Executive new technologies cause great firms to fail.

Executive summary: NEED TO BE EXTENDED AND REFINEDIn the present, with all the new technological advantages and the urge of the companies to stay as close as possible to their customers in order to be aware of satisfying all their needs, businesses are in the search of disruptive technologies for increasing their chances to grow in an evolving and changing world. We are in the middle of the digital revolution and business must be aware that the adaptation to those changes are the key to survival. The pace at which this digital revolution is happening is only reached by the pace at which consumers are adapting to those changes. And they are demanding and waiting for classical business to offer them new and revolutionary services that could benefit, simplify and improve their lives. Introintroduction to topic ? What is disruption? why important?research questions (suggestions)Why companies fail in responding the change of the technologies or markets?What enables companies to success in keeping the market dominance?why is disruption important for any business? What is disruptive innovation? The term was defined and further analysed by Clayton M. Christensen and collaborators in “Disruptive Technologies: Catching the Wave” in 1995, referring to technologies as the processes by which an organization transforms labor, capital materials and information into products and services of greater value (Cayton M. Christensen. The innovator’s dilemma: When new technologies cause great firms to fail. Harvard Business School Press, 1997).Disruptive innovation starts in markets that the incumbents overlook. Incumbents usually provide most demanding and profitable customers with the most improved products and services, but they tend to fail in noticing the less-demanding customers, which usually consider the incumbent’s offer as an overperforming product or service, exceeding the requirements they are looking for or aimed to pay. Companies have the opportunity of providing these customers with a product or service that suits their needs. It can also refers to the creation of a new market by creating new customers. Christensen then identified two different types of disruptive innovations: new market innovations and low-end innovations. Disrupters start by “catching” both, unsatisfied and less-demanding customers and migrate from the “mainstream market” (The innovator’s dilemma) In the case of new market innovations, the inclusion of those creates a new demand for the technology. On the other hand, low-end innovations are focused on those customers located in the lower parts of the market (as mentioned above, the less demanding and less profitable customers); low-end innovations provide similar and “good enough” solutions compared to existing technologies and cost less (Nagy D et al, 2016). Here it comes into play the differentiation in between disruptive and sustaining innovation. Sustaining innovation refers to all those improvements and new products that the incumbents offer to their existing customers. On the other hand, disruptive innovation usually starts as a product or service that is considered to have lower performance than the incumbent’s, but that usually suits the needs of those customer segments that are being missed by the later; or directly creates a new need for new customers. It is considered as a new concept of value.  (The innovator’s dilemma) (https://hbr.org/2015/12/what-is-disruptive-innovation )Nagy and colleges proposed an extended definition for disruptive innovation, now comprising the three characteristics that an innovation posses in order to potentially disrupt existing industries or incumbents. They defined disruptive innovation as “an innovation that changes the performance metrics or consumer expectations of a market by providing radically new functionality, discontinuous technical standards, or new forms of ownership”  (Nagy D et al, 2016). (description of the characteristics?) incremental vs Radical vs disruptiveSometimes, companies that are known for their ability to innovate and invest in new technology, well-managed, listening to their customers and that have its clear competitive advantage, tend to fail in market dominance. This could happen in both, turbulent industries or industries moving slow and not changing much over time.In this book a theoretical framework is presented. It serve us for the understanding of disruptive technologies and how they have contributed to the fall of industry leaders. AnalysisElements/featuresThe technology in disruptive innovations is not often radically novel or difficult from a technological point of view. Instead these technologies are characterized by two features. First, they typically consists of set of performance attributes that existing customers do not value. Second, the performance attributes valued by existing customers improve at a rapid rate creating an established market that the new technology can later invade. (Christensen, Bower, 1995, Disruptive Technologies: Catching the Wave)Disruption is a process, different business models, segmentation, (Christensen – Strategic Innovation: What is disruptive innovation)DimensionstechnologymarketMechanisms that drive it in the industryTaxonomy of different formsDoes digital different from others…TheoriesChristensen’s theory of disruptive technologiesAlong the changes in industries, common issue has been why good companies struggle in responding to changing technologies. Before Christensen, the focus has been either on managerial, organizational and cultural responses of companies to the change or the ability of companies to handle the new technology. Christensen proposes an additional theory based upon a concept of a value network.Companies’ organizational structure typically facilitate innovation only on component-level. This is because companies often focus on innovating along the existing product. The companies acquire knowledge about specific problems connected to the previous projects and thus when facing similar problems, the focus is on the previous solutions and not on reexamining all possible solutions. Such approach works