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. Arrogance of the Present

24. "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)

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

26. „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)

27. „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)

28. “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)

29. 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/

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

31. “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)

32. “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)

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

34. "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)

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

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

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

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

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

40. Sustaining InnovationsGradual Improvements
Foster improved product performance
Each year new and improved products are offered
Sustaining Innovations

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

42. The Market of Commodities
What happens when a market becomes mature?
Karaoke Capitalism takes over
Red oceans — All the industries in existence today
Industry boundaries are defined and accepted, and the
competitive rules of the game are known

43. Strategy for creating new markets
Make the competition irrelevant
Blue oceans denote all the industries
not in existence today—the unknown
market space, untainted by competition
Creating Blue Oceans

44. Instead of focusing on beating the competition, you focus on making
the competition irrelevant by creating a leap in value for your buyers
and your company, thereby opening up new and uncontested market
space
Value Innovation

45. 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

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

47. 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

48. 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
The Disruptive Innovation Theory
Source: (Christensen, 2000)

49. 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)

50. 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…
The Disruptive Innovation Theory
Source: (Christensen, 2000)

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

52. 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.
The Disruptive Innovation Theory

53. 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

54. 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

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

56. Clayton Christensen
Talks about Disruptive Innovation

58. 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?

59. Western Union Telegraph Business

60. 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

61. 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
Resources, Processes and Values Theory
Source: (Christensen, 2000)

62. 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
Resources, Processes and Values Theory

64. VAX and PDP models
Case Study: Digital Equipment Co.

65. 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
Case Study: Digital Equipment Co.

66. Western Union Telegraph Business

67. 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
Case Study: WU decline of the telephone

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

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

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

71. Gary Waynerchuck
Which Industry Will Technology Disrupt Next?
#ASKGARYWEE SHOW 2016

73. The Innovator’s Dilemma
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