Recently I got the time and space to read HBR new article on Disruptive Technologies: Catching the Wave. Here is a 5 minute summary and recap of the article :
The main question :
Why is it that companies like these invest aggressively — and successfully — in the technologies necessary to retain their current customers but then fail to make certain other technological investments that customers of the future will demand?
They say it can come from arrogance, poor planning, short term investment, etc. But the fundamental reason lies in the They fail to stay close to their customers and they rarely in the forefront of commercialising new technologies that don’t initially meet the needs of mainstream customers and appeal only too small or emerging markets.
The technological changes that damage established companies are usually not radically new or difficult from a technological point of view. They do, however, have two important characteristics: First, they typically present a different package of performance attributes — ones that, at least at the outset, are not valued by existing customers. Second, the performance attributes that existing customers do value improve at such a rapid rate that the new technology can later invade those established markets.
Some like IBM’s large commercial, government, and industrial customers saw no immediate use for minicomputers. In each instance, companies listened to their customers, gave them the product performance they were looking for, and, in the end, were hurt by the very technologies their customers led them to ignore.
So how do we need to be able to see which technology is different :
- Determine whether the technology is disruptive or sustaining. The first step is to decide which of the myriad technologies on the horizon are disruptive and, of those, which are real threats. Most companies have well-conceived processes for identifying and tracking the progress of potentially sustaining technologies, because they are important to serving and protecting current customers. But few have systematic processes in place to identify and track potentially disruptive technologies. Disagreement between the two groups (Finance & Marketing and Tech) often signals a disruptive technology that top-level managers should explore.
- Define the strategic significance of the disruptive technology. The next step is to ask the right people the right questions about the strategic importance of the disruptive technology. Disruptive technologies tend to stall early in strategic reviews because managers either ask the wrong questions or ask the wrong people the right questions. For example, established companies have regular procedures for asking mainstream customers — especially the important accounts where new ideas are actually tested — to assess the value of innovative products. Generally, these customers are selected because they are the ones striving the hardest to stay ahead of their competitors in pushing the performance of their products. Hence these customers are most likely to demand the highest performance from their suppliers. For this reason, lead customers are reliably accurate when it comes to assessing the potential of sustaining technologies, but they are reliably inaccurate when it comes to assessing the potential of disruptive technologies. They are the wrong people to ask.
- Locate the initial market for the disruptive technology. Once managers have determined that a new technology is disruptive and strategically critical, the next step is to locate the initial markets for that technology. Market research, the tool that managers have traditionally relied on, is seldom helpful: at the point a company needs to make a strategic commitment to a disruptive technology, no concrete market exists. When Edwin Land asked Polaroid’s market researchers to assess the potential sales of his new camera, they concluded that Polaroid would sell a mere 100,000 cameras over the product’s lifetime; few people they interviewed could imagine the uses of instant photography.
- Place responsibility for building a disruptive-technology business in an independent organization. The strategy of forming small teams into skunk-works projects to isolate them from the stifling demands of mainstream organizations is widely known but poorly understood. For example, isolating a team of engineers so that it can develop a radically new sustaining technology just because that technology is radically different is a fundamental misapplication of the skunk-works approach. Managing out of context is also unnecessary in the unusual event that a disruptive technology is more financially attractive than existing products. Consider Intel’s transition from dynamic random access memory (DRAM) chips to microprocessors. Intel’s early microprocessor business had a higher gross margin than that of its DRAM business; in other words, Intel’s normal resource-allocation process naturally provided the new business with the resources it needed.
- Keep the disruptive organization independent. Established companies can only dominate emerging markets by creating small organizations of the sort CDC created in Oklahoma City. But what should they do when the emerging market becomes large and established?
The key to prospering at points of disruptive change is not simply to take more risks, invest for the long term, or fight bureaucracy. The key is to manage strategically important disruptive technologies in an organizational context where small orders create energy, where fast low-cost forays into ill-defined markets are possible, and where overhead is low enough to permit profit even in emerging markets.
Managers of established companies can master disruptive technologies with extraordinary success. But when they seek to develop and launch a disruptive technology that is rejected by important customers within the context of the mainstream business’s financial demands, they fail — not because they make the wrong decisions, but because they make the right decisions for circumstances that are about to become history.
