“Disruptive” technolgies

22.04.23 Disruptive Technologies 1

“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


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?


Case: Digital Equipment Corp- from success (mid -80s) 60s: IBM dominance 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"


…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?


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


”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.


”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 ¼ “->3 ½" -> 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


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.


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 å bruke (Apple Mac, så Windows) Prosessor, maskinvare, operativsystem og

applikasjon fra forskj. leverandører (Intel, Compaq, Windows, Office/Lotus/Quicken). Det gir fleksibilitet, større konkurranse, lavere priser, bedre kvalitet


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


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.


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 didn’t go well...


Development of ”disruptive” technologies

Disruptivetechnologicalinnovation

Progress due to

disruptive

technologies


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?


Digging machine manufacturers After World War II, remotely

operated excavator Large capacity Costly For mining, M. M.


Hydraulic machines The first hydraulic

excavators: Small capacity Could be connected

to tractors Small and flexible Reliable


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, …


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


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)


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 ...!


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


6 steps in development of discruptive technology1. New, "disruptive" technology were first

developed in the established companies1) Control Data (14 "manufacturer) developed 8" technology2) Seagate, executive producer of the 5 ¼ "technology

developed 3 ½" model

2. Marketing requested feedback from customers

1) IBM would not have 3 ½ "model for its XT and AT computers (they wanted more capacity)

2) Weak sales forecasts3) Management cut out the product (explicitly or implicitly)


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)


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


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


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


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


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?)


”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


Prognoses (by Kai) Libraries will disappear in its traditional

form, collections, purchases, loans will be irrelevant in a digital world


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


Prognoses (by Kai) Newspapers will have competition when

these are produced digitally

Shops will feel the competition from online


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

produced digitally (eAvis)

22.04.23http://www.finn.no

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Prognoses (by Kai) Shops will feel the competition from online

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“Disruptive” technolgies