Steelgtr62
October 17th 04, 01:58 AM
From the late Dr Petr Beckmann
The Innovator's Dilemma - When New Technologies Cause Great Firms to Fail by
Clayton M. Christensen, Harvard Business School Press (1997), is a very
perceptive analysis of the dynamics of technological advance - especially the
introduction of radically new products.
Christensen defines two types of technology - "sustaining technology'' and
"disruptive technology.''
Sustaining technology is that with a developed market. In well-managed
companies which supply this technology, the products advance as rapidly as
improvements in science and engineering permit -along the lines desired by the
customers of the company. Managers carefully determine the desires of their
customers and plan engineering development projects to satisfy those customers
as quickly and cost-effectively as possible. These companies develop and infuse
their work force with ethics, procedures, and goals consistent with this
process in their respective industries.
Disruptive technologies, on the other hand, are usually simpler and cheaper
than the sustaining technology, but also offer less capability. They do not fit
the sustaining market and, typically, provide lower profit margins. For this
reason, they are usually shunned by well-managed companies - which are often
later destroyed by them.
Christensen illustrates these ideas with real examples from different
industries including those producing computer disk drives, earth excavators,
motor bikes, insulin for diabetics, and (as an illustration of a possible
future case) automobiles - conventional vs. electric cars.
Figures 1, 2 and 3 (adapted from numerous excellent figures with which his book
is illustrated) show some of his primary ideas.
In Figure 1, the dotted lines represent the range of performance required by
consumers. For example, in disk drives this could be drive capacity, where the
sustaining technology was, at the time, the 5.25 inch disk, while the new
disruptive technology was the 3.5 inch disk.
During the first part of the illustrated time interval, performance of the 5.25
disk satisfies the market, while the capacity of the 3.5 disk is too low. In
the course of time, however, improvements in the 5.25 move its capacity beyond
that desired in the market, while the 3.5 gradually achieves capacity
sufficient to enter the large market.
The critical time is before this happens - when the disruptive technological
innovation cannot yet satisfy the requirements of the mainstream market. During
this time, those who are developing the new technology obtain a great
advantage, so that late entering competitors cannot catch up. At the same time,
the new technology must be marketed for alternative applications (that may not
even be known at the time of its introduction), at low profit margins, and in
relatively minor markets. This makes it unattractive to the mainstream
companies whose customers are not asking for it and whose profits are so large
that the emerging technology would be a nuisance without economic advantage.
Moreover, the mainstream companies are continually striving for innovations
that will increase the capabilities of their product and, thereby, allow them
to enter markets above them where profit
margins are greater - not below them where margins are less.
The result of this phenomenon is that most mainstream companies - even though
they are very well managed, increasing in profits, and very responsive to their
customer's wishes - are unable to adopt disruptive technologies which
eventually drive them out of business. Christensen, by means of real examples,
shows that the most effective strategy is for large companies to start small,
independent companies which they control financially - but not otherwise - to
establish bases in disruptive technologies.
Figure 2, illustrating some of the same points, also shows (illustrating with
computer disk drives) the evolution of a product from a high-margin item to a
commodity.
When the disruptive technology (a smaller disk drive) improves to the point
that its capacity is adequate, competition then shifts to size and then to
reliability. Ultimately, when both technologies have outrun the technological
needs of the market, competition shifts to price alone - a commodity market.
Notice that throughout these steps, the established company must keep
engineering its products downward and competing in markets with decreasing
profit margins - while the disruptive company engineers upward and finds higher
margin markets. This and the lead from early entry assures the demise of the
established company.
The understanding of these phenomena can affect the actual emergence of new
technologies. Science and engineering are not enough. Many wonderful
technological products are not available to us because industrial managers have
not effectively brought them to market.
In a final chapter, Christensen applies these lessons to the electric
automobile. Clearly, as has been discussed in previous issues of Access to
Energy, electric car technology cannot now produce a product that competes with
the internal combustion engine. Is the electric automobile, however, a
disruptive technology? Perhaps. The answer to this question depends upon
whether or not electric cars can reach consumer standards. Figure 3, giving
Christensen's estimates for these standards and the rate of development,
suggests that they will.
Meanwhile, as a beginning disruptive technology, the electric car must seek
alternative markets that will value its disadvantages, and it must enter (and
develop) those markets with a cheap, simple product. These markets will sustain
its development.
One such market suggested by Christensen is the potential for runabouts for
teenagers. Parents might like the idea that their teenagers are driving cars
with low range, poor acceleration, and low maximum speeds. If these cars were
also much cheaper than conventional cars, this market might develop. As far as
government forcing (with reference to California's rule that car companies must
sell 2% electric cars in that state) and subsidies are concerned, Christensen
observes that these merely distort the market and delay technological
development.
What cannot be accomplished is premature entry of the disruptive technology
into the sustaining market. Therefore, for good reasons, automobile companies
are resisting electric cars. Those auto companies that are wise, however,
should set up small autonomous companies to deliver electric car technology to
whoever will buy it for whatever use arises. Then they will be well-positioned
if electric cars do eventually start to disrupt their market.
If instead, the only market entries are forced upon the large auto companies by
government regulation and subsidy, these entrenched malinvestments could
prevent the advance of electric car technology and deprive consumers of a
product that would eventually prove beneficial to them.
