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Professor Clay Christensen of Harvard University put forth the theory of disruptive technology in a top-selling business book. The essence of the theory is that leading firms in a market invest in the currently dominant technology even when its performance, as measured on the primary dimension of performance, exceeds the needs of the mass market or majority of consumers. During this time, a new (disruptive) technology emerges on the horizon. The new technology is superior to the dominant technology on some secondary dimension that appeals only to a niche market and not to the mass market, and so the market leaders ignore or belittle the new technology. Initially the new technology's performance is inferior to that of the dominant technology and below the needs of the mass market on the primary dimension of performance. For this reason, the mass market does not embrace the new technology. However, the new technology continues to improve in performance on the primary dimension until it meets the needs of the mass market. Then, because it is also superior on the secondary dimensions of performance, it represents a better buy for the mass market than the dominant technology. At that point, the new technology disrupts the dominant technology.
Which firm introduces the new technology? Christensen's answer reflects a key finding of the theory: "The firms that led the industry in every instance of developing and adopting disruptive technologies were entrants to the industry, not its incumbent leaders." According to this result, all incumbent leaders cling to the old technology while all new disruptive technologies are introduced by new entrants to the market.
One problem with this theory is that it does not contain a precise, unambiguous definition of "disruptive technology" prior to and independent of disruption. What exactly is a disruptive technology before it disrupts? How does an analyst identify it? In the absence of such a definition, there is the danger of defining the disruptive technology after the event. That is, after some new technology disrupts incumbents, it will be classified as disruptive. In that case, the theory becomes circular.
Professor Ashish Sood and I carried out a study to test this theory and imbue the concept of disruptive technology with meaning. Our study, published in a peer-reviewed scientific journal, is based on thirty-six technologies across seven markets.
Thus, contrary to Christensen's theory, disruption is not the prerogative of new entrants. We find that some incumbents are disrupted by new entrants, while other incumbents themselves introduce disruptive technologies. In other words, some incumbents are innovative and others are not. What is the reason for this difference? The thesis of this book is that the internal culture of the firm determines whether it will be innovative or not, not its status as an incumbent or the arrival of some external technology.
For example, in the market of photography, digital photography has disrupted analog photography. Kodak was the dominant player in analog photography since its founding by George Eastman over a hundred years ago. The uninformed might suspect that some new entrant researched and introduced digital photography. However, surprisingly, the firm that developed the most technologies and that has the most patents in the digital photography market is Kodak. Yet Kodak did not become the unquestioned leader of digital photography. The reason is not because it ignored the new technology or failed to invest in it or failed to develop it as the theory of disruptive technology would suggest. The reason is Kodak's fear of cannibalising its established film business based on the analog technology.
Copyright Wiley. All rights reserved.
UNRELENTING INNOVATION: HOW TO BUILD A CULTURE OF MARKET DOMINANCE
AUTHOR: Gerard J Tellis
PUBLISHER: Wiley
Price: Rs 549
| Firms should explore radical innovations even if they cannibalise existing products: Gerarad J tellis | |
 Why are some firms more successful at introducing radical product innovations than others? Is the size of the firm a key determinant? The key driver of innovation is not size of the firm per se but the culture of the firm. Firms that have a culture that protects current products and focuses on the present tends not to be innovative. Innovative firms focus on the future, are risk seeking, and willing to commercialise innovations even if they cannibalise existing products. Incumbents have difficulty in innovating. Existing business models can get into the way of exploring new domains. How can companies marry core businesses with new activities? Typically, innovations emerge from current employees and innovators within the company’s existing businesses. Thus, the firm should encourage and facilitate such innovators to pursue their dreams. There is a natural evolution from the current into the future. Strength in the current technology provides a basis for future technologies. However, the more radical an innovation, the more it threatens current products and services. Thus, a firm should be willing to explore radical innovations even if they cannibalise existing products. Historically, firms have found it hard to cannibalise their own products. They try to hang on to declining market shares for too long before deciding to introduce new products that compete with their own. How should companies get over this inertia? Three practices can help companies overcome inertia and be willing to cannibalise their successful products: product champions, incentives for enterprise, and internal markets. Empowering product champions means giving employees the freedom, resources, and incentives to develop and commercialise their own innovations. Incentives for enterprise means providing strong rewards for success but weak penalties for failure. Internal markets means encouraging teams of employees to compete with each other in bringing innovations to markets.
Gerarad J tellis |
Professor of Marketing, Management and Organisation, Neely Chair of American Enterprise, Director of USC Marshall Centre for Global Innovation
