Disruptive innovations
Gautam Ahuja and PuayKhoon Toh
Disruptive innovations refer to technologies that introduce a different, and often initially inferior, performance package from the mainstream tech nology but manage to gain dominance over and displace the superior technology in the market. Christensen (1997) pioneered the notion of dis ruptive innovations while studying phenomena in the hard disk drive industry. The key idea and the irony underlying this phenomenon is that the new technological trajectory, created by the disruptive technology that supersedes the old one, is actually initially poorer in terms of per formance attributes valued by traditional cus tomers.
To demonstrate this notion, Christensen (1997) provides the example of the 3.5 inch hard drives overtaking the original state of the art 5.25 inch hard disk drive in the market, despite their lower capacity and higher cost per megabyte. IBM’s dominance in the mainframe industry and its subsequent missing out on the minicomputer architecture and market, despite the two products’ similarity in technology and the mainframe computer’s superiority in terms of technological performance attributes, is an other example of the disruptive innovations phe nomenon (Christensen and Bower, 1996). One main reason put forth to explain such phenom ena is the concept of ‘‘performance oversupply.’’ Consumers switch to the disruptive technology when their requirements for the principal functional attribute of the technology has been satisfied, and they shift their emphasis and evaluation criteria towards the less important secondary attributes. The original mainstream technology oversupplies in terms of the principal attribute (e.g., performance), but loses out on the secondary ones (e.g., overall cost of the pack aged product). Implicit in such analysis is the idea of decreasing marginal returns to consu mers of the principal attribute beyond a certain threshold. The incremental value, to consumers, of superior performance along the main attribute dimension is low beyond a certain point. When such incremental value does not supersede the other product attributes such as overall cost, then consumers may actually choose the products with lower performance capabilities along the principal dimension. The concept of disruption is different from that of a technological discon tinuity (see radical innovations). Dis ruptive innovations do not necessarily create a discontinuity in the technological trajectory, but rather displace whole paradigms with new, and in some respects, possibly inferior paths.
The idea of disruptive innovations draws upon the theory that the resource allocation of the firm with respect to inventive activities is heavily influenced by main customers. Typic ally, firms with a superior mainstream tech nology that are subsequently overtaken by disruptive technologies do not necessarily suffer from managerial myopia or organizational lethargy. Rather, they fail to recognize their situation of oversupply on the principal per formance attribute, not because they are inatten tive to market demands, but because they listen too closely to their main customers. These main customers are typically the most sophisticated ones who demand the maximum performance for the principal attribute.
In the early phase of development, the subse quently disruptive technology is significantly inferior on the principal performance attribute, and hence only serves a niche market, while firms with the superior mainstream technology predominantly serve the bulk of the consumer demand. At this stage, the emphasis is still on principal performance of the technology and the subsequently disruptive technology cannot yet serve the technological needs of the more sophisticated customers. Further, at this time, mainstream firms compete actively along the dimension of technological performance, as they fight to satisfy the needs of their most sophisticated customers in order to remain in dustry leaders. Subsequently, however, when further development raises the performance level of the inferior disruptive technology to a level that is sufficient to satisfy the bulk of the customers, customers switch to such disruptive technologies as they provide better value along other dimensions such as price.
The difficulties of operationalizing consumer utility pose challenges to empirical research in this area. The demand based view of tech nological evolution underlying the concept of disruptive innovation necessitates the opera tionalization of the utility function in one form or the other in most empirical studies of this concept. For example, in answering the question ‘‘when are technologies disruptive and when do they remain merely inferior?’’ one would need to determine, conceptually or otherwise, the point where technological performance of the ‘‘disrup tive’’ innovation exceeds the needs of the main stream consumers. Without an accurate estimate of the consumer’s utility function, it is difficult to form an ex ante expectation of the disruptive potential of an inferior technology. Thus, em pirically explaining the occurrence of techno logical disruptions by inferior technologies requires a proper characterization of the demand function; for example, the extent of decreasing marginal utility, heterogeneity of demand, or similarity and symmetry of preferences between different consumer groups (Adner, 2002; Adner and Levinthal, 2001). Simulation techniques have been used to study disruptive technologies, and such simulations circumvent the need to operationalize consumer utility by explicitly modeling them. To date, the challenge of empir ically examining the dynamics of disruptive technologies still remains.
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