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TECH TALK: Disruptive Technologies: The Innovator’s Dilemma

August 22nd, 2001 · No Comments

An extract from the Economist puts Disruptive Technologies in context:

The PC is a prime example of a “disruptive technology” that was dismissed out of hand by an industry’s established leaders until it was too late. Disruptive technologies work by offering, at least initially, little in the way of performance, but plenty in terms of cheapness, convenience and ease of use. As such, they appeal to a different class of customers, carving out wholly new markets for themselves before going on to have the industrial Goliaths’ business for lunch.

Where the Innovator’s Dilemma comes in is as follows. A company which is in an existing business and listening to its existing customers feels that there is no need for anything new, and therefore, should it invest its money to “make new products that our best customers can use, that would improve our profit margins”, or invest its money to create worse products that “none of our customers can use, that would wreck our profit margins”. What should the company do? The first track places emphasis on sustaining technologies (the needs of customers today and the ones who are paying), while the second track is the one invariably taken by innovators, who keep improving the product performance till it comes “from below” and starts hurting the entrenched incumbents.

Innovation now accounts for more than half of productivity growth, according to the Economist. Disruptive Technologies are at the heart of entrepreneurship and innovation. The challenge is to pick the markets carefully. If one tries to hit the mainstream too early, then the performance will not be adequate for the market to adopt it and it will fail (as happened in the case of the Apple Newton). The key lies in targeting a niche which will use the product and be delighted by it (as the Blackberry, an 2-way email pager, has succeeded in doing with its customers in the US). As performance improves over time, one is ready for the mainstream.

The Internet has unleashed a wave of innovation. Along with the personal computer, it is perhaps the biggest disruptive technology that we have seen in our generation. The impact of the Internet is only beginning to be felt across many industries. In that sense, the Internet is also an “enabling technology”, much the way electricity was. As companies retool for web services, we will see in the next few years a dramatic change in the way enterprises interact with each other. The Internet may have begun with eCommerce, but cCommerce (collaborative commerce) is what the eBusiness revolution is about.

In the coming columns, we will cover many technologies which are disruptive in nature, and also present opportunities for tomorrow.

Tags: Tech Talk

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