Innovation B290

Tushman, M. and P. Anderson, 1986, Administrative Science Quarterly Cement industry

Tushman, M. and P. Anderson, 1986, Administrative Science Quarterly Computers

Tushman, M. and P. Anderson, 1986, Administrative Science Quarterly Passenger Aircraft

The Technology Cycle Source: Anderson, P. and M. L. Tushman, 1990, Administrative Science Quarterly 35(4)

Technological change Discontinuity –Technology breakthroughs Competence enhancing –Transistors (for computer companies) –Float glass Competence destroying –Transistors (for valve companies) –Plastic –Flash memory –Xerography

Types of Innovation Incremental vs. Radical Competence enhancing vs. competence destroying Component vs. architectural Sustaining vs. Disruptive

Incremental vs. Radical Incremental –Small changes that improve the performance of a product (or service) Radical –Dramatic change in performance, an inflection point or discontinuity

Component vs. Architectural Component –Does not alter the basic product architecture Thermal Conduction Module in 3083 Multi-core microprocessors (Pentium Core 2) Architectural –Takes existing components and combines them in novel ways IBM PC, Apple’s iPhone

Competence enhancing/destroying Competence enhancing –Innovations that build on a company’s current knowledge and resource base Hybrid disk drives for Seagate Competence destroying –Innovations that require completely new skills and resources Digital image capture for Kodak (essentially a chemical company)

Sustaining vs. Disruptive Whether an innovation is sustaining or disruptive: –May have little to do with technology –More often, a function of the interaction of changing markets and organizational imperatives

Technological Discontinuity Technology S curves Time Technological knowledge

Three different technologies Ferrite heads Metal in Gap heads More recently: Magnetoresistive Giant Magnetoresistive Tunneling Magnetoresistive Thin film heads Areal Density

IBM’s development trajectory IBM’s R&D scientists reported to management that different technologies (e.g., “Ferrite head”) had performance limits determined by the laws of physics As each technology ran out of steam the company had to be positioned to implement its successor

Fujitsu and IBM (continued) As IBM approached the predicted technological limit – funding for the next promising technology (e.g., thin-film) was increased –funding for further research into the existing technology (e.g., ferrite heads) was reduced Thin film head improved increasingly rapidly while progress in ferrite heads slowed…

…Fujitsu pushes on with Ferrite Ferrite heads Metal in Gap heads More recently: Magnetoresistive Giant Magnetoresistive Tunneling Magnetoresistive Thin film heads Areal Density Ferrite heads

Technology S-curves May be a function of a particular technology Or may simply be a self-fulfilling prophesy

Disruptive Innovation Why do incumbent firms often fail? –Companies listen to their most lucrative customers –Emerging markets are too small (and risky) to pursue –Forecasts of emerging markets are generally wrong –A firm’s existing capabilities shape its approach –Progress may allow technology to ‘leap’ from one market to another

The Hard Disk Drive Industry “Of the seventeen firms in the industry in all except IBM's disk drive operation had failed or had been acquired by 1995” (… and IBM sold it’s operation to Hitachi in 2003) “all of the producers remaining by 1996 had entered the industry after 1976” (Clayton Christiansen, HBS) Despite established firms' technological prowess, the firms that led in developing new, disruptive technologies were new entrants, not incumbents.

Supply exceeds demand Time Performance / price Segment demand “Old” technology “Disruptive” technology

The Value Network New products are needed for new markets –Different set of CSFs Smaller form factor disks Incumbents consider the technology for this market inferior to that needed for their major customers/markets –New entrants fill the gap –Technology price/performance improves faster than the small (new) market needs Enough to surpass incumbent’s technology New entrants supplant incumbents