well as long as the fundamental architecture of the product stays unchanged. Moreover, this is a recursive process as organizations’ knowledge and capabilities are shaped by the tasks and competitive environment it encounters. (Henderson and Clark 1990, The Reconfiguration of Existing Product Technologies and the Failure of Established Firms) The magnitude of the technological change, relative to the companies’ capabilities, determines how companies cope with the emerging technology. Established companies are good improving only the technologies they have long time been good at. Where as newcomers tend to be better in exploiting radically new technologies. The capabilities are connected to the organization structure. The organizations’ skills and knowledge are shaped by the historical choices on to which technological problems they focus on (Clark 1985, The Interaction of Design Hierarchies and Market Concepts in Technological Evolution).Christensen defines value network as “the context within a firm identifies and responds to customers’ needs, solves problems, procures input, reacts to competitors, and strives for profit”. The value network then determines how valuable the new technology is for a company. This again shapes what kind of rewards different types of companies are expecting to obtain from pursuing sustaining and disruptive technologies. Expected rewards drive allocation of resources in established companies towards sustaining rather than disruptive technologies. <<<< Expand (Christensen, Innovators dilemma)The different processes in companies are used to identify customer's needs, evaluate profitability, allocated resources across competing investment options and to forecast technological trends. In well-managed companies these processes are focused on current customers and markets and thus exclude products and technologies that do not respond to customers' needs. The drawback of this is, that these companies become blind for new emerging technologies and emerging markets. (Christensen, Bower, 1995, Disruptive Technologies: Catching the Wave)(Christensen's theory is about how companies fail to stay at the top of their industries when they face certain types of market and technological changes. Importantly, it is about well-managed that still lose market dominance. He defines technology as "the processes by which an organization transforms labor, capital materials and information into products and services of greater value".)The failure network The failure framework is built upon three findings of Christensen's study:Sustaining versus disruptive technologiesThere is a strategically important distinction between sustaining and disruptive technologies. These two concepts are very different from the incremental-versus-radical distinction. Sustaining technologies tend to give more or better along the features the customers already value (Christensen, Bower, 1995, Disruptive Technologies: Catching the Wave). On the contrary, disruptive technologies change the value proposition of the market. Generally speaking, disruptive technologies perform worse than the established products in markets. However, they have other features that bring new value to customers; they are typically cheaper, smaller and simpler. In addition, as disruptive technologies tend to be used and appreciated only in new markets of applications, they generally enable the emergence of new markets (Christensen, Bower, 1995, Disruptive Technologies: Catching the Wave).Market needs versus technology improvementThe competitiveness and relevance of different technological approaches can progress faster than market demand. The market competition creates pressure to provide better products and earn higher process and margins compared to competitors. This results in suppliers to offer more to customers than they need or are willing to pay. Relative to what the market demands, the disruptive technologies may underperform today. However, they mat fully perform the competitiveness in the same market tomorrow. Disruptive technologies versus rational investmentsInvestment in disruptive technologies is not rational financial decision for companies to make. Even though disruptive technologies are cheaper and simpler, they generally do not provide greater profit. Also, they are first commercialized only in the emerging markets. In addition, the most profitable customers of the companies generally do not want or need the products based in disruptive technologies. (Christensen, The innovators dilemma) ??The effects of disrupting technologies??A company's revenue and cost structures affect critically to the manager's decisions whether or not to pursue for disruptive technologies. The managers typically have two choices. If they choose to pursue for the disruptive technology, the company will go downmarket and they have to accept lower profit margins of the emerging markets the technology will serve. If they choose to pursue for sustainable technologies, the company will go upmarket, as it enters market segments whose profit margins are temptingly high. Therefore, the managers will most often choose sustaining technologies as the rational choice is to allocate resources creating upmarket. However, the companies, that have mastered disruptive technologies, do not have the high cost structure as their established competitors. Therefore, the managers of these companies find the emerging markets appealing. After securing their position in the newly emerged market, these companies can focus on developing their technologies. It is relatively easy for them then to attack as the established companies have only been looking upmarket themselves. (Christensen, Bower, 1995, Disruptive Technologies: Catching the Wave)Performance trajectories can be used to explain the differences in the impact that technological innovations have on a given industry (Dosi, 1982, Technological paradigms and technological trajectories: A suggested interpretation of the determinants and directions of technical change). Performance trajectory is the rate at which the performance of a product has and is expected to improve over time. Nearly every industry has a critical performance