Disruptive Technologies and The Innovators Dilemma

I recently read the book The Innovators Dilemma by Clayton Christenson. I would not call it entertaining at all, in fact, I thought it was pretty good sleeping aid. That being said, I found the information and the subject matter extremely interesting. The book is based on the idea that very well run companies who are paying attention to their customers, investing in continuous improvement, and treating their employees well can suddenly and almost inexplicably fail and often go completely out of business. The amazing thing is that the very things that managers are doing “right” are frequently the exact things that cause a company to fail.

Christenson uses the disk drive industry as a study model. He says that biologists often study fruit flies because their life span is only several hours. Therefore they can study multiple life spans in a single research study. He claims that the computer hard disk drive industry is the closest thing in industry to a fruit fly. (Yes, I also found that amusing.) There are other industries that were studied as well. The author pointed to examples in the steam shovel industry, the motorcycle industry and the retail industry as well as others. He also introduced the term disruptive technology.

The claim is that a disruptive technology or idea is one that is less attractive in most areas than similar existing ones. Let me point to the 8 inch hard drive. This was a mature product. Manufacturers were continuing to improve its capacity and performance. They were responsive to their customer’s needs and invested in research. When the 5 ¼ inch drive came upon the market, the manufacturers existing customers (makers of main frames and large servers) had little interest in it. It had lower capacity and lower performance and was more expensive. Managers looked at this new disruptive technology and said, “Why would anyone want that, and why should we invest resources into it?”

The problem was that the customers for this new idea had not yet been found. The makers of small desk top PC’s were just coming over the horizon, and they loved the little underperforming overpriced orphan, so a few manufacturers started making them. As research on the smaller drives advanced, they began to approach and eventually surpass the performance of the larger drives. Suddenly they were attractive to the main frame and server manufacturers. Like getting hit with a surface to air missile, the big manufacturers were not prepared to compete in the new market and were shot out of the air. They never saw it coming, as the saying goes.

There is a solution fortunately. When a disruptive technology comes along that shows some promise, create a spinoff company. Make it self sustaining and self ruled. The new company must not be shackled to the traditions and “corporate culture” of the parent. The trouble is that large companies have big appetites and lots of traditions and expectations. In order for a $100 million company to grow 10 percent, they have to have $10 million in profit. A $100 thousand company only needs $10 thousand. A small company can afford to put resources into less mature technologies that a larger company could not.

Imagine yourself as a well trained competent and concerned manager. Of course your bonuses are based on the performance of your division. A well respected engineer comes to you and says, “I have this great idea. Take a look at this.” You look at “this” and agree that it is a great idea. You ask him, “What is the market for this idea? Who do you think will buy it?” He says he does not know exactly, but that some one would certainly want it. You say, “What do you think our annual sales would be if we made them?” He says that he is an engineer and has no idea, but it is a great idea. Because you respect the engineer, you take it to your sales people who talk to all your existing customers about it. Of course your existing customers have no interest in it. How much of your department resources are you willing to invest into this “great idea” that could otherwise be spent on improving existing products with accurate sales projections and known customers? (“Duh, I dunno” is not an acceptable answer.)

That’s it in a nutshell. Disruptive technologies come along all the time. The disk drive scenario played itself out about four times within ten to fifteen years. Hydraulic excavators replaced steam shovels with a nearly identical script although the time line was greatly stretched. Little Japanese motor bikes nearly wiped out the large American road bike industry at one point. By the way, how many large retailers have gone out of business or sold out to competitors in your life time? Think about it.