Disruptive technology

Categories: Types of technology | Marketing | Product management | Electronic commerce

A disruptive technology is a new technological innovation, product, or service that eventually overturns the existing dominant technology in the market, despite the fact that the disruptive technology is both radically different from the leading technology and that it often initially performs worse than the leading technology according to existing measures of performance. A disruptive technology comes to dominate an existing market by either filling a role in a new market that the older technology could not fill (as more expensive, lower capacity but smaller-sized hard disks did for newly developed notebook computers in the 1980s) or by successively moving up-market through performance improvements until finally displacing the market incumbents (as digital photography has come to replace film photography).

By contrast, sustaining technology refers to the successive incremental improvements to performance that market incumbents incorporate into their existing product.

The term disruptive technology was coined by Clayton M. Christensen and described in his 1997 book The Innovator's Dilemma. In his sequel, The Innovator's Solution, Christensen replaced the term with the term disruptive innovation because he recognized that few technologies are intrinsically disruptive or sustaining in character. It is strategy that creates the disruptive impact.

The theory

Christensen distinguishes between low-end disruption which targets customers who do not need the full performance of the high end of the market and new-market disruption which targets customers who could previously not be served profitably by the incumbent.

"Low-end disruption" occurs when the rate at which products improve exceeds the rate at which customers can learn and 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 disruptive company will naturally aim to improve its margin (from low commodity level) and therefore will innovate to capture the next level of customer requirements. The incumbent will not want to engage in a price war with a simpler product with lower production costs and will move up-market and focus on its more attractive customers. After a number of iterations, the incumbent has been squeezed into successively smaller markets and when finally the disruptive technology meets the demands of its last segment the incumbent technology disappears.

"New market disruption" occurs when a product that is inferior by most measures of performance fits a new or emerging market segment. In the disk drive industry, for example, new generations of smaller-sized disk drives were both more expensive and had less capacity than existing, larger-sized drives. Since size was not an important factor for the early computer market, these new drives seemed worse in every way. With the development of the minicomputer (or afterwards, the desktop computer, the notebook, and the personal music player), size became an important dimension, and these new drives quickly dominated the market.

Not all disruptive technologies are of lower performance. There are a several examples where the disruptive technology outperforms the existing technology but is not adapted by existing majors in the market. These occur in industries with a high capitalization sunk into the older technology. To update, an existing player not only must invest in new technology but also must replace (and perhaps dispose of at high cost) the older infrastructure. It may simply be most cost effective for the existing player to "milk" the current investment during its decline - mostly by insufficient maintenance and lack of progressive improvement to maintain the long term utility of the existing facilities. A new player is not faced with such a balancing act.

Some examples of high-performance disruption:

• The rise of containerization and the success of the Port of Oakland, California, while the port of San Francisco neglected modernization - perhaps wisely due to its inconvenient location at the end of a peninsula not oriented with the prevailing freight traffic. Rather than attempt to compete in the oceanic freight terminal business, the city's resources were directed elsewhere, primarily toward becoming the leading financial center on the west coast through the encouragement of the construction of high rise buildings for office space.
• "Mini mill" scrap feed steel product production facilities in the United States using integrated vertical casting methods feeding rolling mills in a single continuous process to produce specialty products such as reinforcing bars for concrete. This left the existing large steel producers with only the lower value commodity production which could not compete with lower cost production worldwide - largely due to the lower labor costs offshore.
• The deployment of utility-scale wind turbine "farms" to generate electricity. In the early 2000's, wind power became the lowest-cost form of new energy generation on earth, beating such traditional electricity stalwarts as coal- and natural gas-fired power plants on price. The cost advantages quickly translated to widespread adoption in Europe; by the year 2005, countries such as Denmark, Spain and Germany generated close to 20 percent of their national energy demand with wind turbines. But in America, political resistance - mostly from politically powerful incumbents in the coal industry - slowed the widespread adoption of wind power.

Examples of disruptive technologies

Not all technologies promoted as disruptive technologies 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 technologies'

• Music downloads and file sharing vs. compact discs
• ebooks vs. paper books
• e-commerce vs. physical shops
• Open-source software vs. proprietary software (for example Linux versus Microsoft Windows, although Linux has already largely displaced proprietary Unix)
• Internet Video on Demand and IPTV vs. Advertising supported broadcast and cable television
• VoIP (and VoIP over 802.11) vs. traditional telephone and mobile phone service.
• portable mp3-players vs. the portable cassette player

Business implications

Disruptive technologies are not disruptive to customers, and often take a long time before they are significantly disruptive to other manufacturers, so 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 technologies, since they compare so badly to existing approaches, and the initial markets for a disruptive technology are often very small compared to the main existing market for the technology. Even if a disruptive technology 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 technologies, invest in small firms that might produce them, and continue to push technological demands in their core market so that performance stays above what disruptive technologies can achieve.

External links

• Disruptive Technology at c2.com
• Disruptive Technology at The Economist: The blood of incumbents
• RSS: Disruptive Technology Hiding in Plain Sight
• The Myth of Disruptive Technologies. Note that Dvorak's definition of disruptive technology does not necessarily match the standard one described above. He complains about the overuse of the term and goes as far as claiming there are no disruptive technologies.
• [1] Could New Technologies Cause Great Law Firms to Fail?
• The Business of Technology - how disruptive technologies are changing the business landscape

Books and papers

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• Tushman, M.L. & Anderson, P. (1986). Technological Discontinuities and Organizational Environments. Administrative Science Quarterly 31: 439-465.de:Disruptive Technologie

fr:Technologie de rupture