trajectory. Sustaining and disruptive technological innovation affect the performance trajectories differently. The sustaining technologies give customers something more or better in the attributes they already value. Thus, these technological innovations tends to maintain the rate of improvement. On contrast, the disruptive technologies combine a set of performance attributes that differ from the mainstream customers' historical value. These technological innovations often perform worse along one or two dimensions especially important for those customers. Thus, these mainstream customers are not willing to use a disruptive products. This leads to emergence of new markets as the disruptive products are first used only by small amount of customers. (Christensen, Bower, 1995, Disruptive Technologies: Catching the Wave)Ways to cope with disruptive technologiesAccording to Bower and Christensen, there are five ways to cspot disruptive technologies. First, a company should determine which of the many technologies on the horizon are disruptive. The problem is, that most companies have well established processes for identifying potential sustaining technologies, as this is important to protect and serve current customers. On contrast, few have also systematic processes for identifying potential disruptive technologies. A disruptive technology can be identified, if there is a disagreement between the technical personnel and managers responsible for marketing and financing. This is because the technical personnel often believe that a new market for the technology will emerge, where as the marketing and financial managers rarely support a disruptive technology because of their managerial and financial incentives. Second, the company should define the strategic significance of the disruptive technology. This requires that the managers ask the right questions form the right people in the early strategic reviews. As with identifying a disruptive technology, established companies do not have regular procedures for assessing the value of the product stemming from a disruptive technology. Established companies generally ask from the mainstream customers to assess the value of innovative products. They are used because their demand for high performance drives the performance of the company's products and therefore help to keep the company ahead of the competitors.They are the right people to ask only for assessing the value of sustaining technologies, but not however disruptive. The right approach for managers would be to to compare the slope of the performance improvement of a disruptive technology to the slope of demand of performance improvement by existing market. If the new technology's performance is believed to improve faster than the market's demand, then the new technology may well meet the customers' needs in near future even though it does not address them today. The trajectory of a disruptive technology should thus be compared with that of the market and not to that of the old technology. This approach would work only for sustaining technologies as many of the disruptive technologies Bower and Christensen studied never surpassed the capability of the old technology. (picture? p49 in the article) Third, the initial market for the disruptive and strategically critical technology should then be located. Here again, the commonly used tool, market research, is not useful. Market research can be used only for concrete existing markets whereas disruptive technologies often signal the emergence of new markets or market segments. Therefore, also the information should be created about those emerging markets. The relevant information would be who the customers will be, which aspects of the product performance matters the most for them and what would be the right price for the product. This information can be created by experimenting iteratively, rapidly and inexpensively the product and also the emerging market. To do this the established companies should not rely on their traditional information channels but rather have regular meetings for example with technologists, academics and venture capitals to follow the progress of pioneering companies. Because the disruptive technologies have lower profit margins and serves different customers than the mainstream business, they should be developed by a kunkwork approach. This means formation of a small teams or spin-offs, that are then isolated from the rigid demands of the mainstream organization. This offers an independent and unrestricted environment for these projects. Furthermore, the spin-offs should be kept separately from the mainstream organization. It might be attracting to integrating the spin-off to the mainstream company, after it has become commercially viable in the new market. The the fixed costs associated with engineering, manufacturing, distribution and sales activities could be shared across a bigger group of customers and products. However, this approach works only for sustaining technologies. For the case of disruptive technologies the integration would be unfavorable for both the disruptive technology as the mainstream products. Upon integration a problem on the resource allocation would arise. Because of different natures of disruptive and mainstream products, the allocation of resources in one would lead to cannibalization of the other. It is important to notice that disruptive technologies are part of the life cycle of technologies and markets. To survive in any kind of industry, the companies must accept the dying of some business units and understand to create new business to replace the inevitably dying ones. Part of the game is, that if the company does not kill the lagging business units, competitors will. The key is therefore to manage strategically important disruptive technologies which create enough energy in small orders, can sneak attacks into ill-defined markets and whose overhead is low enough to give profit even in emerging markets.