Disruptive Innovation - Business Implications

Business Implications

Disruptive technologies are not always disruptive to customers, and often take a long time before they are significantly disruptive to established companies. They are often difficult to recognize. Indeed, as Christensen points out and studies have shown, it is often entirely rational for incumbent companies to ignore disruptive innovations, since they compare so badly with existing technologies or products, and the deceptively small market available for a disruptive innovation is often very small compared to the market for the established technology.

Even if a disruptive innovation is recognized, existing businesses are often reluctant to take advantage of it, since it would involve competing with their existing (and more profitable) technological approach. Christensen recommends that existing firms watch for these innovations, invest in small firms that might adopt these innovations, and continue to push technological demands in their core market so that performance stays above what disruptive technologies can achieve.

Disruptive technologies, too, can be subtly disruptive, rather than prominently so. Examples include digital photography (the sharp decline in consumer demand for common 35 mm print film has had a deleterious effect on free-riders such as slide and infrared film stocks, which are now more expensive to produce) and IP/Internet telephony, where the replacement technology does not, and sometimes cannot practically replace all of the non-obvious attributes of the older system (sustained operation through municipal power outages, national security priority access, the higher degree of obviousness that the service may be life-safety critical or deserving of higher restoration priority in catastrophes, etc.).

Disruptive technologies rarely wipe older technologies off the face of the earth, or out of the business world altogether. But they do often wipe out particular firms. Often established firms will flee upmarket trying to make up the revenues and margins lost to the disruption rising from below. They often eventually fail. Many decades later, their original technologies may still find suitable applications in human life and commerce. But they will no longer be manufactured by those original firms of the earliest generations, and the value networks around them will be substantially different from the original ones. For example, bias-ply tires for passenger-car use still exist, and they are still manufactured and bought and sold. However, today they occupy smaller, hobbyist-oriented automotive restoration value networks, whereas 40 years ago they were what most average car-tire buyers were buying, occupying a larger, lower-margin, more utilitarian value network. Today radial tires occupy that larger network. Bias-ply tires' commercial existence has shrunk to a small upmarket niche, and in the eyes of a wholesale discount mass-market tire dealer, they have very little value.