Managing Disruptive Technologies

Technological performance often overshoots market requirements. Consequently, today’s under-performing technology may meet the needs of customers tomorrow. On the other hand, technologies which perform satisfactorily today may over-perform tomorrow and customers may not be willing to pay for this over performance. As Christensen puts it, “In their efforts to stay ahead by developing competitively superior products, many companies don’t realize the speed at which they are moving up-market, over satisfying the needs of their original customers as they race the competition towards higher-performance, higher-margin
markets. In doing so, they create a vacuum at lower price points into which competitors employing disruptive technologies can enter.” Utterback (Mastering the Dynamics of Innovation) makes a similar point: “Failing firms are remarkably creative in defending their entrenched technologies, which often reach unimagined heights of elegance in design and technical performance only when their demise is clearly predictable.”

How can managers identify the real worth of a new and disruptive technology? Usually, they can recognize it only in retrospect. Yet, the fact that disruptive technologies are developed by new firms or by large enterprises entering a new business or by spin-offs of established competitors, offers them some clues. Since
the formation of new firms is a fairly visible process, studying the type of products they develop or launch can be a very useful source of information about technological innovation. A fresh approach is necessary for managing disruptive technologies. Management according to detailed plans and budgets is difficult in the case of such technologies. Applying conventional investment appraisal processes can also be counter-productive. Instead, companies must be prepared to go through a process of discovery with plans for learning instead of rigidly implementing preconceived strategies. As Christensen puts it: “By approaching a disruptive business with the mindset that they can’t know where the market is, managers would identify what critical information about new markets is most necessary and in what sequence that information is needed. Project and business plans would mirror these priorities, so that key pieces of information would be created and important uncertainties resolved, before expensive commitments of capital, time and money were required…”

Thus, the key issue in managing a radical innovation is the need for a new mindset. Very often, successful innovators are the ones with less resources and no particular strengths in scientific or technological discovery. On the other hand, established players who are beaten lack neither financial muscle nor talented manpower. But successful innovators are blessed with the right mindset. They worry less about what the technology can do and instead look for markets which will be happy with the current performance levels. Thus a strong, marketing orientation characterized by a zeal to go out, understand customers and tap hitherto neglected segments is a key success factor in managing radical innovations. Successful companies should create small empowered teams to dabble in new technologies, encourage them to come to the market quickly and keep making performance improvements as feedback from customers pours in. Since entrenched processes and values stand in the way of change, a separate organization for which even small business volumes are acceptable, is a more practical arrangement than grandiose attempts to change the entire company’s culture. According to Richard N Foster (Innovation: The Attacker’s Advantage), “the attacking and defending ought to be done by separate organizations.”

Utterback has drawn the following conclusions about the general pattern of innovations. Discontinuous innovations in assembled products almost always seem to come from outside the industry. Discontinuous innovations in nonassembled products may come from inside or outside the industry. Discontinuous changes in process in the case of homogeneous products are quite likely to come from established firms or their equipment suppliers. When discontinuities broaden a market, newcomers are likely to lead the way. When they do not broaden the market or create a new niche, existing players will be better placed. Innovations
that destroy established core competencies almost always come from outside while those that enhance these competencies may come from inside the industry. Established companies need to keep these points in mind if they do not want to be unseated by new technologies.