Key Points

• Disruptive technologies or innovations are innovations that upset the existing “order of things” in a particular industry. The usual process is a lower-end innovation that appeals to customers who are not served by the current market. With time, because the capacity/performance of the innovation exceeds the market’s needs, the innovation comes to displace the market incumbents.

• Incumbents generally don’t react to disruptive innovations until it’s too late, because they don’t represent an interesting market, being low end and often low cost. One successful strategy might be to hive off a separate “company within a company” that is responsible for the firm’s response to the disruptive technology. A smaller, more nimble organization is better placed to work in the initially smaller and less lucrative market that the innovation is creating.

Summary

Initially, Christensen examines why firms fail despite being leaders in their market, willing and able to compete with the best, and capable of continuous innovations within their industry.

“Sustaining technological changes” are not the problem for leaders in an industry. Time and time again, they showed their ability to compete in the high end of their market, innovating and at times dealing with radical technological changes. Yet, because these are sustaining innovations, they are almost always best utilized by the firms that already have the best position in an industry. These are changes that follow an “s-curve”, increasing performance as their customers come to expect. New market entrants attempting to compete by means of these sorts of innovations often fail, because the established firms nearly always have more money, more established relationships with clients, a better reputation, and more technological prowess in the market. “The leaders … did not fail because they became passive, arrogant, or risk-averse or because they couldn’t keep up with the stunning rate of technological change.”

However, the story changes radically when it comes to what are called “disruptive innovations” - these are the “changes that toppled the industry leaders”. These are not radical improvements - quite the contrary, disruptive innovations are usually an innovation that are either so much cheaper that they open a new market, or start in a niche that the industry doesn’t care about because it’s too small. However, often the performance of the disruptive technology grows faster than users’ needs, with time catching up to, and surpassing the more high-end or mainstream technologies that are the domain of industry leaders.

An example that has nothing to do with “high tech” comes from the mechanical excavator industry. This industry was dominated by steam shovels until the 1920’s, when gasoline powered engines began to replace them. This was, however, not a disruptive innovation, but a sustaining one, even though the design of the machines changed radically from that of a steam-powered system of cables, to that of a gasoline engine driving a system to extend and retract the cable connected to the bucket. The new engines were more capable than the old ones, and were better at doing more work more reliably, and cheaper than the old system. Despite the radical change in the industry, the same firms that were strongest in steam shovels stayed on top. The disruptive change came with the introduction of hydraulic-actuated systems after World War II - a change that eliminated nearly all of the established players by about 1970, in favor of companies that entered the market with hydraulics. The first hydraulic-based excavators were less capable than the cable systems that were in existence, and certainly couldn’t compete with them. However, they were small enough that they could be deployed for jobs previously done by hand, opening up a new market, in which the desired attributes were quite different from the big jobs that the cable actuated excavators were used for. The technology involved in hydraulics continued to improve, however, and with time eventually equaled and then surpassed the needs formerly filled by cable-based systems. In the meantime, though, the established firms were still going strong, and didn’t do much, if anything, to deal with the new competitor (because it wasn’t really seen as a competitor, not being sufficient for their existing clients’ demands) until the new arrivals were “in the midst of their mainstream market”. By the time the established companies introduced their own hydraulics, however, it was too late, and the later entrants were by then better positioned with the new technology.

Links

http://www.claytonchristensen.com/

http://en.wikipedia.org/wiki/Disruptive_technology