – a fad”

- The president of the Michigan Savings Bank to advised Henry Ford's lawyer Horace Rackham not to invest in the

Ford Motor company

Image from http://www.huffreport.com/

Airplanes (1903)"Heavier-than-air flying machines are impossible." - Lord Kelvin, president, Royal Society, 1895.

“The wireless music box has no imaginable commercial value. Who would pay for a message sent to nobody in particular?" - David Sarnoff's associates in response to his urgings for investment in the radio in the 1920s

Radio (1905)

“For God’s sake go down to the reception and get rid of a lunatic who’s down there. He says

he’s got a machine for seeing by wireless!” - Editor of the Daily Express in response to a prospective

visit by John Logie Baird, 1925

Television (1926)

"I think there is a world market for maybe five computers.“

- Thomas Watson, chairman of IBM, 1943

Computers (1943)

"There is no reason for any individual to have a computer in their home.”- Kenneth Olsen, president and

founder of Digital Equipment Corp., 1977

Personal Computers (1977)

“The Internet is a shallow and unreliable electronic repository of dirty pictures, inaccurate rumors, bad spelling and worse grammar, inhabited largely by people with no demonstrable social skills.” - Chronicle of Higher Education, 1997

Internet (1970)

I don't think that digital photography is romantic yet. It's not sympathetic the way that film is - Matthew Modine

Digital Cameras (1991)

"The knowledge transition was much more rapid for those learning from printed material...”- The E-book skeptic

Digital books (1992)

Picture from Amazon.com

HOW WILL THIS INNOVATION CHANGE

AN INDUSTRY, AND WHAT IMPACT DOES THIS HAVE ON THE COMPANIES I CARE

ABOUT?

Nordic Marketing Conference of Lottery Companies, Mývatn, September 1995

Gradual ImprovementsFoster improved product performanceEach year new and improved products are offered

Sustaining Innovations

Source: (Christensen, 2000)

Mature Leading Companies

Existing companies, incumbents, have a high probability of beating entrant attackers when the contest is about sustaining innovations

Red Ocean Industry Bloody Competition

Well know industry boundariesRules are established, sustained Innovation

Commodities

D i s r u p t i o n

Blue Ocean

Value InnovationAlign innovation with utility,

price, and cost position

NewTechnology, new markets

The product performance is good enough and affordable to fulfil a unfilled need in the market

Disruptive Technology


The Disruptive Innovation Theory

New organisation can use relatively simple, convenient, low-cost innovations to create growth and triumph over powerful incumbents


The Disruptive Innovation TheoryA process where new entrant to an established market is able to challenge the established business

The incumbent is offering an established product, contently improving the product to meet more demands

This is a typical sustaining technology where every year products get better and better

The more demanding the customers the higher is the profit margin

The Disruptive Innovation TheoryAnother less demanding segment that gets overlooked

These customers would gladly switch to a cheaper product if they could since they do not require the high-end quality

Entrants enter the market by offering low quality product to this ignored segment

Something that works, but is cheaper, lower quality but does the job



The incumbents will usually ignore this, as their customers are not interested

The new product from the entrant is considered a toy

Then the product get better

And then it is too late…





When a CEO says:

“This is not a threat. Its low performance, bad quality and nobody want’s it.”

Their business is doom. Sell stock.


Low EndCan occur when existing products and services are “too good” and hence overpriced relative to the value existing customer can use – Value Innovation


New MarketOccur when characteristics of existing products limit the number of potential consumers or force consumption to take place in inconvenient, centralised settings

Source: Christensen et. al. Seeing what’s next


Clayton Christensen Talks about Disruptive Innovation


The Innovator’s DilemmaHow can managers of companies selling high-demand, high-margin products abandon these product for low-performance, low-margin products?

WesternUnionTelegraphBusiness

Resources, Processes and Values Theory

R e s o u rc e s (what a firm has), P ro c e s s e s (how a firm does it´s work), and Va l u e s (what a firm wants to do) collectively defines an organisations strengths as well as weaknesses and blind spots

The RPV Theory


Organisations successfully tackle opportunities

When they have the resources to succeed, when their processes facilitate what needs to get done, and then their values allow them

to give adequate priority to that particular opportunity in face of all other demands that compete for the company’s resources

The RPV Theory

TheRPVTheory

Possible consequences

Source: Christensen et. al. Seeing what’s next

ResourcesThings or assets that organisations can buy orsell, build or destroy. Examples: • People • Technology • Products • Equipment • Information • Cash • Brand • Distribution channels

ProcessesEstablished ways companies turn resources into products or services. Examples: • Hiring and training • Product development • Manufacturing • Planning and budgeting • Market research • Resource allocation

ValuesThe criteria by which prioritisation decisions are made. Examples: • Cost structure • Income statement • Customer demands • Size of opportunity

VAX and PDP models

DEC’s customers didn’t want the low-end PC to begin with

DEC made some attempts to build PCs

Internal corporate politics caused delays

They were constrained by the success of VAX and PDP models

By 1990 sales were dropping and layoffs started

Several restructuring and by 1998 sold to Compaq

WesternUnionTelegraphBusiness

1. The telephone was a new-market disruptive innovation

2. Western Union’s resources, processes, and values meant that what ultimately became the right course appeared to be unattractive at the outset

3. Western Union saw entrants improving. However, investment in the core business kept trumping investment in the new business

4. By the time the right course was clear, it was too late

Western Union was in the telegraph business, not the

communication business

The Disruptive Innovation Theory The Innovators Dilemma Resources, Processes and Values Theory

Key Concepts

Kodak went bankrupt while Fujifilm, its old rival thrived

READING ASSIGNMENT

The Innovator’s Dilemma

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