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A disruptive technology is a lower performance or less expensive product or process that gains a foothold in the low end, less demanding part of an existing market, and then successively moves up-market through performance improvements until finally displacing the market incumbents. Disruptive technologies are usually introduced to the market by small startup enterprises.
By contrast, sustaining technology refers to the successive incremental improvements to performance that market incumbents incorporate into their existing product.
The term disruptive technology was coined by Clayton M. Christensen and described in his 1997 book The Innovator's Dilemma.
The theory
In certain markets, the rate at which products improve exceeds the rate at which customers can learn and adopt the new performance. Therefore, at some point the performance of the product overshoots the needs of certain customer segments.
At this point, a disruptive technology may enter the market and provide a product which has lower performance than the incumbent, but exceeds the requirements of certain segments thereby gaining a foothold in the market. Christensen distinguishes between low-end disruption which targets customers that have been overshot and new-market disruption which targets customers that could previously not be served profitably by the incumbent.
The disruptive company will naturally aim to improve its margin (from low commodity level) and therefore innovate to capture the next level of customer requirements. The incumbent will not want to engage in a price war with a simpler product with lower production costs and will move up-market and focus on its more attractive customers.
After a number of iterations, the incumbent has been squeezed into successively smaller markets and when finally the disruptive technology meets the demands of its last segment the incumbent technology disappears.
Examples of disruptive technologies
Not all disruptive technologies are of lower performance. There are a several examples where the disruptive technology outperforms the existing technology but is not adapted by existing majors in the market. These occur in industries with a high capitalization sunk into the older technology. To update, an existing player does not only have to invest in new technology but must replace (and perhaps dispose of at high cost) the older infrastructure. It may be simply most cost effective for the existing player to "milk" the current investment during its decline - mostly by insufficient maintenance and lack of progressive improvement to maintain the long term utility of the existing facilities. A new player is not faced with such a balancing act.
Some examples of high performance disruption:
- The rise of containerization and the success of the Port of Oakland, California, while the port of San Francisco neglected modernization - perhaps wisely due to its inconvenient location at the end of a peninsula not oriented with the prevailing freight traffic. Rather than attempt to compete in the oceanic freight terminal business the city's resources were directed elsewhere, primarily toward becoming the leading financial center on the west coast, largely through the encouragement of the construction of high rise buildings for office space.
- "Mini mill" scrap feed steel product production facilities in the United States using integrated vertical casting methods feeding rolling mills in a single continuous process to produce specialty products such as reenforcing bar for concrete. This left the existing large steel producers with only the lower value commodity production which could not compete with lower cost production worldwide - largely due to the lower labor costs offshore.
Not all technologies promoted as disruptive technologies have actually prospered as well as their proponents had hoped. However, some of these technologies have only been around for a few years, and their ultimate fate has not yet been determined.
Unresolved examples of technologies promoted as 'disruptive technologies'
Failed technologies that some people regarded as "disruptive technologies" (most of them failed before this term was coined):
External links
Books
- Christensen, Clayton M. (1997). The Innovator's Dilemma. Harvard Business School Press. ISBN 0875845851.
- Christensen, Clayton M.;Raynor, Michael E. (2003). The Innovator's Solution. Harvard Business School Press. ISBN 1578518520.
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