Article - Catching the Wave (Bower & Christensen)

Question 1

Why do leading companies often fail to stay at the top of their industries when technologies or markets change?

Answer 1

They fail to meet future demand from current and/or future.

–> They stay too close to their customer

Question 2

In what way do customers have a lot of power regarding a companies’ investment?

Answer 2

• Before launching new technologies, market analysis into their current customers is done;
• They often reject ideas if those do not address their current needs as effectively as the current solution already on the market;
• > companies then often don’t pursue that technology while competitors do;

Question 3

What are most well-managed good at in terms of innovations?

Answer 3

New innovations and incremental changes to current products if those innovations address the next-generation performance needs of their customers.

• > Their processes focus on identify customer needs, tech trends and the allocation of resources for current market and customers.
• > No focus on new technologies in emergent markets;

Question 4

What are two characteristics of technology changes that damage established companies

Answer 4

1. They present a different package of performance attributes (that are not valued by existing customers);
2. The performance attributes that existing customers do value improve at such a rapid rate that the new technology can later invade those established markets. Only then the mainstream customer wants it, but it is too late for the established company and pioneers dominate the market.

Question 5

What is a performance trajectory?

Answer 5

The rate at which the performance of a product has improved and is expected to improve over time.

This can be helpful to explain the differences of impact certain technological innovations have on given markets.

Example: In disk drives it is storage capacity.

Question 6

What are sustaining technologies?

Answer 6

Technologies that tend to maintain a rate of improvement.

Question 7

What are disruptive technologies?

Answer 7

Technologies that introduce a very different package of attributes compared to what mainstream customer historically value. These often perform worse on a few dimensions compared to current products.

Question 8

What is an example of a disruptive technology?

Answer 8

Hard disks =
Frontiers made HDD smaller and smaller –> they were lighter, required less power etc. ; but had less storage (so perform worse) –> computer makers rejected them –> HDD suppliers rejected the disruptive technology –> the benefits did enable the frontiers to develop new markets (mini-computers etc.) –> innovation to increase storage –> original HDD suppliers are outplayed.

Question 9

How can disruptive technology take over original markets as well?

Answer 9

If disruptive technologies become established in their new markets they can sustain innovation and increase the performance of their products.

Question 10

What are the two reasons established companies steer away from disruptive technologies?

Answer 10

1. Potential revenues look small;

2. It is difficult to project the market size over time;

Question 11

What are two choices managers have regarding to pursue disruptive technologies?

Answer 11

1. Go down-market
   Accept lower profit margins of the emerging markets that disruptive technologies will initially serve.
2. Go up-market
   Sustain your existing technologies and enter market segments with high profit margins (more immediate ROI –> but often companies do not see the threat from below)

Question 12

Why do companies not break out of the pattern of not investing in disruptive technologies?

Answer 12

1. Managers keep doing what they did in the past: serving the rapidly growing needs of their current customers;
2. They have processes to allocate resources among proposed investments –> these do not allocate resources to programs that current customers do not want and that have low profit margins. (managers have to place their bets on safer investments to reduce risk and to safeguard their careers)

Question 13

What are the five steps to spot and cultivate disruptive technologies?

Answer 13

1. Determine whether the technology is disruptive or sustaining.
2. Define the strategic significance of the disruptive technology
3. Locate the initial market for the disruptive technology
4. Place responsibility for building a disruptive technology business in an independent organization
5. Keep the disruptive organization independent

Question 14

How can a company determine if a technology is disruptive or sustaining?

Answer 14

By examining internal disagreements over the development of new products/technologies. Often marketing/finance is against, but if the best technical personnel insists it might be worth looking into it by top management.

Question 15

What goes wrong when companies try to define the strategic significance of a disruptive technology?

Answer 15

They aks their important accounts, as they use their products to stay ahead of their own competition.
Those companies are however not interested in disruptive technologies as they initially have a lower performance than demanded by current customers.

Question 16

How can a disruptive technology still be strategically critical to those companies?

Answer 16

If performance improvement goes faster than the markets demand for improvement.
“It can serve the customer of the future”

Question 17

What are mistakes that managers make about the strategic significance of disruptive technologies?

Answer 17

They compare the likely slope of the performance improvement of the disruptive technology with the slope of the performance improvement of the established technology.

-> They should compare the trajectory of the disruptive technology with the trajectory of the market.

Question 18

Why do managers need to locate the initial market for the disruptive technology?

Answer 18

Market research is stupid -> there is no initial market yet.

-> they should experience with both the product and the market to identify the potential market.

Question 19

How can established firms still benefit from disruptive technologies, even though their resource allocation processes do not help with it?

Answer 19

1. Create or link up with a start up to do it;

2. Be the second to invent;

Question 20

When should an established firm place responsibility for a disruptive technology in an independent organization?

Answer 20

When the disruptive technology has a lower profit margin than the mainstream business and must serve the unique needs of a new set of customers.

–> Don’t always separate the project team from the mainstream business –> Loss of knowledge;

Question 21

Why do established firms want to integrate the independent organization with the normal organizations once the technology hits mainstream?

Answer 21

To better allocate cost to function groups and to allocate cost to broader customer groups;

Question 22

Why can incorporating the independent firm into the established firm be disastrous?

Answer 22

Existing products might be cannibalized and stripped to make more profits –> disruptive technologies can not reach their full potential and will go down the same life cycle as any technology and lose demand.

Question 23

What is key to propsering disruptive change?

Answer 23

To manage strategically important disruptive technologies in an organizational context where small orders create energy, where fast low-cost forays into ill-defined markets are possible and where overhead is low enough to permit profit even in emerging markets.