(Christensen, Bower, 1995, Disruptive Technologies: Catching the Wave)Criticism of ChristensenChristensen's theory has been used over the time to explain every kind of disruptive innovation. Since then, many authors have been opposed to this theory, creating controversy around it. Skeptics argue that disruptive innovations are less common than Christensen states. The most well-known authors criticizing Christensen's theory are Andrew A. King and Baljir Baatartogtokh who wrote an article about Christensen's theory in 2015 for MIT Sloan Management Review. In the article, they state that the theory has been widely accepted and its predictive power has never been questioned and it has been poorly tested in the academic literature. The examples Christensen took for developing his model lack quantitative testing, and the tests that have been published do not provide any evidence that validates the theory. Furthermore, as Christensen himself had stated,  for them the theory has been used in settings that do not correspond anymore with the principal idea or application of the theory. They decided to test each of the 77 case-examples that Christensen used for developing and testing his theory in "The Innovator's Dilemma". The findings resemble that most of the cases used by Christensen did not met the four key conditions he described as the main elements of the theory, either following the predictions. Those four elements corresponded with the fact that incumbents in the market improve along a trajectory of sustaining innovation, they overshoot customer's needs, they are able to react to disruption, and incumbents end up struggling due to the disruption.They found that not all the case-examples considered for the theory included sustaining technological innovation before the inclusion of the potential disruptive innovation. At the same time, not all incumbents mentioned in the study exceeded customer needs or were capable of responding to disruptors, and around one-third of the incumbents were not displaced by the new technology. In overall, they stated that not all the cases represented as examples in the theory, do not correspond closely to it. Only seven cases meet the criteria proposed by Christensen. On their point of view, the problems arising by the inclusion of a disruptive technology should be solved and evaluated from not a single perspective, but a number of them. In this regard, they recommend the use of the more accurate parts of the theory of disruptive innovation in combination to other classical approaches. The whole theory should be used just when certain conditions are met, as the theory reflects failure examples, not what the most and more diverse business might do. They propose a way for managers to react an emerging potential competitors, based on the evaluation of the industry state, as it might not continue to be attractive to fight competitors or new entries if the industry becomes unattractive; then next step would be to analyse whether the current capabilities possessed by the company can be used if there is an expansion to another market. The final stage would consist in collaborating with new entrants in the market as many pharmaceutical companies do when they face competition or disruption from a biotech company. As an end point of their critic, they state that managers can follow theories in order to get answers on what to do when disruptors comes into the market, but they should not replace the critical thinking and the careful evaluation of each particular case situation in terms of competitive advantage and competition (King A. & Baatartogtokh B, 2015). In the same year, Jill Lepore accused Christensen of choosing studies that allowed him to match his prejudices and ignoring evidence contradicting the theory; "Disruption is a theory of change founded on panic, anxiety, and shaky evidence". She states that since Christensen released his theory, "everyone has been disrupting or being disrupted". According to Lepore, theories referring to changes are meant to be an account of historical events and a model for the future, and in the case of Christensen's theory about disruptive innovations, the analysis of past events or historical data has not been met, so the predictions made through the model are not strong enough to consider it as a theory per se or being able to predict future events.  For her, disruptive innovation is just a theory explaining why business fail, not a theory about change. (The disruption machine. what the gospel of innovation gets wrong. Lepore 2015) Christensen has stated that they use of his theory and words have become random and it is being used for justifying and explaining anything considered disruptive innovation, which is a mistake  (MaryAnne M. Gobbe, Research-technology management, 2015).Differentiation between technological, business-model and product innovationComplementary AssetsBy TeeceOrganizations have limited capabilities. New markets created by disruptive technologies require different capabilities than the ones present in the organization. This comprises one of the dilemmas of innovation.  Big Bang DisruptionBy Larry Downes and Paul NunesIn Larry Downes and Paul Nunes work is reflected that there is a blind spot in the strategy business undertake when disruptive upstarts appear. There is a general thinking based in Christensen's idea of disruptive technology, that this disruptors offer chap and simple substitutes to the products the incumbents offer themselves. Incumbents generally assume that this disrupters start at the low-end of the market by offering a inferior-quality alternative to the product, giving them time to restart an strategy for develop a new improved product that can overcome the disruptors. The reality is different, as the "users make the switch to the new product in a matter of weeks" in some cases. And it was not just the low-end customers the ones switching to the new entrant in the market; "Once launched, such disruption is hard to fight". They call this wave of disrupters as "Big Bang Disrupters". They offered a list of strategic principles in order to help business to remain active after the emergence of those disruptors. In their perspective, big-bang disruption is different from any other type of innovation. They define big bang disruption upon three characteristics: Disruption in realityConclusion