* How to Build a Disruptive Business | THE INNOVATORS DILEMMA (clayton christensen)

INTRODUCTION

What is disruptive technology? Why do many companies fail in the face of disruptive technology, while

What exactly is disruptive technology? Why do many businesses fail in the face of disruptive technology while others thrive? Why do innovators continue to develop new technology even though they are aware that it may have an impact on existing markets and products? How can businesses ensure that they remain relevant and competitive in the face of numerous disruptive technologies entering the market? The answer, however, is neither simple nor easy. Many companies, including IBM and Honda, have succeeded. So, what do they actually do? What is their formula? It all comes down to strategy, extensive research, and the ability to identify new markets that have yet to emerge.

These are not skills that will be taught to you in a classroom. It is a matter of opening your eyes and mind to new experiences and possibilities. Hi!, My name is {speaker }. I am an Aspiring Entrepreneur, helping people figuring out the problem in startups and in there business and in this  class I  will teach you what disruptive technology is and why many businesses fail at first. The second part will teach you how to make your company survive when disruptive technology strikes. This book will help you understand by using examples from well-known and large corporations. Are you ready to learn one of the most important survival skills for your business? You need not to look any further. You’ve come to the right place. Let’s jump right into the class.

PART ONE: WHY GREAT COMPANIES FAIL
1. HOW CAN GREAT FIRMS FAIL? INSIGHTS FROM THE HARD DISK DRIVE INDUSTRY

The primary role of disk drives is  to read and write the information for computer use .IBM was the first company to enter this industry. By the 1960s, many firms emerged with the sole purpose of producing improved drives that meet customer needs. These firms were very innovative and aggressive. But why did many of them fail? Many of these companies are unable to confront low vision and mobility. With more advancement in technology, many of these companies were unable to find other uses for their products, and thus they failed.

The first disk drive was developed between 1952 and 1956 by a team of researchers at IBM. But as IBM continued to produce drives that would meet its own needs, a similar company emerged. A  few more firms also came up with the Plug Compatible Market (PCM) in 1960. These companies sold more enhanced copies of the IBM disk drives to IBM clients at a lower price. In the 1970s, more small companies entered the market, producing disk drives too.
 
By 1976, disk drives worth $1 billion were on the market. This marked the beginning of fierce competition, rapid growth, and improvement in technology. By 1980, PCMs had become irrelevant, and many companies produced the original equipment market (OEM) to be used in disk drives. In 1976, up to 17 large corporations were competing in this industry, but all of them – except IBM , had either been acquired by another company or had failed.

By 1995, 129 companies also entered the industry, and 109 of those failed.Why did they fail? They failed because of the emergence of disruptive technology. However, disruptive technology is exactly   what helped IBM to sustain itself in the market. One example was the size of disk drives:initially, drives were 14 inches in diameter, then they moved to 8, and in the end, they were 1.8 inches in diameter. The 8-inch drive was suitable for minicomputers, but the 5.25-inch drive was not compatible .The latter was more compatible with personal desktop computers.
 
Between 1980 and 1982, however, desktop personal computers emerged on the market. Many companies and individuals wanted these small and light desktop computers. As a result, the 5.25-inch drive demand went up because they were more appealing and compatible with desktops. Therefore, the sale of 8-inch disks decreased, and companies that were solely relying on its sale for sustainment were kicked out of the market.Some companies have risen because of disruptive technology.

Such is the case with Shugart Associates. They entered the industry between 1978 and 1980,  specializing in the manufacturinge of 8-inch drives with up to 40MB capacity. These drives could not be sold to mainframe manufacturers; however, because they wanted drives up to 400MB. Therefore, they ended up selling the drives to mini-computers manufacturers. Their customers, including DEC and HP, had been initially using 14-inch drives.
 
When offered the 8-inch drive-by Shugart, these companies incorporated it into their system because it was smaller and better. This is how the 8-inch drive became popular among minicomputer manufacturers. By mid-1985, 8-inch drive manufacturing companies were also able to raise this drive’s capacity to that required by mainframes. Also, the 8-inch drive was better because the vibrations it produced were less noticeable as compared to 14-inch drives.Within four to five years, 8-inch drives invaded the market, kicking out 14-inch drives.

