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Preempting Disruptive Technology
Harvard academic Clayton Christensen has written extensively over the last 15 years about the phenomenon of disruptive technology and its impact not only in market creation but in market destruction. Is your business susceptible to a disruptive technology? Disruption is a constant threat — not just because of technology but from innovation that occurs due to the constant engine of new business development.
In Christensen's theory, disruptive technology occurs when a new, inferior technology emerges that eventually surpasses the incumbent one. For example, hydraulics succeeded steam power, but at the beginning, hydraulic shovels were inferior for the qualities existing customers prized: capacity and reach. Yet, hydraulics created new business opportunity for the unmet need of small jobs previously done by hand. The disruption occurred when hydraulics improved to the point that it could manage larger commercial jobs and serve the very customers who rejected it initially. This has occurred frequently in computing: mainframes were disrupted by mini-computers which were then disrupted by PCs.
Initially, disruptive technologies offer poor alternatives for existing markets. For example, digital cameras were not nearly as good as film in terms of quality, yet they served well the nascent market of social networking. Disruption occurs because of market or strategic innovation done by businesspeople (not inventors).
Disruption is occurring in the large emerging economies of China and India. For example, in Bangalore, India, Devy Shetty has created a business model for heart surgery that significantly cuts costs. Shetty's surgeons can deliver comparable quality to the more expensive procedures in American hospitals in part because of the specialized focus of their work. Another firm is linking televisions to the internet via cell phones to meet the need for the mass of people trying to access the internet using what they already have. No "leapfrog" technology drives these disruptions. In all cases, innovation is the key, driven by new business development.
Not all new technologies are disruptive; in fact, many are not. Firms routinely adopt newer technology that meets the needs of their customers. For example, the compact disc (CD) was very good for the music industry, replacing less durable and less flexible cassette tapes — a sustaining technology. The CD, however, dismantled the encyclopedia business. Encyclopedia Britannica was an excellent product that overshot the home market and was quickly replaced by inferior CD-ROM versions like Encarta.
Innovation is the key to new business opportunity, which is driven by the decisions executives and managers make. China and India represent great growth opportunities because they have needs that are currently underserved. In addition to local firms, multi-nationals like G.E. and Unilever have made decisions to engage new business opportunities. To play, these companies must send development teams where the customers are, to learn about them and engineer products that meet their needs in a frugal way. Through this process, G.E. has designed and now sells an electrocardiogram (ECG) that is simpler to use, can run on batteries and sells for 40% of state-of-the-art ECGs sold elsewhere. Expect that this new ECG will eventually be good enough to replace more expensive ones now sold in developed markets.
While your company should be wary of disruptive technology, one way to address the threat is to be involved in new business development, focusing on these things:
After coining the phrase "disruptive technology," Christensen corrected himself to note that disruption occurs from innovation, not just technology. The key is for managers to have ways to engage new business development, making difficult decisions to seize appropriate opportunities.
- Look for unserved or underserved markets. You may not have the reach to go into emerging economies like China, India or Brazil, but if you seek organic growth it must come from new markets. The effort should be market focused rather than just product-line extension.
- For new technology — or more likely innovation based on existing technology — figure out if it meets unserved markets the way the digital camera and hydraulic shovel did. If it does not meet current customer demands, it still may have value for a different market. Determine if it does. Focus on unmet needs or unsolved problems, and see if your firm has the capability to exploit them. In assessing capabilities, be aware that new markets often lead to unsophisticated customers who need education or training, so these are services you may need to provide.
- Often underserved markets are developed through an innovation related to distribution or business model. Apple's iPod was not based on disruptive technology (it used existing mp3 player technology), but it was packaged with software that solved the distribution problem.
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