Disruptive technology
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A disruptive technology is a new technological innovation, product, or service that eventually overturns the existing dominant technology or product in the market. Disruptive innovations can be broadly classified into lower-end and new-market disruptive innovations. A new-market disruptive innovation is often aimed at non-consumption, whereas a lower-end disruptive innovation is aimed at main stream customers who were ignored by established companies. Sometimes, 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 begun to replace film photography).
By contrast, sustaining technology or innovation 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.
The theory
Christensen distinguishes between low-end disruption which targets customers who do not need the full performance valued by customers at the high end of the market and new-market disruption which targets customers who 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 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.
In low-end disruption, the disruptor is focused initially on serving the least profitable customer, who is happy with good enough product. This type of customer is not willing to pay premium for enhancements in product functionality. Once the disruptor has gained foot hold in this customer segment, it seeks to improve its profit margin. To get higher profit margins, the disruptor needs to enter the segment where the customer is willing to pay a little more higher price for higher quality. To ensure this quality in its product, the disruptor needs to innovate. The incumbent will not do much to retain its share in not so profitable segment, and will move up-market and focus on its more attractive customers. After a number of such encounters, the incumbent is squeezed into smaller markets than it was previously serving. And then finally the disruptive technology meets the demands of the most profitable segment and drives the established company out of the market.
"New market disruption" occurs when a product that is inferior by most measures of performance fits a new or emerging market segment. Linux operating system (OS) when introduced in the beginning, its performance was inferior to other leading server operating systems like Unix, and Windows NT. But the Linux OS distributed through Red Hat is supposed to be inexpensive compared to other server operating systems. After years of improvements in this easily available operating system, the functionality has improved so much that it threatens to displace all the other leading server operating systems.
Not all disruptive technologies are of lower performance. There are several examples where the disruptive technology outperforms the existing technology but is not adopted by existing majors in the market. This situation occurs in industries with a high investment into the older technology. To move to the new technology, an existing player not only must invest in it but also must replace (and perhaps dispose of at high cost) the older infrastructure. It may simply be the 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.
- VoIP phone technology is a disruptive innovation. The quality of voice that is available over this phone system is at least as good as that has been offered by traditional players.
Examples of disruptive innovations
| Disruptive Innovation | Displaced or Marginalized 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 mainframes survive in a niche market which persists to this day, minicomputers 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 | Digital cameras have a high power consumption. Cameras for classic photography are stand-alone devices. |
| 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 |
| Compact disc | Cassettes and Records | The CD produces near-flawless audio and is less susceptible to damage than the two previously-prevalent technologies. |
| Semiconductors | vacuum tubes | Electronic systems built up with semiconductors require less energy, are smaller and more reliable than such with tubes. However for high power device semiconductor solutions are not always available (or from more complicated design) |
| High speed CMOS video sensors | Photographic film | When first introduced, high speed CMOS sensors were less sensitive and resolution, and cameras based on them had less duration (record time), but the advantage of rapid setup time, editing in the camera, and nearly-instantaneous review quickly eliminated 16 mm high speed film systems. CMOS-based cameras also require less power (single phase 110 V AC and a few amperes of current vs. 208 V single, double and even triple phase cameras requiring 20-50 A for film cameras. Continuing advances have overtaken 35 mm film and are challenging 70 mm film applications. |
Not all technologies promoted as disruptive innovations 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 innovations'
- Music downloads and File sharing vs. compact discs
- ebooks vs. paper books
- e-commerce vs. Physical shops
- Open-source software vs. Proprietary software (for example Linux versus Microsoft Windows, Linux has already largely displaced proprietary Unix)
- Internet Video on Demand and IPTV vs. Advertising supported broadcast and cable television
- VoIP (and VoIP over 802.11) vs. traditional telephone and mobile phone service.
- portable mp3-players vs. the portable cassette players
- DVD vs VHS tape (VHS has already undergone a great decline, particularly in the market for pre-recorded tapes, although the price of DVD recorders remains high enough for VHS home-recording to hang on for the present)
Business implications
Disruptive technologies are not disruptive to customers, and often take a long time before they are significantly disruptive to established companies. 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 innovations, since they compare so badly with existing technologies or products, and the deceptively small market available for a disruptive innovation is often very small compared to the market for the established technology. Even if a disruptive innovation 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 innovations, invest in small firms that might adopt these innovations, and continue to push technological demands in their core market so that performance stays above what disruptive technologies can achieve.See also
External links
- [Disruptive Technology at c2.com]
- [Disruptive Technology at The Economist: The blood of incumbents]
- [RSS: Disruptive Technology Hiding in Plain Sight]
- [The Myth of Disruptive Technologies]. Note that Dvorak's definition of disruptive technology does not necessarily match the standard one described above. He complains about the overuse of the term and goes as far as claiming there are no disruptive technologies.
- [link] Could New Technologies Cause Great Law Firms to Fail?
- [The Business of Technology - how disruptive technologies are changing the business landscape]
- [link]www.OnDisruption.com: Tools, Articles and Resources for Managing Disruption
Books and papers
- Tushman, M.L. & Anderson, P. (1986). Technological Discontinuities and Organizational Environments. Administrative Science Quarterly 31: 439-465.
- Christensen, Clayton M; Bohmer, Richard; Kenagy, John. "Will Disruptive Innovations Cure Health Care?" Harvard Business Review, September 2000.
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