topics: |  management | innovation

An wonderful book.  Not only does it present a cogent argument about why
organizations fail, the fascinating evidence presented from industries such
as the hard disk drive and the hydraulic excavators make for gripping
stories on their own.  

The central thesis of this landmark book is that new entrants at the
lower, burgeoning ends of a market may often disrupt well-managed,
well-thought out players operating at the upper (and initially non-competing)
end of the market.   Christensen said recently of the central idea behind the
book that:

	It emerged from my doctoral thesis on the disk drive industry, and at
	the beginning I thought it applied a bit in computers and disk
	drives, but I didn't know how far it would reach.

Time and again, Christensen observed, the larger drive makers, who were
supplying to entrenched clients, were upstaged by smaller ones.  First, the
14" drive makers (who were supplying 200MB+ drives to the mainframe
manufacturers) were overtaken by the 8" drive makers who were supplying
10-50MB drives for minicomputers.  Subsequently, the 8" makers were
themselves overtaken by the 5 1/4".   Of the four leading 8"
manufacturers, only Micropolis survived, but eventually (in the late 90s, it
too was liquidated.  Partly this was because the demand of the clients using
these technologies grew at a slower rate than that provided by technological
change - so that the needs of the upper end customers were soon being met by
the lower-end entrants.

Later, when the 3.5" drive was announced in 1984, Seagate developed a
competitive prototype but an initial market survey (emphasizing their
existing clients), showed poor demand and the program was scrapped.  In the
end they did start making 3.5" drives in 1988, after considerable management
effort.

Though Christensen hadn't anticipated the breadth of appeal in his message,
the book swept out of management shelves in the 90s, and changed the
perception of many an industry leader.  An idea that was already in sync was
that of Andy Grove's "Only the paranoid survive", which Christensen
strengthened with his insightful analysis of hard-drive industry data.  The
message continues to hold today, with ever faster rates of technological and
managerial change.

Links

You can read the first chapter on businessweek, or a
recent interview.

Excerpts

[Hard Drive] cost per megabyte fell to 53 percent of its former level. This
is a much steeper rate of price decline than the 70 percent slope observed in
the markets for most other microelectronics products. The price per megabyte
has declined at about 5 percent per quarter for more than twenty years. [p.7]

 
  Declining trend in price per megabyte of hard disk drives in the 1990s.  The
  rapid rise in disk density overtook the increasing demand rate, and the
  smaller players were soon able to meet the needs of the larger users.
  This resulted in a shift from larger drives to the smaller drive capacity,
  which was missed by well-managed firms that continued to innovate in how
  to met the needs of their larger clients.
		[p.8 Source: issues of Disk /Trend magazine]

The price per megabyte has declined at about 5 percent
per quarter for more than twenty years.  This is a much steeper rate
of price decline than the 70 percent slope observed in the markets for
most other microelectronics products.

The established firms were the leading innovators not just in
developing risky, complex, and expensive component technologies such
as thin-film heads and disks, but in literally every other one of the
sustaining innovations in the industry's history.

The pattern is stunningly consistent. Whether the technology was
radical or incremental, expensive or cheap, software or hardware,
component or architecture, competence-enhancing or
competence-destroying, the pattern was the same. When faced with
sustaining technology change that gave existing customers something
more and better in what they wanted, the leading practitioners of the
prior technology led the industry in the development and adoption of
the new. Clearly, the leaders in this industry did not fail because
they became passive, arrogant, or risk-averse or because they couldn't
keep up with the stunning rate of technological change.

Most technological change in the disk drive industry has consisted of
sustaining innovations of the sort described above. In contrast, there
have been only a few of the other sort of technological change, called
disruptive technologies. These were the changes that toppled the
industry's leaders.

Generally disruptive innovations were technologically straightforward,
consisting of off-the-shelf components put together in a product
architecture that was often simpler than prior approaches. 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.

Why were the leading drive makers [14"] unable to launch 8-inch drives
until it was too late? Clearly, they were technologically capable of
producing these drives. Their failure resulted from delay in making
the strategic commitment to enter the emerging market in which the
8-inch drives initially could be sold. Interviews with marketing and
engineering executives close to these companies suggest that the
established 14-inch drive manufacturers were held captive by
customers. Mainframe computer manufacturers did not need an 8-inch
drive.  ... The 14-inch drive manufacturers were listening and
responding to their established customers. And their customers--in a
way that was not apparent to either the disk drive manufacturers or
their computer-making customers--were pulling them along a trajectory
of 22 percent capacity growth in a 14-inch platform that would
ultimately prove fatal.