Eventually, every 14-inch drive maker was thrown out of the market. The 8-inch drive was able to thrive because it performed better at capacity and price. On the other hand, the 14-inch drive makers failed because they did not produce 8-inch drives. Any technology company should know that new products may come into the market and make their product  obsolete, they cannot become complacent just because their product is doing well right now.

2. WHAT GOES UP CAN’T GO DOWN.

Have you noticed that leading companies readily jump towards high-end markets while others experience a great deal of difficulty? No matter how effective, no manager can build a company to enter the market with poorly defined low market ends, which have low profits. Huge companies have been able to sustain themselves because they are willing to leave their loyal customers in search of higher-paying clients. For any company to thrive, it must be ready to attack any product with high performance in the market.Making steel through the use of minimills was successfully commercialized in the mid-1960s. Minimills use different equipment and technology to melt and shape scrap steel to bars, rods, sheets, etc in the manufacturing process.
 
They are called ‘minimills’ because what they produce is less than a tenth of what is required.Minimills are quite similar to integrated mills, but the scale is the only difference. North America has the most efficient minimills in the world. In the mid 1990s, the most efficient integrated mill required 2.3 labor hours while the minimill required only o.6 labor hours per ton.Building a good minimill was about $400 million, compared to  $6 billion for an integrated mill during this time. Therefore, every industry in North America used minimills to cast and reshape steel. But what is surprising is that none of the integrated mills makers have ever tried to build the integrated mill using the same technology and technique used in minimills.
 
Why? It makes so much sense to do this because then they could kick minimills out of the market.Many managers of these integrated mills companies are afraid to take the risk, companies like Bethlehem Steel Corp and U.S Steel Corp have closed down because they are no longer competitive. On the other hand, some companies such as USX, an integrated mill maker, improved its machines’ efficiency from 9 to 1980 labor hours per ton. Yet despite this, minimills are still what everyone is going for. What seems to be the problem?It is simple. Minimills are disruptive technolog.

During its emergence in 1960, minimills were  capable of producing quality products. At the time they entered the market, integrated mills were more popular and trusted and could do practically every kind of cast and reshape. The only niche in the market was reinforcing steel bars. Rebar was not something many people wanted, and there were no profits in it.Integrated mills were more than happy to be relieved from the business of reinforcing steel by minimills.
 
The minimills were not deterred, however. They went for it and established themselves in the steel reinforcing business. They invested in producing high quality and larger bars. By 1990, they were reinforcing steel, but they were also making rods, bars, and angle irons. During this time, the profits were relatively low for these products. Once again, integrated mills were more than happy to be relieved from this work because they were not making any profits.Minimills attacked the market by producing the same products that integrated mills could.

By 1992, integrated mills had been driven out of the market, and minimills were dominating it. The most important thing to understand here is that during the 1980s, integrated mills made massive profits by targeting well-paying clients. While it was the right step, they forgot to improve their equipment to produce more and high-quality products at low costs. For this, they went down quickly and were overtaken by other companies

PART2:MANAGING DISRUPTIVE TECHNOLOGICAL CHANGE

3.GIVE RESPONSIBILITY FOR DISRUPTIVE TECHNOLOGIES TO ORGANIZATIONS WHOSE CUSTOMERS NEED THEM

Why do many executives fail when it comes to handling disruptive technology?  It is all a matter of resource dependence. Allocating enough resources for any project will help a company remain competitive.Companies fail because they do not have an  excellent strategy in the allocation of resources in the face of disruptive technology. They approach everything from the main company stream, and as a result, they end up losing everything.

IBM was the first company to sell its manufactured mainframe computers to firms, focusing on large  organizations in ‘ data processing and accounting industries. When minicomputers emerged, they posed a disruptive technology problem. IBM, together with its competitors, ignored it because their clients did not need them. Because of this, many new companies entered the market,  producing mini computers. Minicomputers became so advanced, however, that they were meeting the needs of some of IBMs clients.
 
