— The Revolutionary Book that Will Change the Way You Do Business
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Part One: Why Great Companies Can Fail
Chapter One: How Can Great Firms Fail? Insights From The Hard Disk Drive Industry
When a measurable trajectory of improvement has been established, determining whether a new technology is likely to improve a product’s performance relative to earlier products is an unambiguous question. But in other cases, the impact of technological change is quite different. For instance, is a notebook computer better than a mainframe? This is an ambiguous question because the notebook computer established a completely new performance trajectory, with a definition of performance that differs substantially from the way mainframe performance is measured. Notebooks, as a consequence, are generally sold for very different uses. This study of technological change over the history of the disk drive industry revealed two types of technology change, each with very different effects on the industry’s leaders. Technologies of the first sort sustained the industry’s rate of improvement in product performance (total capacity and recording density were the two most common measures) and ranged in difficulty from incremental to radical. The industry’s dominant firms always led in developing and adopting these technologies. By contrast, innovations of the second sort disrupted or redefined performance trajectories—and consistently resulted in the failure of the industry’s leading firms.
They offered less of what customers in established markets wanted and so could rarely be initially employed there. They offered a different package of attributes valued only in emerging markets remote from, and unimportant to, the mainstream.
held captive by customers. Mainframe computer manufacturers did not need an 8-inch drive. In fact, they explicitly did not want it: they wanted drives with increased capacity at a lower cost per megabyte. The 14-inch drive manufacturers were listening and responding to their established customers.
The fear of cannibalizing sales of existing products is often cited as a reason why established firms delay the introduction of new technologies. As the Seagate-Conner experience illustrates, however, if new technologies enable new market applications to emerge, the introduction of new technology may not be inherently cannibalistic.
There are several patterns in the history of innovation in the disk drive industry. The first is that the disruptive innovations were technologically straightforward. They generally packaged known technologies in a unique architecture and enabled the use of these products in applications where magnetic data storage and retrieval previously had not been technologically or economically feasible.
despite the established firms’ technological prowess in leading sustaining innovations, from the simplest to the most radical, the firms that led the industry in every instance of developing and adopting disruptive technologies were entrants to the industry, not its incumbent leaders.
Finding new applications and markets for these new products seems to be a capability that each of these firms exhibited once, upon entry, and then apparently lost. It was as if the leading firms were held captive by their customers, enabling attacking entrant firms to topple the incumbent industry leaders each time a disruptive technology emerged.
Chapter Two: Value Networks And The Impetus To Innovate
companies’ organizational structures typically facilitate component-level innovations, because most product development organizations consist of subgroups that correspond to a product’s components. Such systems work very well as long as the product’s fundamental architecture does not require change.
Within a value network, each firm’s competitive strategy, and particularly its past choices of markets, determines its perceptions of the economic value of a new technology. These perceptions, in turn, shape the rewards different firms expect to obtain through pursuit of sustaining and disruptive innovations. 7 In established firms, expected rewards, in their turn, drive the allocation of resources toward sustaining innovations and away from disruptive ones.
Many scholars have asserted that the essence of strategic technology management is to identify when the point of inflection on the present technology’s S-curve has been passed, and to identify and develop whatever successor technology rising from below will eventually supplant the present approach.
Although entrants led in commercializing disruptive technologies, their development was often the work of engineers at established firms, using bootlegged resources.
New companies, usually including frustrated engineers from established firms, were formed to exploit the disruptive product architecture.