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there is something about the way decisions get made in successful organizations that sows the seeds of eventual failure.
Precisely became these firms listened to their customers, invested aggressively in new technologies that would provide their customers more and better products of the sort they wanted, and because they carefully studied market trends and systematically allocated investment capital to innovations that promised the best returns, they lost their positions of leadership. What this implies at a deeper level is that many of what are now widely accepted principles of good management are, in fact, only situationally appropriate. There are times at which it is right not to listen to customers, right to
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What all sustaining technologies have In common is that they improve the performance of established products, along the dimensions of performance that mainstream customers in major markets have historically valued.
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.
in their efforts to provide better products than their competitors and earn higher prices and margins, suppliers often “overshoot’’ their market: They give customers more than they need or ultimately are willing to pay for.
disruptive technologies that may underperform today, relative to what users in the market demand, may be fully performance-competitive in that same market tomorrow.
First, disruptive products are simpler and cheaper; they generally promise lower margins, not greater profits. Second, disruptive technologies typically are first commercialized in emerging or insignificant markets. And third, leading firms’ most profitable customers generally don’t want, and indeed initially can’t use, products based on disruptive technologies.
Principle #1: Companies Depend on Customers and Investors for Resources
companies can succeed in disruptive technologies when their managers align their organizations with the forces of resource dependence, rather than ignoring or fighting them.
Creating an independent organization, with a cost structure honed to achieve profitability at the low margins characteristic of most disruptive technologies, is the only viable way for established firms to harness this principle.
Principle #2: Small Markets Don’t Solve the Growth Needs of Large Companies
Those large established firms that have successfully seized strong positions in the new markets enabled by disruptive technologies have done so by giving responsibility to commercialize the disruptive technology to an organization whose size matched the size of the targeted market.
Principle #3: Markets that Don’t Exist Can’t Be Analyzed
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.
Principle #4: An Organization’s Capabilities Define Its Disabilities
An organization’s capabilities reside in two places. The first is in its processes—the methods by which people have learned to transform inputs of labor, energy, materials, information, cash, and technology into outputs of higher value. The second is in the organization’s values, which are the criteria that managers and employees in the organization use when making prioritization decisions.
The very processes and values that constitute an organization’s capabilities in one context, define its disabilities in another context.
Principle #5: Technology Supply May Not Equal Market Demand
products whose features and functionality closely match market needs today often follow a trajectory of improvement by which they overshoot mainstream market needs tomorrow. And products that seriously underperform today, relative to customer expectations in mainstream markets, may become directly performance-competitive tomorrow.
The basis of product choice often evolves from functionality to reliability, then to convenience, and, ultimately, to price.
the problem can be resolved only when new markets are considered and carefully developed around new definitions of value—and when responsibility for building the business is placed within a focused organization whose size and interest are carefully aligned with the unique needs of the market’s customers.
Movement along a given S-curve is generally the result of incremental improvements within an existing technological approach, whereas jumping onto the next technology curve implies adopting a radically new technology.
The fear of cannibalizing sales of existing products is often cited as a reason why established firms delay the introduction of new technologies.
however, if new technologies enable new market applications to emerge, the introduction of new technology may not be inherently cannibalistic. But when established firms wait until a new technology has become commercially mature in its new applications and launch their own version of the technology only in response to an attack on their home markets, the fear of cannibalization can become a self-fulfilling prophecy.
the problem established firms seem unable to confront successfully is that of downward vision and mobility, in terms of the trajectory map. Finding new applications and markets for these new products seems to be a capability that each of these firms exhibited once, upon entry, and then apparently lost.
Because an organization’s structure and how its groups work together may have been established to facilitate the design of its dominant product, the direction of causality may ultimately reverse itself: The organization’s structure and the way its groups learn to work together can then affect the way it can and cannot design new products.
As firms gain experience within a given network, they are likely to develop capabilities, organizational structures, and cultures tailored to their value network’s distinctive requirements.
innovations that are valued within a firm’s value network, or in a network where characteristic gross margins are higher, will be perceived as profitable. Those technologies whose attributes make them valuable only in networks with lower gross margins, on the other hand, will not be viewed as profitable, and are unlikely to attract resources or managerial interest.
A disruptive innovation, however, cannot be plotted in a figure such as 2.5, because the vertical axis for a disruptive innovation, by definition, must measure different attributes of performance than those relevant in established value networks. Because a disruptive technology gets its commercial start in emerging value networks before invading established networks, an S-curve framework such as that in Figure 2.6 is needed to describe it.
Disruptive technologies emerge and progress on their own, uniquely defined trajectories, in a home value network. If and when they progress to the point that they can satisfy the level and nature of performance demanded in another value network, the disruptive technology can then invade it, knocking out the established technology and its established practitioners, with stunning speed.
established firms confronted with disruptive technology change did not have trouble developing the requisite technology: Prototypes of the new drives had often been developed before management was asked to make a decision. Rather, disruptive projects stalled when it came to allocating scarce resources among competing product and technology development proposals
Step 1: Disruptive Technologies Were First Developed within Established Firms
Step 2: Marketing Personnel Then Sought Reactions from Their Lead Customers
Step 3: Established Firms Step Up the Pace of Sustaining Technological Development
Although often involving greater development expense, such sustaining investments appeared far less risky than investments in the disruptive technology: The customers existed, and their needs were known.
Step 4: New Companies Were Formed, and Markets for the Disruptive Technologies Were Found by Trial and Error
Step 5: The Entrants Moved Upmarket
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.
Step 6: Established Firms Belatedly Jumped on the Bandwagon to Defend Their Customer Base
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. 22
none of the foregoing frameworks is a sufficient predictor of success.
where established firms did not possess the requisite technological skills to develop a new technology, they would marshal the resources to develop or acquire
technology S-curves are useful predictors only with susta...
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What matters instead is whether the disruptive technology is improving from below along a trajectory that will ultimately intersect with what the market needs.
A key determinant of the probability of an innovative effort’s commercial success is the degree to which it addresses the well-understood needs of known actors within the value network. Incumbent firms are likely to lead their industries in innovations of all sorts—architecture
incumbent firms are likely to lag in the development of technologies—even those in which the technology involved is intrinsically simple—that only address customers’ needs in emerging value networks.
decisions to ignore technologies that do not address their customers’ needs become fatal when two distinct trajectories interact.
Consistently, established firms attempt to push the technology into their established markets, while the successful entrants find a new market that values the technology.