The Innovator's Dilemma - When New Technologies Cause Great Firms to Fail by
Clayton M. Christensen, Harvard Business School Press (1997), is a very
perceptive analysis of the dynamics of technological advance - especially the
introduction of radically new products.
Christensen defines two types of technology - "sustaining technology'' and
"disruptive technology.''
Sustaining technology is that with a developed market. In well-managed
companies which supply this technology, the products advance as rapidly as
improvements in science and engineering permit -along the lines desired by the
customers of the company. Managers carefully determine the desires of their
customers and plan engineering development projects to satisfy those customers
as quickly and cost-effectively as possible. These companies develop and infuse
their work force with ethics, procedures, and goals consistent with this
process in their respective industries.
Disruptive technologies, on the other hand, are usually simpler and cheaper
than the sustaining technology, but also offer less capability. They do not fit
the sustaining market and, typically, provide lower profit margins. For this
reason, they are usually shunned by well-managed companies - which are often
later destroyed by them.
Christensen illustrates these ideas with real examples from different
industries including those producing computer disk drives, earth excavators,
motor bikes, insulin for diabetics, and (as an illustration of a possible
future case) automobiles - conventional vs. electric cars.
Figures 1, 2 and 3 (adapted from numerous excellent figures with which his book
is illustrated) show some of his primary ideas.
In Figure 1, the dotted lines represent the range of performance required by
consumers. For example, in disk drives this could be drive capacity, where the
sustaining technology was, at the time, the 5.25 inch disk, while the new
disruptive technology was the 3.5 inch disk.
During the first part of the illustrated time interval, performance of the 5.25
disk satisfies the market, while the capacity of the 3.5 disk is too low. In
the course of time, however, improvements in the 5.25 move its capacity beyond
that desired in the market, while the 3.5 gradually achieves capacity
sufficient to enter the large market.
The critical time is before this happens - when the disruptive technological
innovation cannot yet satisfy the requirements of the mainstream market. During
this time, those who are developing the new technology obtain a great
advantage, so that late entering competitors cannot catch up. At the same time,
the new technology must be marketed for alternative applications (that may not
even be known at the time of its introduction), at low profit margins, and in
relatively minor markets. This makes it unattractive to the mainstream
companies whose customers are not asking for it and whose profits are so large
that the emerging technology would be a nuisance without economic advantage.
Moreover, the mainstream companies are continually striving for innovations
that will increase the capabilities of their product and, thereby, allow them
to enter markets above them where profit
margins are greater - not below them where margins are less.
The result of this phenomenon is that most mainstream companies - even though
they are very well managed, increasing in profits, and very responsive to their
customer's wishes - are unable to adopt disruptive technologies which
eventually drive them out of business. Christensen, by means of real examples,
shows that the most effective strategy is for large companies to start small,
independent companies which they control financially - but not otherwise - to
establish bases in disruptive technologies.
Figure 2, illustrating some of the same points, also shows (illustrating with
computer disk drives) the evolution of a product from a high-margin item to a
commodity.
When the disruptive technology (a smaller disk drive) improves to the point
that its capacity is adequate, competition then shifts to size and then to
reliability. Ultimately, when both technologies have outrun the technological
needs of the market, competition shifts to price alone - a commodity market.
Notice that throughout these steps, the established company must keep
engineering its products downward and competing in markets with decreasing
profit margins - while the disruptive company engineers upward and finds higher
margin markets. This and the lead from early entry assures the demise of the
established company.
The understanding of these phenomena can affect the actual emergence of new
technologies. Science and engineering are not enough. Many wonderful
technological products are not available to us because industrial managers have
not effectively brought them to market.
In a final chapter, Christensen applies these lessons to the electric
automobile. Clearly, as has been discussed in previous issues of Access to
Energy, electric car technology cannot now produce a product that competes with
the internal combustion engine. Is the electric automobile, however, a
disruptive technology? Perhaps. The answer to this question depends upon
whether or not electric cars can reach consumer standards. Figure 3, giving
Christensen's estimates for these standards and the rate of development,
suggests that they will.
Meanwhile, as a beginning disruptive technology, the electric car must seek
alternative markets that will value its disadvantages, and it must enter (and
develop) those markets with a cheap, simple product. These markets will sustain
its development.
One such market suggested by Christensen is the potential for runabouts for
teenagers. Parents might like the idea that their teenagers are driving cars
with low range, poor acceleration, and low maximum speeds. If these cars were
also much cheaper than conventional cars, this market might develop. As far as
government forcing (with reference to California's rule that car companies must
sell 2% electric cars in that state) and subsidies are concerned, Christensen
observes that these merely distort the market and delay technological
development.
What cannot be accomplished is premature entry of the disruptive technology
into the sustaining market. Therefore, for good reasons, automobile companies
are resisting electric cars. Those auto companies that are wise, however,
should set up small autonomous companies to deliver electric car technology to
whoever will buy it for whatever use arises. Then they will be well-positioned
if electric cars do eventually start to disrupt their market.
If instead, the only market entries are forced upon the large auto companies by
government regulation and subsidy, these entrenched malinvestments could
prevent the advance of electric car technology and deprive consumers of a
product that would eventually prove beneficial to them.