Disruptive technology

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Types of Innovation[1]
Revolutionary or discontinuous
An innovation that creates a new market by allowing customers to solve a problem in a radically new way. (E.g., the automobile)
An innovation that improves a product in an existing market in ways that customers are expecting. (E.g., fuel injection)
An innovation that creates a new (and unexpected) market by applying a different set of values. (E.g., the lower priced Ford Model-T)

A disruptive technology or disruptive innovation is marketing speak for a technological innovation that improves a product or service in ways that the market does not expect, typically by being lower priced or designed for a different set of consumers.

Disruptive innovations can be broadly classified into low-end and new-market disruptive innovations. A new-market disruptive innovation is often aimed at non-consumption (i.e., consumers who would not have used the products already on the market), whereas a lower-end disruptive innovation is aimed at mainstream customers for whom price is more important than quality.

Disruptive technologies are particularly threatening to the leaders of an existing market, because they are competition coming from an unexpected direction. A disruptive technology can come to dominate an existing market by either filling a role in a new market that the older technology could not fill (as cheaper, lower capacity but smaller-sized flash memory is doing for personal data storage in the 2000s) or by successively moving up-market through performance improvements until finally displacing the market incumbents (as digital photography has largely replaced film photography).

In contrast to "disruptive technology", a "revolutionary technology" introduces products with highly improved new features into the market, such as the automobile or telephone. A "sustaining technology or innovation" improves product performance of established products. Sustaining technologies are incremental.


[edit] History and usage of the term

The term disruptive technology was coined by Clayton M. Christensen and introduced in his 1995 article Disruptive Technologies: Catching the Wave[2], which he coauthored with Joseph Bower. The article is aimed at managing executives who make the funding/purchasing decisions in companies rather than the research community. He describes the term further in his 1997 book The Innovator's Dilemma[3]. In his sequel, The Innovator's Solution[4], Christensen replaced disruptive technology with the term disruptive innovation because he recognized that few technologies are intrinsically disruptive or sustaining in character. It is the strategy or business model that the technology enables that creates the disruptive impact. The concept of disruptive technology continues a long tradition of the identification of radical technical change in the study of innovation by economists, and the development of tools for its management at a firm or policy level.

[edit] The theory

How low-end disruption occurs over time.

Christensen distinguishes between "low-end disruption" which targets customers who do not need the full performance valued by customers at the high-end of the market and "new-market disruption" which targets customers who have needs that were previously unserved by existing incumbents.

"Low-end disruption" occurs when the rate at which products improve exceeds the rate at which customers can adopt the new performance. Therefore, at some point the performance of the product overshoots the needs of certain customer segments. At this point, a disruptive technology may enter the market and provide a product which has lower performance than the incumbent but which exceeds the requirements of certain segments, thereby gaining a foothold in the market.

In low-end disruption, the disruptor is focused initially on serving the least profitable customer, who is happy with a good enough product. This type of customer is not willing to pay premium for enhancements in product functionality. Once the disruptor has gained foot hold in this customer segment, it seeks to improve its profit margin. To get higher profit margins, the disruptor needs to enter the segment where the customer is willing to pay a little more for higher quality. To ensure this quality in its product, the disruptor needs to innovate. The incumbent will not do much to retain its share in a not so profitable segment, and will move up-market and focus on its more attractive customers. After a number of such encounters, the incumbent is squeezed into smaller markets than it was previously serving. And then finally the disruptive technology meets the demands of the most profitable segment and drives the established company out of the market.

"New market disruption" occurs when a product fits a new or emerging market segment that is not being served by existing incumbents in the industry. The Linux operating system (OS) when introduced was inferior in performance to other server operating systems like Unix and Windows NT. But the Linux OS is inexpensive compared to other server operating systems. After years of improvements Linux is now installed in 87.8% of the worlds 500 fastest supercomputers.[5]

