Ways to cope with disruptive technologiesAccording to Bower and Christensen, there are five ways to spot disruptive technologies. First, a company should determine which of the many technologies on the horizon are disruptive.
The problem is, that most companies have well established processes for identifying potential sustaining technologies, as this is important to protect and serve current customers. On contrast, few have also systematic processes for identifying potential disruptive technologies. A disruptive technology can be identified, if there is a disagreement between the technical personnel and managers responsible for marketing and financing. This is because the technical personnel often believe that a new market for the technology will emerge, where as the marketing and financial managers rarely support a disruptive technology because of their managerial and financial incentives.
Second, the company should define the strategic significance of the disruptive technology. This requires that the managers ask the right questions form the right people in the early strategic reviews. As with identifying a disruptive technology, established companies do not have regular procedures for assessing the value of the product stemming from a disruptive technology. Established companies generally ask from the mainstream customers to assess the value of innovative products.
They are used because their demand for high performance drives the performance of the company’s products and therefore help to keep the company ahead of the competitors.They are the right people to ask only for assessing the value of sustaining technologies, but not however disruptive. The right approach for managers would be to to compare the slope of the performance improvement of a disruptive technology to the slope of demand of performance improvement by existing market. If the new technology’s performance is believed to improve faster than the market’s demand, then the new technology may well meet the customers’ needs in near future even though it does not address them today. The trajectory of a disruptive technology should thus be compared with that of the market and not to that of the old technology. This approach would work only for sustaining technologies as many of the disruptive technologies Bower and Christensen studied never surpassed the capability of the old technology. (picture? p49 in the article)Third, the initial market for the disruptive and strategically critical technology should then be located. Here again, the commonly used tool, market research, is not useful.
Market research can be used only for concrete existing markets whereas disruptive technologies often signal the emergence of new markets or market segments. Therefore, also the information should be created about those emerging markets. The relevant information would be who the customers will be, which aspects of the product performance matters the most for them and what would be the right price for the product. This information can be created by experimenting iteratively, rapidly and inexpensively the product and also the emerging market. To do this the established companies should not rely on their traditional information channels but rather have regular meetings for example with technologists, academics and venture capitals to follow the progress of pioneering companies.
Because the disruptive technologies have lower profit margins and serves different customers than the mainstream business, they should be developed by a kunkwork approach. This means formation of a small teams or spin-offs, that are then isolated from the rigid demands of the mainstream organization. This offers an independent and unrestricted environment for these projects. Furthermore, the spin-offs should be kept separately from the mainstream organization. It might be attracting to integrating the spin-off to the mainstream company, after it has become commercially viable in the new market. The the fixed costs associated with engineering, manufacturing, distribution and sales activities could be shared across a bigger group of customers and products. However, this approach works only for sustaining technologies. For the case of disruptive technologies the integration would be unfavorable for both the disruptive technology as the mainstream products.
Upon integration a problem on the resource allocation would arise. Because of different natures of disruptive and mainstream products, the allocation of resources in one would lead to cannibalization of the other. It is important to notice that disruptive technologies are part of the life cycle of technologies and markets. To survive in any kind of industry, the companies must accept the dying of some business units and understand to create new business to replace the inevitably dying ones. Part of the game is, that if the company does not kill the lagging business units, competitors will.
The key is therefore to manage strategically important disruptive technologies which create enough energy in small orders, can sneak attacks into ill-defined markets and whose overhead is low enough to give profit even in emerging markets.(Christensen, Bower, 1995, Disruptive Technologies: Catching the Wave)