Disruptive technology

From Academic Kids

A disruptive technology is a new technological innovation, product, or service that eventually overturns the existing dominant technology in the market, despite the fact that the disruptive technology is both radically different than the leading technology and that it often initially performs worse than the leading technology according to existing measures of performance. A disruptive technology comes to dominate an existing market by either filling a role in a new market that the older technology could not fill (as more expensive, lower capacity but smaller-sized hard disks did for newly developed notebook computers in the 1980s) or by successively moving up-market through performance improvements until finally displacing the market incumbents (as digital photography has come to replace film photography).

By contrast, sustaining technology refers to the successive incremental improvements to performance that market incumbents incorporate into their existing product.

The term disruptive technology was coined by Clayton M. Christensen and described in his 1997 book The Innovator's Dilemma. In his sequel, The Innovator's Solution, Christensen replaced the term with the term disruptive innovation because he recognized that few technologies are intrinsically disruptive or sustaining in character. It is strategy that creates the disruptive impact.

Contents

The theory

Christensen distinguishes between low-end disruption which targets customers that do not need the full performance of the high end of the market and new-market disruption which targets customers that could previously not be served profitably by the incumbent.

"Low-end disruption" occurs when the rate at which products improve exceeds the rate at which customers can learn and adopt the new performance. Therefore, at some point the performance of the product overshoots the needs of certain customer segments. At this point, a disruptive technology may enter the market and provide a product which has lower performance than the incumbent but which exceeds the requirements of certain segments, thereby gaining a foothold in the market.

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Disruptivetechnology.gif
How low-end disruption occurs over time.

In low-end disruption, the disruptive company will naturally aim to improve its margin (from low commodity level) and therefore will innovate to capture the next level of customer requirements. The incumbent will not want to engage in a price war with a simpler product with lower production costs and will move up-market and focus on its more attractive customers. After a number of iterations, the incumbent has been squeezed into successively smaller markets and when finally the disruptive technology meets the demands of its last segment the incumbent technology disappears.

"New market disruption" occurs when a product that is inferior by most measures of performance fits a new or emerging market segment. In the disk drive industry, for example, new generations of smaller-sized disk drives were both more expensive and had less capacity than existing, larger-sized drives. Since size was not an important factor for the early computer market, these new drives seemed worse in every way. With the development of the minicomputer (or afterwards, the desktop computer, the notebook, and the personal music player), size became an important dimension, and these new drives quickly dominated the market.

Not all disruptive technologies are of lower performance. There are a several examples where the disruptive technology outperforms the existing technology but is not adapted by existing majors in the market. These occur in industries with a high capitalization sunk into the older technology. To update, an existing player not only must invest in new technology but also must replace (and perhaps dispose of at high cost) the older infrastructure. It may simply be most cost effective for the existing player to "milk" the current investment during its decline - mostly by insufficient maintenance and lack of progressive improvement to maintain the long term utility of the existing facilities. A new player is not faced with such a balancing act.

Some examples of high-performance disruption:

  • The rise of containerization and the success of the Port of Oakland, California, while the port of San Francisco neglected modernization - perhaps wisely due to its inconvenient location at the end of a peninsula not oriented with the prevailing freight traffic. Rather than attempt to compete in the oceanic freight terminal business, the city's resources were directed elsewhere, primarily toward becoming the leading financial center on the west coast through the encouragement of the construction of high rise buildings for office space.
  • "Mini mill" scrap feed steel product production facilities in the United States using integrated vertical casting methods feeding rolling mills in a single continuous process to produce specialty products such as reinforcing bar for concrete. This left the existing large steel producers with only the lower value commodity production which could not compete with lower cost production worldwide - largely due to the lower labor costs offshore.

Examples of disruptive technologies

Disruptive Technology Displaced / potentially displaced technology Notes
steam engines and internal-combustion engines horses and humans (for powering machines) The new engines took centuries to establish themselves, but eventually rendered animal/people power obsolete on their ability to scale up to much higher power outputs and offer greater reliability.
automobiles horses (for transport) Early roads were designed for horses, not cars. Nevertheless, the potential for greater convenience, reliability and speed offered by the motor car meant that the road system was eventually redesigned in its favour, after overcoming many obstacles, both technical and political (such as the Red Flag Act).
Hydraulic excavators Cable-operated excavators
mini steel mills vertically integrated Steel mills
minicomputers mainframes (though the latter survive in a niche market which persists to this day, while the former have themselves been disrupted into extinction)
Container ships and containerization "Break cargo" ships and stevedores
desktop publishing traditional publishing Early desktop-publishing systems could not match high-end professional systems in either features or quality. Nevertheless, they lowered the cost of entry to the publishing business, and economies of scale eventually enabled them to match, and then surpass, the functionality of the older dedicated publishing systems.
digital photography originally, instant photography, now increasingly all chemical photography
personal computers minicomputers, workstations workstations still exist, but are increasingly assembled from high-end personal computer parts, to the point that the distinction is fading

Not all technologies promoted as disruptive technologies have actually prospered as well as their proponents had hoped. However, some of these technologies have only been around for a few years, and their ultimate fate has not yet been determined.

Unresolved examples of technologies promoted as 'disruptive technologies'

Business implications

Disruptive technologies are not disruptive to customers, and often take a long time before they are significantly disruptive to other manufacturers, so they are often difficult to recognize. Indeed, as Christensen points out and studies have shown, it is often entirely rational for incumbent companies to ignore disruptive technologies, since they compare so badly to existing approaches, and the initial markets for a disruptive technology are often very small compared to the main existing market for the technology. Even if a disruptive technology is recognized, existing businesses are often reluctant to take advantage of it, since it would involve competing with their existing (and more profitable) technological approach. Christensen recommends that existing firms watch for these technologies, invest in small firms that might produce them, and continue to push technological demands in their core market so that performance stays above what disruptive technologies can achieve.

External links

Books and papers

  • Tushman, M.L. & Anderson, P. (1986). Technological Discontinuities and Organizational Environments. Administrative Science Quarterly 31: 439-465.de:Disruptive Technologie
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