Disruptive technolgies n n Clayton M Christensen The

“Disruptive” technolgies n n Clayton M. Christensen, The Innovators Dilemma, Harper. Business, 2000 og The Innovator's Solution: Creating and Sustaining Successful Growth, 2003, Harvard Business Press Dramatic, "disruptive" changes in technology What happens to organizations when such changes occur? They can adapt to new technology or die out 26. 11. 2020 Disruptive Technologies 1

Examples n n n Mainframe to minicomputer Mini-computer to PC Development of disk technologies From cable-management to hydraulic excavators in American steel industry Photocopy (Xerox) Internet? 26. 11. 2020 Disruptive Technologies 2

Case: Digital Equipment Corpfrom success (mid -80 s) n n n 60 s: IBM dominance 70 s: New technology, a new type machines, mini computers Many manufacturers: Digital, HP, Prime, Norwegian Data 1986 "Taking on Digital these days is like standing in front of a moving train. The $ 7. 6 billion computer maker has been gathering speed while most rivals are stalled in a slump. "Warning to IBM. . . One of the most prominent companies in Mc. Kinsley study that led to the book "In Search of Excellence" 26. 11. 2020 Disruptive Technologies 3

…to fiasko (end of the 80 s) n n n Digital has major problems: "Sales are drying up in its key microcomputer line. A two-year Restructuring plan has failed miserably. . . The real misfortune may be DEC's lost opportunities. It has squandered two years trying halfway Measures two RESPOND two low-margin personal computers that have transformed the computer industry “ Norwegian Data bankruptcy The PC wins-out over the mini-computer Compaq buys Digital (2000) Digital (and the Norwegian Data) were leading "world class" companies, why it can go so wrong so fast? 26. 11. 2020 Disruptive Technologies 4

New technology can be the reason n We can distinguish between: n n "Sustaining" Maintaining technologies. These preserve corporate and market structures. "Disruptive" technologies. There may be major changes in corporate and market structures 26. 11. 2020 Disruptive Technologies 5

”Sustaining” (maintaining) technology n n n All technologies are constantly evolving to better performance and lower cost Radical or more incremental change, but the common features are: n Increasing the performance of established products n Within the main dimensions that customers want n Example: cars, planes, computers, television sets Most innovations in a given industry are "sustaining“ Radical changes in a "sustaining" technology, which n propeller planes to jets n VLSI development in the PC industry n LP to cassette, to CD, to DVD rarely lead to bankruptcies of leading companies. 26. 11. 2020 Disruptive Technologies 6

”Disruptive” (breakthrough) technologies n n n The characteristics of innovation that leads to performance degradation: n Mainframe to minicomputer n Mini Machine for PC n Cable-driven to hydraulic excavators n From major to minor physical hard disks? (14 “ -> 8" -> 5 ¼ “->3 ½" -> cloud) But the technology may have other properties: n Less expensive, more robust, smaller, lighter, requires less energy, more flexible, easier to maintain, easier to use. . . Like opening the way for new markets 26. 11. 2020 Disruptive Technologies 7

The new technology comes into traditional markets n n n New markets provide good income Revenues are used for new research and development The development is as good as the technology is also appropriate for the traditional markets But since the new ("disruptive") technology has numerous other benefits it will undermine the market for traditional products. Therefore, we have (almost) no: Mainframes, Mini Machines, Cable-operated excavator, Physical large disk, …today. 26. 11. 2020 Disruptive Technologies 8

Mini-computer til PC n n n PC brukte ny teknologi (VLSI) Lavere kapasitet, men billigere, mer robuste, mindre, lettere, . . . Enbruker-filosofi Brukes direkte av sluttbruker, programvare som var enklere å bruke (Apple Mac, så Windows) Prosessor, maskinvare, operativsystem og applikasjon fra forskj. leverandører (Intel, Compaq, Windows, Office/Lotus/Quicken). Det gir fleksibilitet, større konkurranse, lavere priser, bedre kvalitet 26. 11. 2020 Disruptive Technologies 9

Personal experiences n Introduces the architecture for a system of health care in 1978: n n n Comment from Norwegian Data were alternative supplier, "complete unrealistic“ n n n n A machine per physician (NPC) A common database server (computer with 20 Mb disk) But we argued that our solution was safer (more machines) cheaper and more future oriented (computer technology) more efficient (one per processor. doctor) more robust (run without an operator in a normal environment) more user-friendly Implemented in 1979, the world's first disk solution for PC 26. 11. 2020 Disruptive Technologies 10

PC Market development n n From one alternative for mini-computer (for end users and small companies) In substitute for mini-computer: n n n greater capacity Networking connections The market for mini machines disappeared in a few years: n n In 1986, the Norwegian Data seen as the flagship of the Norwegian industry, they earned good money. Two years later they were gone. 26. 11. 2020 Disruptive Technologies 11

Were the mini-computer manufacturers sleeping in class? n n No, Digital, Norsk Data and the others had built their busines based on competent engineers, program developers and sales force They were all examples of ”world class” businesses They invested also in new technolgy. Digital was early out with a PC-series Even so, it didn’t go well. . . 26. 11. 2020 Disruptive Technologies 12

Development of ”disruptive” technologies Disruptive technological innovation 26. 11. 2020 to e u s de es s e gur ptilvogi o r P isrhno d ec t Disruptive Technologies 13

Mini-computer producers n n n Were expert Did nothing wrong However, it had a structure and a market adapted for a different technology: n New Forms (analyze customer needs) n Sales margins n Profits p. r. sale 1987 Discovery Project (Ministry of Industry + Norwegian Research + SND + Norwegian Data): n IT centers in rural areas n Mini-computers from the Norwegian Data n Panic Reaction to rescue Norwegian Data n DN-chronicle: "U-help, latest in a bygone technology“ Must the Norwegian Data go into bankruptcy? 26. 11. 2020 Disruptive Technologies 14