In 1980, Seagate Technology introduced 5.25-inch disk drives. Their
capacities of 5 and 10 MB were of no interest to minicomputer
manufacturers, who were demanding drives of 40 and 60 MB from their
suppliers.

Of the four leading 8-inch drive makers--Shugart Associates,
Micropolis, Priam, and Quantum--only Micropolis survived to become a
significant manufacturer of 5.25-inch drives, and that was
accomplished only with Herculean managerial effort,

The 3.5-inch drive was first developed in 1984 by Rodime, a Scottish
entrant. Sales of this architecture were not significant, however,
until Conner Peripherals, a spinoff of 5.25-inch drive makers Seagate
and Miniscribe, started shipping product in 1987.

The Conner drives were used primarily in a new application--portable
and laptop machines, in addition to "small footprint" desktop
models--where customers were willing to accept lower capacities and
higher costs per megabyte to get lighter weight, greater ruggedness,
and lower power consumption.  and two years before Conner Peripherals
started shipping its product, Seagate personnel showed working
3.5-inch prototype drives to customers for evaluation ...
[Opposition from marketing and executive team:] the market wanted
higher capacity drives at a lower cost per megabyte and that 3.5-inch
drives could never be built at a lower cost per megabyte than
5.25-inch drives.
[Tested on existing customers]
In response to lukewarm reviews from customers, Seagate's program manager
lowered his 3.5-inch sales estimates, and the firm's executives canceled the program.

In 1989 industry entrant Prairietek, announcing a 2.5-inch drive,
capturing nearly all $30 million of this nascent market.  But Conner
Peripherals announced its own 2.5-inch product in early 1990 and by
the end of that year had claimed 95 percent of the 2.5-inch drive
market.  Prairietek declared bankruptcy in late 1991, by which time
each of the other 3.5-inch drivemakers--Quantum, Seagate, Western
Digital, and Maxtor--had introduced 2.5-inch drives of their
own. ... the portable computing markets into which the smaller drives
were sold valued other attributes: weight, ruggedness, low power
consumption, small physical size, and so on. Along these dimensions,
the 2.5-inch drive offered improved performance over that of the
3.5-inch product: It was a sustaining technology.

In 1992, however, the 1.8-inch drive emerged, by 1995, it was entrant
firms that controlled 98 percent of the $130 million 1.8-inch drive
market. Moreover, the largest initial market for 1.8-inch drives
wasn't in computing at all. It was in portable heart monitoring
devices!

[Control Data gave way to Shugart Associates, Shugart to Seagate,
Seagate to Connor Peripherals and Connor to new entrants. ]

Inkjet printers, far slower than laser printers, inferior in both
resolution and cost per copy, improved enough to satisfy most
customers and drive more costly laser printers into the uppermost
corner of the market.

---

... 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.

--

Most technological change in the disk drive industry has consisted of
sustaining innovations of the sort described above. In contrast, there
have been only a few of the other sort of technological change, called
disruptive technologies. These were the changes that toppled the
industry's leaders.

--

The 5.25-inch architecture did not address the perceived needs of
minicomputer manufacturers at that time. On the other hand, the
5.25-inch drive had features that appealed to the desktop personal
computer market segment just emerging in the period between 1980 and
1982. It was small and lightweight, and, priced at around $2,000, it
could be incorporated into desktop machines economically.

Generally disruptive innovations were technologically straightforward,
consisting of off-the-shelf components put together in a product
architecture that was often simpler than prior approaches. 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.


SUMMARY:

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.

The second pattern is that the purpose of advanced technology
development in the industry was always to sustain established
trajectories of performance improvement: to reach the
higher-performance, higher-margin domain of the upper right of the
trajectory map. Many of these technologies were radically new and
difficult, but they were not disruptive. The customers of the leading
disk drive suppliers led them toward these achievements. Sustaining
technologies, as a result, did not precipitate failure.

The third pattern shows that, 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.

.. the problem established firms seem unable to confront successfully
is that of downward vision and mobility, in terms of the trajectory
map. 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,

blurb:
The Innovator's Dilemma demonstrates why outstanding companies that had their
competitive antennae up, listened astutely to customers, and invested
aggressively in new technologies still lost their market dominance. Drawing
on patterns of innovation in a variety of industries, the author argues that
good business practices can, nevertheless, weaken a great firm. He shows how
truly important, breakthrough innovations are often initially rejected by
customers that cannot currently use them, leading firms to allow their most
important innovations to languish. Many companies now face the innovator's
dilemma. Keeping close to customers is critical for current success. But
long-term growth and profits depend upon a very different managerial
formula. This book will help managers see the changes that may be coming
their way and will show them how to respond for success. The Management of
Innovation and Change Series.