01 Apr 1999
Q & A: Confronting New Technologies: When Doing Right Is WrongTopics:
Recently featured on the cover of Forbes with Intel chairman Andrew Grove, Associate Professor Clayton M. Christensen is the author of The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail. His research on "disruptive technologies" - new products that make inroads into established markets - is sounding a wake-up call for corporate strategists.
How did you first become interested in these disruptive technologies?
It was the sudden demise of Digital Equipment Corporation that first drew my attention. How could a company, once described by Business Week as a freight train that obliterates all competitors, fall so precipitously? Other minicomputer firms were suddenly failing too. How could good managers seemingly turn bad so fast? That was the puzzle. Colleagues suggested exploring the disk-drive industry because the same sort of thing had occurred there repeatedly. This industry's rapid evolution, coupled with the availability of ample data, made it rich ground for research.
Given the potentially overwhelming threat of disruptive technologies, why do so many managers appear to overlook them?
The problem really is not one of awareness but that these upstart technologies seldom make sense to managers, given their corporate perspective. There are two reasons for this. First, customers exert tremendous influence over managers' decisions and the directions they pursue. Since customers cannot use these products when they first emerge, they encourage managers to focus instead on improving the performance of existing products - what I call sustaining technologies. For this reason, good companies have little difficulty succeeding in sustaining innovation - even radical innovation. If their customers need it, somehow they find a way to get it done.
Second, the financial world demands steady if not increasing margins. Disruptive innovations often promise lower margins than sustaining innovations. It is extraordinarily difficult for good managers to pursue worse margins aggressively. Thousands of DEC employees saw the personal computer coming. It was not a cognitive problem. The PCs simply did not make sense to DEC, given their customer context and their cost structure/business model.
“Disruptive Tech 101”
When Clay Christensen speaks of disruptive and sustaining technologies, he uses the word technologies to mean the processes by which organizations transform resources into products or services of greater value. Sustaining technologies are those processes that foster improved product performance, while disruptive technologies are those that initially tend to degrade product performance but promise greater long-term potential. Emerging technologies are often disruptive to established organizations because they have a different set of attributes that aren't valued in existing markets. Market potential can seldom be measured and profit margins are meager at best.
Examples of products and services that have been recently affected by disruptive technologies include:
- Automobiles (electric vehicles)
- Bookstores (Internet sales)
- Department stores (discounters)
- Doctors (nurse-practitioners)
- Health insurance (HMOs)
- Mainframe computers (desktops)
- Motorcycles (dirt bikes)
- Network television (cable tv)
- Photography (digital imaging)
- Records (compact discs)
- Restaurants (grocer's takeout)
- Steel production (minimills)
- Telephone-long distance (Internet telephony)
Are some industries more vulnerable to this threat than others?
There are some industries, or at least parts of them, that I see as less vulnerable; for example, the oil and materials industries or certain segments of the pharmaceutical business. But in many other industries - financial services, education, and health care, for instance - this analytical model is proving extremely helpful in understanding what is really happening.
You describe disruptive technologies as dependent on markets that don't yet exist. How then can managers identify and assess market potential?
The simple answer is that you must "sense" a market's potential by actually being where the technology is emerging. More traditional market research and planning methods rely on the ability to interview customers about their needs and collect relevant market data. But when markets do not yet exist, neither do customers. The process must be an interactive one wherein innovators work to sell disruptive products to customers and then watch to see whether and how they use the products. This is an iterative process, quite different from the market research traditionally employed to guide sustaining innovation.
The implication is that the initial concept for a new product or service is probably going to be wrong. Therefore, development costs must be kept low until innovators understand better just how customers will use the product.
Is this a marketing issue more than one of technology?
Absolutely. Most marketers are deeply skilled in listening to customers and then translating the information they obtain into next generation products. In contrast, the skill set for uncovering new product applications and markets is something few possess. These findings suggest that business educators should place more emphasis on building these skills.
What are the broad implications of your research findings for corporate managers?
Above all, managers of great companies should not change what they have been doing, because that is precisely what brought their success. Still, it is important - indeed critical - to recognize that organizations have both capabilities and disabilities. Developing strong capabilities in sustaining innovations, by definition, creates disabilities in disruptive innovations. Creating an autonomous, entrepreneurial subsidiary may often be the best solution to this dilemma.
Are there implications for entrepreneurial organizations, as well?
Yes, very clear implications. If your business plan is based on a sustaining technology, i.e., improvement of an existing product or service targeted at an established market, then rapid market entry and a quick sellout provide the best chances for success. For an entrepreneur wanting to build a business over time, the odds can be improved dramatically by finding a means to disrupt the existing players and fly beneath their corporate radar. Interestingly, some venture capital firms have revisited their prior investments and confirmed that those involving disruptive rather than sustaining technologies proved far more profitable for them.
Peter K. Jacobs, a Boston-based writer, conducted this interview