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Disruptive Technologies

Issue 2 Disruptive Technologies

Clayton Christensen's book, The Innovator's Dilemma, is on e of the most important books written in the last two or three decades. In it, Christensen offers a starting yet convincing explanation of why so many great companies went out of business: They listened to their customers! The problem is this: as customers grow and become prosperous, they demand ever more sophisticated goods and services from their vendors. For example, their data processing needs may grow dramatically, so they demand computers with greater data processing capabilities. One great company that fell victim to this phenomenon was Digital Equipment Corporation (DEC). In the mid-1980s, they were king of the mountain. A decade later, they were out of business. In their search for ever more sophisticated products, they disdained developments in the personal computer arena - DEC's leaders and engineers viewed PCs as underpowered toys.

Assignment 2

Answer each of the questions in the “Nuts and Bolts” section of this assignment. Please follow the guidelines suggesting how long answers should be for each question. Once you have completed answering the “Nuts and Bolts” questions, write a 5-10 page essay that addresses the essay assignment listed below.

Nuts and Bolts

1. What is Christensen talking about when he discusses disruptive technology? (1/2 to one page)

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)

2. 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 organization's 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 Innovator's 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

3. 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)

4. 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)

5. 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.

Moore's law has a long history in the application of computer hardware. The capabilities of many electronic devices are strongly related to Moore's law, such as the storage capacity. [3] NAND Flash which is made of semiconductor is benefited from Moore's 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 when 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 8 January 2010)

[2] http://www.realworldtech.com/, NAND Flash: A Classic Disruptive Technology by David Kanter, 30th December 2009 (accessed on 8 January 2010)

[3] http://en.wikipedia.org/, Wikipedia, Moore's law (accessed on 8 January 2010)

6. 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:

a. Senior executive (1/2 to one page)

b. Middle managers (1/2 to one page)

c. Sales people (1/2 to one page)

7. 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 organization's 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 Christensen's 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 organization's 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

Let's say you have been asked to write a book review of The Innovator's 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 Christensen's 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 Christensen's insights reveal a major reason that organization's resist change

* Discuss possible weaknesses of Christensen's approach - for example, are there technologies and/or areas of business and government where his viewpoints don't 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)

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