[edit] Examples of disruptive innovations

Disruptive Innovation Displaced or Marginalized technology Notes
Hydraulic excavators Cable-operated excavators Hydraulic excavators were clearly innovative at the time of introduction but they gain widespread use only decades after. However, cable-operated excavators are still used in some cases, mainly for large excavations.
Mini steel mills vertically integrated Steel mills By using mostly locally available scrap and power sources these mills can be cost effective even though not large.
Desktop publishing Traditional publishing Early desktop-publishing systems could not match high-end professional systems in either features or quality. Nevertheless, they lowered the cost of entry to the publishing business, and economies of scale eventually enabled them to match, and then surpass, the functionality of the older dedicated publishing systems.
Digital photography originally, instant photography, now increasingly all chemical photography Early digital cameras suffered from low picture quality and resolution and long shutter lag. Quality and resolution are no longer major issues and shutter lag is much less than what it used to be. The convenience of small memory cards and portable hard drives that hold hundreds or thousands of pictures, as well as the lack of the need to develop these pictures, also helped. Digital cameras have a high power consumption (but several lightweight battery packs can provide enough power for thousands of pictures). Cameras for classic photography are stand-alone devices. In the same manner, high-resolution digital video recording has replaced film stock, except for high-budget motion pictures.
Minicomputers Mainframes Though mainframes survive in a niche market which persists to this day, minicomputers have themselves been disrupted into extinction.
Personal computers Minicomputers, Workstations Workstations still exist, but are increasingly assembled from high-end personal computer parts, to the point that the distinction is fading
High speed CMOS video sensors Photographic film When first introduced, high speed CMOS sensors were less sensitive, had lower resolution, and cameras based on them had less duration (record time). The advantage of rapid setup time, editing in the camera, and nearly-instantaneous review quickly eliminated 16 mm high speed film systems. CMOS-based cameras also require less power (single phase 110 V AC and a few amps for CMOS, vs. 240 V single- or three-phase at 20-50 A for film cameras). Continuing advances have overtaken 35 mm film and are challenging 70 mm film applications.
Muskets Crossbows, longbows and the Knight military unit Though early muskets had less fire rate, range, accuracy and reliability than crossbows and longbows, firearms allowed essentially anyone to become an effective soldier with very little training. Earlier military units like bowmen and knights needed years of practice to master the skills.
Steamships Sailing ships The first steamships were deployed on inland waters where sailing ships were less effective, instead of on the higher profit margin seagoing routes. Hence steamships originally only competed in traditional shipping lines' "worst" markets.
Telephones Telegraphy When Western Union infamously declined to purchase Alexander Graham Bell's telephone patents for $100,000, their highest-profit market was long-distance telegraphy. Telephones were only useful for very local calls. Short-distance telegraphy barely existed as a market segment, if at all. So Western Union's decision was quite understandable at the time.
Paper Parchment Paper is significantly cheaper than parchment, and got its great breakthrough with the printing press. Parchment is stronger, more durable, and still used until today for diplomas and other high-value documents.
Automobiles Rail transport By the beginning of the 20th century, rail (including streetcars) was the fastest and most cost-efficient means of land transportation for goods and passengers in industrialized countries. The first cars, buses and trucks were used for local transportation in suburban areas, where they often replaced streetcars and industrial tracks. As highways expanded, medium- and later long-distance transports were relocated to road traffic, and some railways closed down. As rail traffic has a lower ton-kilometer cost, but a higher investment and operating cost than road traffic, rail is still preferred for large-scale bulk cargo (such as minerals). Since rail has always been faster than contemporary road vehicles, it is viable for passengers in populated regions like Western Europe, sotuh and east Asia and the Northeast Corridor. When urban density increases, rail systems often become more attractive, and make a comeback.
High-speed trains Airliners Aircraft were once a revolutionary technology that replaced trans-continental rail traffic, and became a serious competitor even on medium range (500 km and more). Today, as airlines are burdened by increasing fuel costs and tightened airport security, and train speed increases with new infrastructure, trains in Europe and Asia are disrupting short-range flights. Future trains could be competitive on trans-continental distance too.
Computer printers Offset printing Offset printing has a high overhead cost, but very low unit cost compared to computer printers, and superior quality. But as printers, especially laser printers, have improved in speed and quality, they have become increasingly useful for creating documents in limited issues.
Plastic Metal, wood, glass etc Bakelite and other early plastics had very limited use - their main advantages were electric insulation and low cost. New forms had advantages such as transparency, elasticity and combustibility. In the early 21st century, plastics can be used for nearly all household items previously made of metal, wood and glass.
Missile weapons Artillery Early missile weapons, like Congreve rockets, were unreliable, and more or less experimental. They however had some intrinsic advantages - no recoil, and smaller launcher units. Guidance systems made missiles more efficient, and made most artillery pieces obsolete on land, at sea and in the air. Artillery still has the advantage of cheaper ammunition and greater accuracy, but modern warships rely entirely on missiles for long-range combat.
Television / Home cinema Movie theaters The first television channels mainly aired news, and began to replace newsreels. As television featured soap operas, animated shorts and other low-budget drama, demand for B movies declined, and concentrated on feature films with high budget. Pornography is another genre which has gradually moved from the silver screen to home television, as video recorders appeared (mostly since home systems offer more privacy than theaters). Cable and digital encoding has increased the range of television programs. Multiplexes increased cinema's range, at the cost of nearness. Currently, the budgets of Hollywood TV series are closing up on the budgets of feature films. Also, since audio-visual performance of television sets has improved more than movie theaters (as cinema technologies such as Cinemascope, 3D cinema, IMAX, THX have had limited commercial success), the box office mainly survives from the artificial time gap between cinema openings and DVD releases, together with snack sales.
Light-emitting diodes Light bulbs An LED is significantly smaller and less power-consuming than a light bulb. The first optical LEDs were weak, and only useful as indicator lights. Later models could be used for indoor lighting, and current ones are strong enough to serve as street lights. Classical light bulbs remain since they fit to existing light fixtures.
Digital synthesizer Electronic organ and piano Synthesizers were initially low-cost, low-weight alternatives to electronic organs and acoustic pianos. Today's synthesizers feature many automatized functions, and have replaced them for home and hobby users.
Downloadable Digital Media CDs, DVDs In the 1990s, the music industry phased out the single. This left consumers with no means to purchase individual songs. This market was filled by filesharing technologies, which were initially free, and then by inexpensive online retailers such as the iTunes music store. This low end disruption eventually undermined the sales of physical CDs.[6]
Mobile VoIP GSM and Roaming VoIP technology over a wifi network, can cost next to nothing for the user and the network used in data traffic on a unit basis; compared to the standard GSM network, especially for roaming calls.