At this point, IBM started producing mini computers. On the other hand, none of the mini-computers makers started selling desktop computers, because that would eat into their market share. Minicomputers were very popular at that time, and the profits were huge for the makers. However, in the late 1980s, new industries entered the market with improved desktop computers.

These advanced desktop computers were offering much more than minicomputers.Within a short period, many minicomputer markers had been thrown out of the market. Even those that quickly jumped to start making desktop computers did not thrive. The same thing happened when new entrants such as Toshiba and Zenith started producing portable computers. By then, IBM and Apple, the largest desktop producers, were quickly overtaken because these portable gadgets had capabilities that surpassed those of desktop computers.
 
But no company has suffered as much as DEC. DEC fell from grace to grass in very few years. DEC did not fail because they made no efforts.They came  up with products that were popular with consumers four times.They failed, however, and had to withdraw from the market. Why? Because they launched all their products from the mainstream company. They focused only on making products that the customers wanted, and they didn’t invest in creating products that were not in demand.By entering the personal computer business without creating a department, they were forced to deal with two significant tasks consecutively. Therefore,they could not invest enough money in either field for them to remain competitive.
 
On the other hand, IBM managed to stay in the market despite the constant emerging disruptive technologies.How did IBM ace it? They created another branch in Florida free to acquire raw materials, produce desktop computers, and sell them independently without interference from the leading company in New York.Many people believe that this is the reason IBM was able to thrive after all these years.

Today, many managers think that they can handle their regular field while at the same time addressing disruptive technology issues consecutively, just as DEC did. Such strategies don’t succeed. One or both ventures, in extreme cases, will fail. So if you are a manager today dealing with disruptive technology, it is better to do it separately from the company mainstream and pursue each as a different entity   

4. DISCOVERING NEW AND EMERGING MARKETS

Markets are continually changing, and a strategy that worked today may fail tomorrow. A manager who thinks that they understand the future of a market will invest differently from one who knows the market’s changing nature. Research shows that many successful businesses were forced to abandon the strategies they had planned. They adopted new techniques that were compatible with the market.

Any good marketer will always discover inexistent markets and prepare accordingly, as we will see in the case of Honda.Honda entered the market during the post-war reconstruction in jJapan. They supplied motorized bicycles that were used to distribute goods. Honda was very keen to design small and efficient engines. Within ten years, their sales had gone up from 1200 to 285,000 bicycles. Honda wanted to exploit the North American market, but there was no platform to do so, similar to what they had in Japan. Their research showed that most Americans used bikes for long-distance driving. Speed was, therefore, the most appealing factor for the American market.
 
Honda then embarked on designing a powerful and fast motorcycle specifically for the American market.They then sent three people to go to Los Angeles and market the product. Other than the cost, there was no additional competitive advantage, and many people refused to buy from them. Eventually, they were able to find some dealers and sell a few hundred motorcycles. But then, Honda designed the engine poorly; while      their bikes were powerful and fast, driving them for long periods resulted in oil leaks and wearing out of the clutch.

The company almost went underwater while trying to warrant all the products. On Saturday, the executive in charge of North America took his motorbike in the hills east of Los Angeles and invited two friends to join him.. Neighbors saw them and started asking where they could get such bikes. The trio was more than happy to order the bikes for them from Japan. As more and more people bought these bikes, the Los Angeles team realized that there was a gap in recreational bikes in America, and their motorcycles were the perfect match for this.
 
Although it took a lot to convince the head office in Japan to let them pursue this opportunity, they managed to pull it off. Getting retailers for these small recreational bikes was a challenge. Eventually, the team was able to persuade a group of sportsmen to buy their products, which was the beginning of Honda’s success. But Honda had no money for advertisement , instead, based off of a young student’s idea, they sold a plan to a big advertising agency and used it for a campaign. From this, Honda was able to cut prices further and further until they could build cheaper motorcycles. They then used this strategy to raise the market and eliminate all significant competitors except two.
 
