On Disruptive Technologies

May 20th, 2013

By Miguel

A few years ago, while working at a big company in a pure technical position, I got this recommendation: “read this, it is not the typical book for Dilbert-esque managers”. I don’t remember who recommended it to me, probably it was my own manager at the time (not “Dilbert-esque” at all); the case is that I really enjoyed it, so I wrote a short review and I published it in my personal blog, which is in Spanish.

Now that we are on the other side, we thought it can be interesting to share how we think Clayton Christensen’s conclusions apply to our specific case: what are we innovating? Can we ever become a threat for some of the established players in our industry? This post, the English translation of my old review, will be followed in a few days with our answers to these questions. We hope they provide a view of our innovation strategy and long term goals.

Clayton M. Christensen

The Innovator’s Dilemma

Innovators_dilemma

Harvard Business School Press

Boston, 1997

179 pages.

I usually try to stay away from management books, even more if they are bestsellers, like that one about cheese or that other about emotional intelligence. I also don’t enjoy reading the easy reading gurus, like Malcolm Gladwell or Chris Longtail Anderson: their winning formula, based on repeating a simple and often attractive idea as many times as necessary to fill three or four hundred pages, padding it with anecdotes or carefully cooked statistics, gets boring soon, and too often the leading argument is as fantastic as the hobbits’ adventures. But when somebody I trust recommends me a book with a couple of good reasons, I tend to pay attention. Some time ago I even reviewed a software management book, the remarkable Peopleware by Tom deMarco.

This book’s main thesis is the following: whenever a truly disruptive technology appears, well managed companies do not react adequately to the threat (we shouldn’t even consider what happens to badly managed ones). Therefore, after a few years, either they disappear completely or they are displaced from the leading positions in their industry sectors by other companies, rising thanks to the new technology. Christensen shows it with a thorough example, using for it a quite well known industry: hard drives. He explains how each technological jump usually involved a reshuffling in the manufacturers’ market shares and profits: every few years, when moving from 14 inches to 8” disks, and to 5.25” and then to 3.5”, the manufacturers’ list, when ordered by sales volume, changed almost completely. The hard drive story is well backed with figures and charts, the author did really perform a thorough analysis (let’s compare it with the “everything is free” story by certain guru).

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A later chapter turns to a slower moving industry: excavators. The huge machines resembling cranes moved by cables and pulleys ended up cornered by a technology that in its beginnings only was good enough for small backhoes that could be attached to agricultural tractors: hydraulics. After these two analysis the author proposes his first explanation: the companies that lost the competition race did not fail due to bad management or lack of technical ability (they frequently were the first to prototype the new technologies). But the very traits that made them be well managed led them to failure: they had good market analysis processes and listened to their customers, so they automatically assigned resources where profits were. Like in a Greek tragedy, they can’t see what is happening to them until it is too late.

It is very difficult to identify a disruptive technology before it turns an industry upside down. Christensen compares them to maintaining technologies, which frequently require greater investments. Maintaining technologies improve the product, but they don’t cause a substantial alteration in the marketplace. For example, magneto-resistive read/write heads replaced traditional ferrite heads following true technical feats that achieved huge improvements in storage density, but they didn’t change the balance of power among manufacturers, because all of them were aware of the technology advances and made the required investments.

On the other hand, disruptive technologies have some common characteristics: they usually enable simpler and cheaper products, which often cannot compete against the established companies in performance or quality, but, thanks to their smaller price create a market that in the long term allows them attack the former. In the hard drive example, the disruption was caused by something as simple as the reduction in size: smaller disks had simpler architectures but were worse drives in the sense that they were slower and had less capacity, but their smaller unit price made them attractive to a new type of customers. For example, personal computer makers instead of minicomputers‘. Market evolution did the rest.

Christensen analyzes this product evolution process in a very structured way: how the natural tendency is towards improving the product, bringing it to a higher quality and price position, leaving empty spaces that will be occupied by simpler versions. Company processes, and above all, company culture will make it almost impossible to make a radical change of direction. A product’s most desirable characteristic changes following something akin to a life cycle: first it is functionality, then  reliability, then come ease of use and convenience, and finally, when all competing products have reached an acceptable quality level, price is the most important feature. If manufacturers keep improving the product, the only goal they will reach is to push themselves out of the market, because they will be offering something that the market is not demanding.

In the second part of the book, Christensen applies the conclusions from the previous analysis to business management: how to recognize a disruptive technology, how to organize a company to take advantage of them -depending on some starting conditions, he recommends a few different approaches-, how management methods must change when dealing with this kind of innovations. He proposes a series of dilemmas whose statements are the book’s conclusions, and some recommendations to try being the hunter instead of the prey.

The Innovator’s Dilemma‘ is no easy reading, nor is it pretending to be, because it is a textbook, although the interesting conclusions and the good choice of examples are enough motivation for the reader to apply a bit of effort to reach the end. Without being a physics treatise, premises and arguments are presented quite rigorously, without gaps that would force readers to use faith instead of reason. The author does not offer miracle receipts, but adds a couple of tools to our analysis toolkit. We should not forget the overall context: we are in a world of decently run companies, so it is presumed that obvious issues as incompetent or even criminal bosses have already been taken care of.

A second reason to say without reservation that I have really liked this book is that it matches very well my own experience: more than ten years working in an industry where technology cycles are very short, so everybody can notice these kinds of processes and identify their victims. The recommendations at the end of the book clearly show who is the intended audience: executives, management consultants, strategy makers, most time working in the context of a big corporation. Although we are somewhat far from all that, it never hurts to look a bit ahead and try to see where are we heading.