Disruptive technologies

September 14th, 2004

Jerry Lawson at eLawyer Blog posts on "disruptive technologies" and how they often deliver economic waves of change.
Clayton Christiansen, a Professor at the Harvard Business School, developed the idea of "disruptive technologies" in The Innovator's Dilemma, now considered a classic management book. Christiansen was interested in why well-managed, companies, considered very innovative within their industries, come to stumble. After studying a number of examples, he identified a leading reason why great companies fail. He summarized it as follows:

Disruptive technologies bring to a market a very different value proposition than had been available previously. Generally, disruptive technologies underperform established products in mainstream markets. But they have other features that a few fringe (and generally new) customers value. Products based on disruptive technologies are typically cheaper, simpler, smaller, and, frequently, more convenient to use. There are many examples in addition to the personal desktop computer and discount retailing examples cited above.

Think: Skype, iPod, Freesat, the falling cost of broadcast technology, instore TV – where 80% of all purchases are made within 10 feet of the item. The shift also of retailing on-line. SMLXL likes the words "Creative Destruction"
Opportunity or threat? its often how one decides to look at the world. Embrace it or ignore it until its too late. Adam Singer of Cordelia says its not a widget its a wave

Digitization is like a street brawl without any rules.
The music industry is in paralysis, whilst Apple, a technology company, has sold more than 2 million iPods and delivered a disruptive integrated music service to a growing fan base. In the US demand outstrips supply.
Lufthansa has sold its stake holding in the booking system Amadeus, as it no longer sees the value in a technology that has been disintermediated by the Internet and the low-cost airline business model.
Kodak has finally succumbed to the meteoric rise of the digital camera and the camera enable phone and stopped making camera film for customers.
Even if digitization isn't affecting your market directly, it is certainly affecting your route to market. Even if you seem removed from the digital world, it will affect you. The explosion of cable and satellite TV has fragmented audiences and each new digital outlet forces choice upon us ? eroding our familiar analogue world. So how, as a CEO of a company, do you embrace this 96 bit digital universe?
Understanding that your historic cost base will not be supported by the new digital economics is key to future growth. This applies to all management teams facing a fundamental change in economics delivered by technology.
It's always a question of timing and most of us would prefer to stay in denial rather than make that tough business gamble on a new direction. Many companies by staying risk averse take the biggest risk of all by gambling with the very existence of their companies.
Invariably these are all anxieties for any CEO, but what if one were to say there is no such thing as technology, because technology, any technology, can be seen as just a constantly falling cost-line? The real question is when on this line do you get on, and when do you get off? In other words, don't look at technology as individual items and functional things, but as an economic force that is constantly changing.
Ask yourself, when you contemplate a strategic change, what does it do for the world now and what will it do when it is a third of the price?