Even these two barely survived. Honda’s small recreational bikes were a disruptive technology. Honda was able to attack and dominate the North American and European markets through strategic planning and execution.Between 1960 and 1970, Harley Motorcycles, a dominator of the motorcycle industry in North America tried to compete with Honda, head-on.They decided to also produce small motorcycles with even smaller engines than Honda’s.

Then, they went ahead and tried selling this in the same market as Honda.They failed, however, because they did not prepare for the emerging needs of the future. In the end, they gave up. Never underestimate a market based on its current size.. New markets are continually emerging, and you may find yourself being kicked out if you don’t prepare well.

5. PERFORMANCE PROVIDED, MARKET DEMAND, AND THE PRODUCT LIFE CYCLE

Many companies often fail because they do not meet the demands of the market. On the other hand, someo die because they exceed the expectations of the market. When a company exceeds what is required, it allows disruptive technology to attack from below. This then changes the focal point of the competition and therefore, a product ends up having a short life cycle because it is kicked out of the game.It is paramount to meet market demands without exceeding them.

The case of Novo and Lily is a perfect illustration of this.In 1922, four scientists in Toronto pulled out insulin from animals’ pancreases and injected it into humans with diabetes. The experiment was successful. Since this insulin was being extracted from cows and pigs, the only way to improve performance was to improve insulin quality. By 1980, the level of impurities in insulin had dropped from 50,000 ppm to 10ppm. This was due to the many efforts of companies such as the Eli Lily Company.
 
Animal insulin is different, though from human insulin. Because of this, several patients became immune to this insulin. Eli Lily Company consequently embarked on research to develop insulin proteins, which would be like the ones in human beings. They partnered with Genentech Company in 1978 and invested almost $1 billion in this project.

The project was very successful. In 1980, Humulin-brand insulin was introduced to the market, it was the first product for sale meant for human consumption from the biotechnology industry.They priced it at a 25% premium in comparison to animal insulin. However, its sales were not as high as had been expected. Why? While people were delighted with this new product, they did not need it.Only a handful of people whose immune systems were resistant to animal insulin required it. The rest were okay with animal insulin, which they could get at a lower price. On the other hand, pure insulin was over- performing beyond the expected demand.
 
At this time, a Danish company named Novo saw a niche in insulin pens. People with diabetes were using different syringes for a single injection. They would insert this syringe into a vial containing insulin, inject any excess insulin out and hold up the needle while stroking the syringe to get rid of air. Then, they would repeat this when using a slower kind of insulin and the whole process would take up to one to two minutes.Novo developed a pen that would hold a week’s supply of insulin.

The cell could accommodate both slow and fast-acting insulin. All one needed to do was turn a dial and press a button, and voila! Ready for injection. The procedure would only take 10 seconds. While Lily was busy making high-quality products of high prices, the small Danish company focused a simple improvement and priced its goods at a 30% premium for every insulin unit.
 
By the mid-1980s, Novo was making so much from their pens while Lily was still struggling   to sustain itself. These two cases show that a product which exceeds market expectations is doomed to fail, while one that brings even the most straightforward disruptive technology can succeed beyond expectations. But the case of Lily, as many students at Harvard put it, was a case of apparent miscalculations.

Harvard students have argued that it was evident to anyone that developing pure insulin would only benefit a few people.However, it was not a miscalculation: Lily improved their insulin products for the next generation and their main clients led them to believe that pure insulin would be readily accepted in the market. But these customers were only a handful and they encouraged .Lily to produce more than was needed.Therefore, every manager needs to know how to meet the demands of the market without exceeding its expectations. Failure to adhere to this can lead to massive losses, as seen with the case of Novo, and massive investments could all be for nothing.

CONCLUSION

In this class, you have learned what disruptive technology is. You learned why many companies fail solely due to disruptive technology. In the second part of this class, you learned how a company can deal with disruptive technologies entering the market and still remain competitive. You have learned the importance of making sure that you don’t exceed market demands. You have also learned how to prepare your company for changing markets and how to handle disruptive technology while still doing what your company does best. While this road may not be easy, the path to your desired destination is not a secret. Just open your mind and learn from history, then you will be able to tackle the future.

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