History has many examples of great innovators who had difficult time convincing their contemporaries of new technology. Even incumbent and powerful companies regarded new technologies as inferior and dismissed it as "toys". Then when disruptive technologies take off they often are overhyped and can cause bubbles like the Internet bubble of the late 1990s. In this lecture we look at some examples of disruptive technologies and the impact they had. We look at the The Disruptive Innovation Theory by Harvard Professor Clayton Christensen.

1. LECTURE L09
DISRUPTIVE TECHNOLOGY

2. Why do start-ups exits?

3. Technology is one of the major factors in change

4. OPPORTUNITY
THREAT

5. Example: Digital Photography

10. Media companies

11. Tech Has No Feelings:
Gary Vaynerchuk Crushes Old Media

13. The World is Changing

14. Technology has no feeling

15. Is this
Good or Bad?

16. Kranzberg’s
1. law of
technology
1. Technology is neither good
nor bad; nor is it neutral

17. Adjacent Possible
When in one room someone
will open the next door

18. Western Union Telegraph Business

19. Bell offered the telephone patent for $100.000
Western Union turned Bell down
Bell went into business himself, founding AT&T

20. In 1900
AT&T had over million users
AT&T revenues were $13 million while Western
Union’s revenues were $6 million

21. Why would Western Union
make such short-sighted
decision?

22. We tend to view technology based on
past usages
but not the future potential

23. "This 'telephone' has too many
shortcomings to be seriously considered as
a means of communication. The device is
inherently of no value to us."
- Western Union internal memo, 1876.
Telephone (1876)

24. “What use could this company
make of an electrical toy?”
- Western Union president William Orton.
Telephone (1876)

25. „Well informed people know it is impossible to transmit
the voice over wires and that were it possible to do so,
the thing would be of no practical value.“
- Editorial in the Boston Post.
Telephone (1876)

26. „Thus the telephone, by bringing music and
ministers into every house, will empty the
concert halls and the churches…“
- “The Telephone”, The New York Times, March 22, 1876
Telephone (1876)

27. “Rail travel at high speed is not possible
because the passengers, unable to
breathe, would die of asphyxia”
- Dr. Dionysus Lardner, Professor of Natural Philosophy and
Astronomy at University College, London
Railroads (1815)

28. Cars (1885) “The horse is here to stay, but the
automobile is only a novelty – a fad”
- The president of the Michigan Savings Bank to advised
Henry Ford's lawyer Horace Rackham not to invest in the
Ford Motor company
Image from http://www.huffreport.com/

29. Airplanes (1903)"Heavier-than-air flying
machines are impossible."
- Lord Kelvin, president, Royal Society, 1895.

30. “The wireless music box has no imaginable
commercial value. Who would pay for a
message sent to nobody in particular?"
- David Sarnoff's associates in response to his urgings for
investment in the radio in the 1920s
Radio (1905)

31. “For God’s sake go down to the reception and
get rid of a lunatic who’s down there. He says
he’s got a machine for seeing by wireless!”
- Editor of the Daily Express in response to a prospective
visit by John Logie Baird, 1925
Television (1926)

32. "I think there is a world market for maybe five
computers.“
- Thomas Watson, chairman of IBM, 1943
Computers (1943)

33. "There is no reason for any
individual to have a
computer in their home.”
- Kenneth Olsen, president and
founder of
Digital Equipment Corp., 1977
Personal Computers (1977)

34. “The Internet is a shallow and unreliable
electronic repository of dirty pictures,
inaccurate rumors, bad spelling and worse
grammar, inhabited largely by people with no
demonstrable social skills.”
- Chronicle of Higher Education, 1997
Internet (1970)

35. I don't think that digital photography is romantic
yet. It's not sympathetic the way that film is
- Matthew Modine
Digital Cameras (1991)

36. "The knowledge transition
was much more rapid for
those learning from
printed material...”
- The E-book skeptic
Digital books (1992)
Picture from Amazon.com

37. HOW WILL THIS
INNOVATION CHANGE
AN INDUSTRY, AND
WHAT IMPACT DOES
THIS HAVE ON THE
COMPANIES I CARE
ABOUT?

38. Nordic Marketing Conference of Lottery
Companies, Mývatn, September 1995

39. Gradual Improvements
Foster improved product performance
Each year new and improved products are offered
Sustaining Innovations

40. Source: (Christensen, 2000)
Mature Leading Companies
Existing companies, incumbents, have a high probability
of beating entrant attackers when the contest is about
sustaining innovations