Where GSM providers would charge what is widely considered ludicrous pricing for services such as calling international countries, installing a small application on compatible mobile phones, can cost the user nothing. However, this service cannot replace GSM fully, since it relies in the ever expanding wifi enabled areas.

Word processor Typewriter Flexible word processors with high-quality printers have superseded typewriters in all but the simplest applications, or where electrical power is not available, and manual equipment is the only practical alternative to pens and pencils.
LCD CRT Liquid crystal displays (LCD) (and other planar technologies) have largely replaced the dominant cathode ray tube (CRT) technology for computer displays and television sets, although CRT technologies have improved with advances like true-flat panels and digital controls only recently.
Mobile Telephony Mobile Discount Operators Mobile Discount / No Frills Operators (MDOs aka. MVNOs) first focused on a low-distribution-cost-through-internet sales model. In later times, innovations like low-priced mobile-internet tariffs were brought to market. This tripped the development of a new discount category in the market which was later entered by the large discount retail chains with own branded offerings leveraging their distribution power in the lower tier of the market.

[edit] Examples of revolutionary innovations

Revolutionary innovation Displaced or Marginalized technology Notes
Agriculture and Pastoralism Hunting and gathering Revolutionary innovation. Not a disruptive innovation as pastoralism is a much more productive technology than hunting. The development of food production technology led to other disruptive technologies such as cities, writing, metal working, wheeled vehicles, and much of the remainder of world civilization.
Container ships and containerization "Break cargo" ships and stevedores In addition to efficiency these also provide a great reduction in opportunities for pilferage and integrate well with both rail and truck transport.
Semiconductors vacuum tubes A revolutionary innovation often falsely quoted as a disruptive technology. Systems built up with semiconductors require far less energy, are magnitudes of size smaller and more reliable than such with tubes. Semiconductor transistors revolutionized logic circuits upon its introduction by Shockley and Bardeen in the 1950s.
Motor vehicles Horses as transport See Buggy whip; feed suppliers, harness makers, horse breeders, etc also affected
Airliners Road, rail and sea transport Airliners offer unmatched speed, and quickly came to dominate inter-continental and trans-continental travel. They are however facing competition from high-speed rail (see above).
Contact Lenses Eye glasses
Refractive eye surgery Contact Lenses
Accommodating lense implants Refractive eye surgery
Overnight Delivery Service On-hand Inventories This revolution depends as well on cheap oil and a big amount of government investment in road infrastructure. As well the environmental cost of Air pollution of often small amounts of products are socialized and not paid privately by the parties interested in the transport.
Internet store Brick and mortar business

Not all technologies promoted as disruptive innovations have actually prospered as well as their proponents had hoped. However, some of these technologies have only been around for a few years, and their ultimate fate has not yet been determined.