Digging machine manufacturers n After World War II, remotely operated excavator n n n Large capacity Costly For mining, M. M. 26. 11. 2020 Disruptive Technologies 15

Hydraulic machines n The first hydraulic excavators: n n Small capacity Could be connected to tractors Small and flexible Reliable 26. 11. 2020 Disruptive Technologies 16

Hydraulic as a ”disruptive” technology n n n Hydraulic uninteresting to the established, their customers that would have greater, not lesser capacity The established manufacturers took the customers needs for granted Many newcomers come in with hydraulic technology These took the characteristics of technology for granted Found new markets, municipalities, contractors, farmers, … 26. 11. 2020 Disruptive Technologies 17

What happened? n n n Hydraulic-technology underwent fast development Increasingly large bucket capacity Won new markets Went into the established market Broke most of the established manufacturers 26. 11. 2020 Disruptive Technologies 18

Could the established have done anything differently? n n n They knew the technology Try it out, often in hybrid solutions with existing customers Were skilled developers Were locked into its established customer base, unfortunately hydraulic was a technology customers did not need They competed with other companies that used the same technology (cable) 26. 11. 2020 Disruptive Technologies 19

Standard solutions do not work against ”disruptive” technology n n n Work harder be smarter Listen to your customers Invest more aggressively Develop technology Drive in the wrong. . . ! 26. 11. 2020 Disruptive Technologies 20

Disc-technology n n Very rapid development from the 1950 s to the present day Been through many "generations" of technologies The trend has been clear "disruptive" effects Prof. Christensen points out that the development follows a definite pattern, with easily identifiable steps 26. 11. 2020 Disruptive Technologies 21

6 steps in development of discruptive technology 1. New, "disruptive" technology were first developed in the established companies 1) 2) 2. Control Data (14 "manufacturer) developed 8" technology Seagate, executive producer of the 5 ¼ "technology developed 3 ½" model Marketing requested feedback from customers 1) 2) 3) IBM would not have 3 ½ "model for its XT and AT computers (they wanted more capacity) Weak sales forecasts Management cut out the product (explicitly or implicitly) 26. 11. 2020 Disruptive Technologies 22

Further development and new companies… 3) Established company focus on the development of existing ("sustained") technology n n Ruled by the customers (large capacity) and market In order to generate revenue and profits 4) New companies are formed based on the new "disruptive" technology n n n For example, Connie Peripherals, formed by staff from Seagate unable to sell to existing customers had to find new markets through trial and error For example, the laptop market (but this was small and highly uncertain in the late 80's) 26. 11. 2020 Disruptive Technologies 23

newcomers are taking market share, the established get problems 5) The new technology developes for larger capacity n n Start market (for example) increases in size The capacity is so great that technology also gains entry at the high end of the market (e. g. Stationary PC) 6) The established attempts to defend their markets: n n Seeing that the new technology is introduced also in their (high capacity) market Taking up the prototypes from research labs But now this has become a "sustained" technology, where the competition is competing on performance and price Newcomers often have advantages here 26. 11. 2020 Disruptive Technologies 24

Handling a "disruptive" technology requires n n n Knowledge of the new technology Willingness and ability to develop a technology for new customers, as well as a need to develop the "sustained" technology Willingness to accept new forms of marketing, sales and production Willingness to accept new profit margins for each sale Willingness to terminate the existing staff, hiring new employees instead 26. 11. 2020 Disruptive Technologies 25

Impossible? n n n Christensen finds few examples of companies that have managed to survive "disruptive" changes IBM is an exception. Have had mixed success, but it did best when the PC division was isolated from its parent company Best solution is to start a new company to handle the new technology 26. 11. 2020 Disruptive Technologies 26

Is Internet such a technology? n n n Allows for new sales channels (banking, insurance, retail, auctions. . . ) Radical change in costs per. transaction (from manual to automatic) However, the pioneer (first mover) advantage is debatable, it is easy for others to come by and take market share "Click & Mortar" may be the best solution in many markets, where they have established an advantage “Both" it is possible here, but was difficult in the other cases we have analyzed 26. 11. 2020 Disruptive Technologies 27

Survival examples n Traditional industries for the production of watches (Swiss): n n n New technology, digital watch: n n Quality in appearance, clock necklace and watch that functions Quality linked to price Very cheap in production High quality mechanisms (functions) Low quality jewelry? Traditional industry managed to adapt to the development, (are jewelry characteristics more important than the functionality? ) 26. 11. 2020 Disruptive Technologies 28

”Disruptive” technologies n n Is not common (fortunately? ) But in many industries, the new technology can have a "disruptive" effect on parts of the business: n n n n Flight and bus for NSB (trains) Numerically controlled machine tools in manufacturing IT in Telecom (mobile technologies) (Internet on Telecom) Internet for banking Email for the postal industry Laser surgery to correct vision Digital Cameras 26. 11. 2020 Disruptive Technologies 29

Prognoses (by Kai) n Libraries will disappear in its traditional form, collections, purchases, loans will be irrelevant in a digital world 26. 11. 2020 Disruptive Technologies 30

Prognoses (by Kai) n All work to handle cash will disappear 26. 11. 2020 Disruptive Technologies 31

Prognoses (by Kai) n n Newspapers will have competition when these are produced digitally Shops will feel the competition from online 26. 11. 2020 Disruptive Technologies 32

Prognoses (by Kai) n 26. 11. 2020 Newspapers will have competition when these are produced digitally (e. Avis) Disruptive Technologies 33

Prognoses (by Kai) n Shops will feel the competition from online http: //www. kelkoo. no/infosenter/faq 26. 11. 2020 http: //www. finn. no 34