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Disruptive technologies bring to a market a very different value proposition than had been available previously. Generally, disruptive technologies underperform established products in mainstream markets. But they have other features that a few fringe (and generally new) customers value. Products based on disruptive technologies are typically cheaper, simpler, smaller, and, frequently, more convenient to use.
Companies whose investment processes demand quantification of market sizes and financial returns before they can enter a market get paralyzed or make serious mistakes when faced with disruptive technologies. They demand market data when none exists and make judgments based upon financial projections when neither revenues or costs can, in fact, be known. Using planning and marketing techniques that were developed to manage sustaining technologies in the very different context of disruptive ones is an exercise in flapping wings.
The fear of cannibalizing sales of existing products is often cited as a reason why established firms delay the introduction of new technologies.
companies’ organizational structures typically facilitate component-level innovations, because most product development organizations consist of subgroups that correspond to a product’s components. Such systems work very well as long as the product’s fundamental architecture does not require change. But, say the authors, when architectural technology change is required, this type of structure impedes innovations that require people and groups to communicate and work together in new ways.
Sustaining projects addressing the needs of the firms’ most powerful customers (the new waves of technology within the value network depicted in Figure 2.5) almost always preempted resources from disruptive technologies with small markets and poorly defined customer needs.
New companies, usually including frustrated engineers from established firms, were formed to exploit the disruptive product architecture.
The established firms’ views downmarket and the entrant firms’ views upmarket were asymmetrical. In contrast to the unattractive margins and market size that established firms saw when eyeing the new, emerging markets for simpler drives, the entrants saw the potential volumes and margins in the upscale, high-performance markets above them as highly attractive.
The popular slogan “stay close to your customers” appears not always to be robust advice. 21 One instead might expect customers to lead their suppliers toward sustaining innovations and to provide no leadership—or even to explicitly mislead—in instances of disruptive technology change.
The patterns of success and failure we see among firms faced with sustaining and disruptive technology change are a natural or systematic result of good managerial decisions. That is, in fact, why disruptive technologies confront innovators with such a dilemma. Working harder, being smarter, investing more aggressively, and listening more astutely to customers are all solutions to the problems posed by new sustaining technologies. But these paradigms of sound management are useless—even counterproductive, in many instances—when dealing with disruptive technology.
The ultimate uses or applications for disruptive technologies are unknowable in advance. Failure is an intrinsic step toward success.
Expecting achievement-driven employees in a large organization to devote a critical mass of resources, attention, and energy to a disruptive project targeted at a small and poorly defined market is equivalent to flapping one’s arms in an effort to fly: It denies an important tendency in the way organizations work.
Most managers learn about innovation in a sustaining technology context because most technologies developed by established companies are sustaining in character. Such innovations are, by definition, targeted at known markets in which customer needs are understood. In this environment, a planned, researched approach to evaluating, developing, and marketing innovative products is not only possible, it is critical to success.
The dominant difference between successful ventures and failed ones, generally, is not the astuteness of their original strategy. Guessing the right strategy at the outset isn’t nearly as important to success as conserving enough resources (or having the relationships with trusting backers or investors) so that new business initiatives get a second or third stab at getting it right.
Processes and values define how resources—many of which can be bought and sold, hired and fired—are combined to create value.
The market research and planning processes that are appropriate for the launch of new products into existing markets simply aren’t capable of guiding a company into emerging, poorly defined markets. And the processes by which a company would experimentally and intuitively feel its way into emerging markets would constitute suicide if employed in a well-defined existing business.
To measure market needs, I would watch carefully what customers do, not simply listen to what they say. Watching how customers actually use a product provides much more reliable information than can be gleaned from a verbal interview or a focus group.
