l09 disruptive technology
TRANSCRIPT
Bell offered the telephone patent for $100.000
Western Union turned Bell down
Bell went into business himself, founding AT&T
In 1900
AT&T had over million users AT&T revenues were $13 million while Western Union’s revenues were $6 million
"This 'telephone' has too many shortcomings to be seriously considered as
a means of communication. The device is inherently of no value to us."
- Western Union internal memo, 1876.
Telephone (1876)
“What use could this company make of an electrical toy?”
- Western Union president William Orton.
Telephone (1876)
„Well informed people know it is impossible to transmit the voice over wires and that were it possible to do so,
the thing would be of no practical value.“- Editorial in the Boston Post.
Telephone (1876)
„Thus the telephone, by bringing music and ministers into every house, will empty the
concert halls and the churches…“- “The Telephone”, The New York Times, March 22, 1876
Telephone (1876)
“Rail travel at high speed is not possible because the passengers, unable to
breathe, would die of asphyxia” - Dr. Dionysus Lardner, Professor of Natural Philosophy and
Astronomy at University College, London
Railroads (1815)
Cars (1885) “The horse is here to stay, but the automobile is only a novelty – a fad”
- The president of the Michigan Savings Bank to advised Henry Ford's lawyer Horace Rackham not to invest in the
Ford Motor company
Image from http://www.huffreport.com/
Airplanes (1903)"Heavier-than-air flying machines are impossible." - Lord Kelvin, president, Royal Society, 1895.
“The wireless music box has no imaginable commercial value. Who would pay for a message sent to nobody in particular?" - David Sarnoff's associates in response to his urgings for investment in the radio in the 1920s
Radio (1905)
“For God’s sake go down to the reception and get rid of a lunatic who’s down there. He says
he’s got a machine for seeing by wireless!” - Editor of the Daily Express in response to a prospective
visit by John Logie Baird, 1925
Television (1926)
"I think there is a world market for maybe five computers.“
- Thomas Watson, chairman of IBM, 1943
Computers (1943)
"There is no reason for any individual to have a computer in their home.”- Kenneth Olsen, president and
founder of Digital Equipment Corp., 1977
Personal Computers (1977)
“The Internet is a shallow and unreliable electronic repository of dirty pictures, inaccurate rumors, bad spelling and worse grammar, inhabited largely by people with no demonstrable social skills.” - Chronicle of Higher Education, 1997
Internet (1970)
I don't think that digital photography is romantic yet. It's not sympathetic the way that film is - Matthew Modine
Digital Cameras (1991)
"The knowledge transition was much more rapid for those learning from printed material...”- The E-book skeptic
Digital books (1992)
Picture from Amazon.com
HOW WILL THIS INNOVATION CHANGE
AN INDUSTRY, AND WHAT IMPACT DOES THIS HAVE ON THE COMPANIES I CARE
ABOUT?
Gradual ImprovementsFoster improved product performanceEach year new and improved products are offered
Sustaining Innovations
Source: (Christensen, 2000)
Mature Leading Companies
Existing companies, incumbents, have a high probability of beating entrant attackers when the contest is about sustaining innovations
Red Ocean Industry Bloody Competition
Well know industry boundariesRules are established, sustained Innovation
Commodities
D i s r u p t i o n
Blue Ocean
Value InnovationAlign innovation with utility,
price, and cost position
NewTechnology, new markets
The product performance is good enough and affordable to fulfil a unfilled need in the market
Disruptive Technology
Source: (Christensen, 2000)
The Disruptive Innovation Theory
New organisation can use relatively simple, convenient, low-cost innovations to create growth and triumph over powerful incumbents
Source: (Christensen, 2000)
The Disruptive Innovation TheoryA process where new entrant to an established market is able to challenge the established business
The incumbent is offering an established product, contently improving the product to meet more demands
This is a typical sustaining technology where every year products get better and better
The more demanding the customers the higher is the profit margin
The Disruptive Innovation TheoryAnother less demanding segment that gets overlooked
These customers would gladly switch to a cheaper product if they could since they do not require the high-end quality
Entrants enter the market by offering low quality product to this ignored segment
Something that works, but is cheaper, lower quality but does the job
Source: (Christensen, 2000)
The Disruptive Innovation Theory
The incumbents will usually ignore this, as their customers are not interested
The new product from the entrant is considered a toy
Then the product get better
And then it is too late…
Source: (Christensen, 2000)
The Disruptive Innovation Theory
When a CEO says:
“This is not a threat. Its low performance, bad quality and nobody want’s it.”
Their business is doom. Sell stock.
Source: (Christensen, 2000)
Low EndCan occur when existing products and services are “too good” and hence overpriced relative to the value existing customer can use – Value Innovation
Source: (Christensen, 2000)
New MarketOccur when characteristics of existing products limit the number of potential consumers or force consumption to take place in inconvenient, centralised settings
Source: (Christensen, 2000)
The Innovator’s DilemmaHow can managers of companies selling high-demand, high-margin products abandon these product for low-performance, low-margin products?
Resources, Processes and Values Theory
R e s o u rc e s (what a firm has), P ro c e s s e s (how a firm does it´s work), and Va l u e s (what a firm wants to do) collectively defines an organisations strengths as well as weaknesses and blind spots
The RPV Theory
Source: (Christensen, 2000)
Organisations successfully tackle opportunities
When they have the resources to succeed, when their processes facilitate what needs to get done, and then their values allow them
to give adequate priority to that particular opportunity in face of all other demands that compete for the company’s resources
The RPV Theory
TheRPVTheory
Possible consequences
Source: Christensen et. al. Seeing what’s next
ResourcesThings or assets that organisations can buy orsell, build or destroy. Examples: • People • Technology • Products • Equipment • Information • Cash • Brand • Distribution channels
ProcessesEstablished ways companies turn resources into products or services. Examples: • Hiring and training • Product development • Manufacturing • Planning and budgeting • Market research • Resource allocation
ValuesThe criteria by which prioritisation decisions are made. Examples: • Cost structure • Income statement • Customer demands • Size of opportunity
DEC’s customers didn’t want the low-end PC to begin with
DEC made some attempts to build PCs
Internal corporate politics caused delays
They were constrained by the success of VAX and PDP models
By 1990 sales were dropping and layoffs started
Several restructuring and by 1998 sold to Compaq
1. The telephone was a new-market disruptive innovation
2. Western Union’s resources, processes, and values meant that what ultimately became the right course appeared to be unattractive at the outset
3. Western Union saw entrants improving. However, investment in the core business kept trumping investment in the new business
4. By the time the right course was clear, it was too late
The Disruptive Innovation Theory The Innovators Dilemma Resources, Processes and Values Theory
Key Concepts