Unresolved examples of technologies promoted as 'disruptive innovations'

[edit] Business implications

Disruptive technologies are not always disruptive to customers, and often take a long time before they are significantly disruptive to established companies. They are often difficult to recognize. Indeed, as Christensen points out and studies have shown, it is often entirely rational for incumbent companies to ignore disruptive innovations, since they compare so badly with existing technologies or products, and the deceptively small market available for a disruptive innovation is often very small compared to the market for the established technology.

Even if a disruptive innovation is recognized, existing businesses are often reluctant to take advantage of it, since it would involve competing with their existing (and more profitable) technological approach. Christensen recommends that existing firms watch for these innovations, invest in small firms that might adopt these innovations, and continue to push technological demands in their core market so that performance stays above what disruptive technologies can achieve.

Disruptive technologies, too, can be subtly disruptive, rather than prominently so. Examples include digital photography (the sharp decline in consumer demand for common 35 mm print film has had a deleterious effect on free-riders such as slide and infrared film stocks, which are now more expensive to produce) and IP/Internet telephony, where the replacement technology does not, and sometimes cannot practically replace all of the non-obvious attributes of the older system (sustained operation through municipal power outages, national security priority access, the higher degree of obviousness that the service may be life-safety critical or deserving of higher restoration priority in catastrophes, etc).

[edit] See also

[edit] Notes

  1. ^ Christensen 2003, pp. xviii. Christensen describes as "revolutionary" innovations as "discontinuous" "sustaining innovations".
  2. ^ Bower, Joseph L. & Christensen, Clayton M. (1995). "Disruptive Technologies: Catching the Wave" Harvard Business Review, January-February 1995
  3. ^ Christensen 2003
  4. ^ Christensen, Clayton M.;Raynor, Michael E. (2003). The Innovator's Solution. Harvard Business School Press. ISBN 1-57851-852-0. 
  5. ^ http://www.top500.org/stats/list/32/osfam
  6. ^ Knopper, Steve (2009), Appetite for self-destruction : the spectacular crash of the record industry in the digital age, New York: Free Press, ISBN 1416552154 

[edit] References

  • Anthony, Scott D., Johnson, Mark W., Sinfield, Joseph V., Altman, Elizabeth J. (2008). Innovator's Guide to Growth - Putting Disruptive Innovation to Work - Foreword by Clayton M. Christensen. Harvard Business School Press. ISBN 13-9781591398462. 
  • How to Identify and Build Disruptive New Businesses, MIT Sloan Management Review Spring 2002
  • Christensen, Clayton M., Anthony, Scott D., & Roth, Erik A. (2004). Seeing What's Next. Harvard Business School Press. ISBN 1-59139-185-7. 
  • Christensen, Clayton M. & Overdorf, Michael. (2000). "Meeting the Challenge of Disruptive Change" Harvard Business Review, March-April 2000.
  • Christensen, Clayton M., Bohmer, Richard, & Kenagy, John. (2000). "Will Disruptive Innovations Cure Health Care?" Harvard Business Review, September 2000.
  • Christensen, Clayton M. (2003), The innovator's dilemma : the revolutionary book that will change the way you do business, New York: HarperCollins, ISBN 0-06-052199-6 
  • Christensen, Clayton M., Baumann, Heiner, Ruggles, Rudy, & Sadtler, Thomas M. (2006). "Disruptive Innovation for Social Change" Harvard Business Review, December 2006.
  • Mountain, Darryl R., Could New Technologies Cause Great Law Firms to Fail?
  • Mountain, Darryl R. (2006). Disrupting conventional law firm business models using document assembly, International Journal of Law and Information Technology 2006; doi: 10.1093/ijlit/eal019
  • Tushman, M.L. & Anderson, P. (1986). Technological Discontinuities and Organizational Environments. Administrative Science Quarterly 31: 439-465.
  • Eric Chaniot (2007). "The Red Pill of Technology Innovation" Red Pill, October 2007.

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