en Case: Disruptive Innovation Every so often a management idea escapes from the

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en Case: Disruptive Innovation Every so often a management idea escapes from the pages of the Harvard Business Revlew and becomes part of the zeitgelst. In the 1990s it was "re-engineering". Today it is "disruptive innovation- website, holds an annual "festival of disruption". CNBC, a cable-news channel, produces an annual "distuptor Ilst" of the most disruptive companies. Mentioning "disrup- tive innovation" adds a veneer of sophistication to bread-and butter speeches about education or health care. But just what is disruptive innovatilon? The theory of disruptive innovation was invented by Clayton Christensen, of Harvard Business School, in his book "The Innovator's Dilemma". Mr Christensen used the term to describe Innovations that create new markets by discovering new categories of customers. They do this partly by harness ing new technologies but also by developing new business models and exploting old technologies in new ways. He contrasted disruptive innovation with sustaining innovation, which simply improves existing products. Personal computers, for example, were disruptive innovations because they cre- ated a new mass market for computers; previously, expensive mainframe computers had been sold only to big companies and research universities. The "innovator's dilemma" is the difficult choice an established company faces when it has to choose between holding onto an existing market by doing the same thing a bit better, or capturing y embracing new technologies and adopting new business models. IBM dealt with this dilemma by launching a new business unit to make PCs, while continuing to make mainframe computers. Netflix took a more radical move, switching away from its old business model (sending out rental DVDs by post) to a new one (streaming on-demand video to its customers) Disruptive innova- tions usually find thelr flrst customers at the bottom of the market: as unproved, often unpolished, products, they cannot command a high price. Incumbents are often complacent, slov to recognize the threat that their inferior competitors pose. But as successive refinements improve them to the point that they start to steal customers, they may end up reshaping entire industries: classified ads (Craigslist), long distance calls (Skype), record stores (Tunes), research libraries (Google), local stores (eBay), taxis (Uber) and newspapers (Twltter). Partly because of disruptive innovation, the average job tenure for the CEO of a Fortune 500 com- pany has halved from ten years in 2000 to less than five years today. There is good reason to think that the pace of change will increase, as computer power increases and more things are attached to the internet, expanding its disruptive influence into new realms. Google promises to reinvent cars as autonomous vehicles; Amazon promises to reinvent shopping (again) using drones, 3D printing could disrupt manufacturing. But perhaps the most surprising disruptive innovations will come from bottom of-the-pyramld entrepreneurs who are inventing new ways of delivering education and health-care for a fraction of the cost of current market leaders. Questions 1. If every new product has a first-mover advantage, then why do products fai? Do you view 3D printing as sustaining or disruptive technology? 3. Do you view drones as sustaining or disruptive technology? 4. Choose one of the products listed and determine what the company could have done to prevent the product from falling 5. Can you name another technology product that failed? Why did it fail? What could the company have done differently for it to succeed?

Explanation / Answer

en Case: Disruptive Innovation Every so often a management idea escapes from the pages of the Harvard Business Revlew and becomes part of the zeitgelst. In the 1990s it was "re-engineering". Today it is "disruptive innovation- website, holds an annual "festival of disruption". CNBC, a cable-news channel, produces an annual "distuptor Ilst" of the most disruptive companies. Mentioning "disrup- tive innovation" adds a veneer of sophistication to bread-and butter speeches about education or health care. But just what is disruptive innovatilon? The theory of disruptive innovation was invented by Clayton Christensen, of Harvard Business School, in his book "The Innovator's Dilemma". Mr Christensen used the term to describe Innovations that create new markets by discovering new categories of customers. They do this partly by harness ing new technologies but also by developing new business models and exploting old technologies in new ways. He contrasted disruptive innovation with sustaining innovation, which simply improves existing products. Personal computers, for example, were disruptive innovations because they cre- ated a new mass market for computers; previously, expensive mainframe computers had been sold only to big companies and research universities. The "innovator's dilemma" is the difficult choice an established company faces when it has to choose between holding onto an existing market by doing the same thing a bit better, or capturing y embracing new technologies and adopting new business models. IBM dealt with this dilemma by launching a new business unit to make PCs, while continuing to make mainframe computers. Netflix took a more radical move, switching away from its old business model (sending out rental DVDs by post) to a new one (streaming on-demand video to its customers) Disruptive innova- tions usually find thelr flrst customers at the bottom of the market: as unproved, often unpolished, products, they cannot command a high price. Incumbents are often complacent, slov to recognize the threat that their inferior competitors pose. But as successive refinements improve them to the point that they start to steal customers, they may end up reshaping entire industries: classified ads (Craigslist), long distance calls (Skype), record stores (Tunes), research libraries (Google), local stores (eBay), taxis (Uber) and newspapers (Twltter). Partly because of disruptive innovation, the average job tenure for the CEO of a Fortune 500 com- pany has halved from ten years in 2000 to less than five years today. There is good reason to think that the pace of change will increase, as computer power increases and more things are attached to the internet, expanding its disruptive influence into new realms. Google promises to reinvent cars as autonomous vehicles; Amazon promises to reinvent shopping (again) using drones, 3D printing could disrupt manufacturing. But perhaps the most surprising disruptive innovations will come from bottom of-the-pyramld entrepreneurs who are inventing new ways of delivering education and health-care for a fraction of the cost of current market leaders. Questions 1. If every new product has a first-mover advantage, then why do products fai? Do you view 3D printing as sustaining or disruptive technology? 3. Do you view drones as sustaining or disruptive technology? 4. Choose one of the products listed and determine what the company could have done to prevent the product from falling 5. Can you name another technology product that failed? Why did it fail? What could the company have done differently for it to succeed?

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