41. Red Ocean Industry
Bloody Competition
Well know industry boundaries
Rules are established, sustained Innovation
Commodities
D isru ptio n
Blue Ocean
Value Innovation
Align innovation with utility,
price, and cost position
New
Technology,
new markets

42. The product performance is good enough
and affordable to fulfil a unfilled need in the
market
Disruptive Technology

43. Source: (Christensen, 2000)
The Disruptive Innovation Theory
New organisation can use relatively simple,
convenient, low-cost innovations to create growth
and triumph over powerful incumbents

44. Source: (Christensen, 2000)
The Disruptive Innovation Theory
A process where new entrant to an established
market is able to challenge the established business
The incumbent is offering an established product,
contently improving the product to meet more
demands
This is a typical sustaining technology where every
year products get better and better
The more demanding the customers the higher is the
profit margin

45. The Disruptive Innovation Theory
Another less demanding segment that gets
overlooked
These customers would gladly switch to a cheaper
product if they could since they do not require the
high-end quality
Entrants enter the market by offering low quality
product to this ignored segment
Something that works, but is cheaper, lower quality
but does the job
Source: (Christensen, 2000)

46. The Disruptive Innovation Theory
The incumbents will usually ignore this, as their
customers are not interested
The new product from the entrant is considered a toy
Then the product get better
And then it is too late…
Source: (Christensen, 2000)

47. Source: (Christensen, 2000)
The Disruptive Innovation Theory

48. The Disruptive Innovation Theory
When a CEO says:
“This is not a threat. Its low performance, bad quality
and nobody want’s it.”
Their business is doom. Sell stock.

49. Source: (Christensen, 2000)
Low End
Can occur when existing products and services are “too good”
and hence overpriced relative to the value existing customer
can use – Value Innovation

50. Source: (Christensen, 2000)
New Market
Occur when characteristics of existing products limit the number of
potential consumers or force consumption to take place in inconvenient,
centralised settings

51. Source: Christensen et. al. Seeing what’s next
The Disruptive Innovation Theory

52. Clayton Christensen
Talks about Disruptive Innovation

54. Source: (Christensen, 2000)
The Innovator’s Dilemma
How can managers of companies selling high-demand, high-margin
products abandon these product for low-performance, low-margin
products?

55. Western Union Telegraph Business

56. Resources, Processes and Values
Theory
Resources (what a firm has),
Processes (how a firm does it´s work), and
Values (what a firm wants to do)
collectively defines an organisations strengths
as well as weaknesses and blind spots
The RPV Theory

57. Source: (Christensen, 2000)
Organisations successfully tackle opportunities
When they have the resources to succeed,
when their processes facilitate what needs
to get done, and then their values allow them
to give adequate priority to that particular
opportunity in face of all other demands that
compete for the company’s resources
The RPV Theory

58. The RPV Theory
Possible consequences
Source: Christensen et. al. Seeing what’s next
Resources
Things or assets that organisations
can buy or
sell, build or destroy. Examples:
• People
• Technology
• Products
• Equipment
• Information
• Cash
• Brand
• Distribution channels
Processes
Established ways companies turn
resources into products or
services. Examples:
• Hiring and training
• Product development
• Manufacturing
• Planning and budgeting
• Market research
• Resource allocation
Values
The criteria by which prioritisation
decisions are made. Examples:
• Cost structure
• Income statement
• Customer demands
• Size of opportunity

60. VAX and PDP models

61. DEC’s customers didn’t want the low-end PC to begin with
DEC made some attempts to build PCs
Internal corporate politics caused delays
They were constrained by the success of VAX and PDP models
By 1990 sales were dropping and layoffs started
Several restructuring and by 1998 sold to Compaq

62. Western Union Telegraph Business

63. 1. The telephone was a new-market disruptive
innovation
2. Western Union’s resources, processes, and
values meant that what ultimately became the
right course appeared to be unattractive at
the outset
3. Western Union saw entrants improving.
However, investment in the core business
kept trumping investment in the new business
4. By the time the right course was clear, it was
too late

64. Western Union was in the
telegraph business, not the
communication business

65. The Disruptive Innovation Theory
The Innovators Dilemma
Resources, Processes and Values Theory
Key Concepts

66. Kodak went bankrupt while Fujifilm, its old rival thrived
READING ASSIGNMENT

68. The Innovator’s Dilemma
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