Here the whole topic of discussion is- how innovation influences the various processes in different industries? Why do leaders of the industries have such a hard time dealing with the new technology that comes in? What is disruptive technology and how does it affect the industry?
There is great deal of dilemma when it comes to technological innovation as people feel that the whole concept is based on randomness. They feel that when they have certain objectives which they set out to meet, they very often miss by a large margin, thus they infer that innovation is just mere randomness. But researchers today, are trying to prove that innovation is not at all mere randomness, and the deviation from the targets is greatly due to the various factors that come into play in deciding our success. They are trying to find out how the probability of getting all the factors that influence the success can be maximised.
Man has always had this desire to reach the skies. Right from the Middle Ages, man had made various attempts to fly...sometimes strapping wings onto their shoulders and sometimes making machines with wings. They all fell to their deaths with their fate-less attempts. The thinkers of that time then said that it was foolish for man to even think that they could actually fly! But later on people understood that it was a waste to go against the basic laws of nature and if they had to succeed in their endeavour then they ought to flow parallel with the laws of nature. And hence the aeroplane was invented; which was nothing but a machine that was so built that the air resistance from the wings would make it airborne!
The reason why the big players in the industries have such a hard time with the changing technologies is that they are never prepared for the breakthrough changes which innovators come up with. The leaders in the industries have all grown with an accumulated year on year growth with their constant but limited innovation. It’s not because when companies reach the top they tend to become risk averse, slow, bureaucratic and lose their ability to do breakthrough innovation, but because of the mere reason that someone in the competition does something so different and radical that it totally changes the equation in the businesses!
Now, What is disruptive technology and how is it a major form of innovation and how it hampers the industry position of the stalwarts?
Disruptive technology is something that doesn’t sustain the trajectory of the technological progress. It is brought in the market as something which is worse and not better. For example: Intel launching Celeron, a cheaper and lesser efficient cousin of Pentium. Disruptive technology makes the leaders’ chances of staying at the top very difficult.
In the mid 1980s Intel made chips that were very basic and could not effectively serve the customers’ needs and demands. This led them to improve on the technology and make advanced chips such as the Quadra core duo etc. They pursued to cater to the needs of the customers to whom they could sell the improved products at a higher margin in the demanding tiers of the market. But in doing so they over shot the demands of the mainstream customers who would not require such advanced technology for their daily small works!
Apple sold its Apple 2 to children as a toy and this was a disruptive technology. Digital’s customers didn’t know how to use a personal computer and hence they never demanded what they desired of the products. The company needed to listen to their needs so that they could provide the required technologies in the next generation customers, but they got no signals from the customers because they didn’t know how to use them.
But as the years progressed, the computers went on to become way more advanced than what the customers could ask for, the technological innovations outstripped the requirements of the mainstream customers. And through the 1990s the companies targeted the mainstream market where the margins were lower and the requirements were also lower. But the choice that the companies had to make was whether to make high end computers that earned them huge margins or concentrate more on the lower priced computers which would earn them a much lesser margin but a significant amount of sales. Most of the companies capitalised on this segment by coming out with low priced computers, and that was the time when households all across the world started purchasing for their personal use in a big way!
If an innovation company seeks to enter an industry with a sustaining technology (as in the case of computers), meaning they try to introduce a better product which is actually better than the products currently available then the chances of success is nearly zero! This is because you create a territory in the industry which the leaders can easily copy because of their immense strength and resources, plus it becomes a region for more profit margins for them. But when a company enters an industry with a disruption then it becomes very easy for the company’s success, because they can seize a territory which the leaders don’t want because that becomes less profitable for them.
Companies keep falling to the belief that there can be demand for high end products and they keep on innovating and make products and overshoot what even the most advanced customers can actually use. Hence companies enter the disrupted market with lower technology products which cuts down sales of the high end products...then other companies enter with more limiting technologies at much lesser prices...so this vicious cycle kills the players who keeps innovating and overshoots the demand and utility limit of the customers. And the reason for innovative failure is because of the belief that there will be more demanding application for products at the high end.
People buy a lot of technology but hardly use it or don’t know how to use the products to their full utility. For example many people have broadband high speed internet but they hardly use it except for sending or receiving emails, this is very typical of the older generation.
There are two types of disruptive technologies:
First: The slightly low end technology at a cheaper price tag and lesser profit margin. These are the products which are good value for money to people who want products at a much affordable rate and are also confident of being competent of using the product efficiently. Example: the Celeron chip for personal computers, which were a little low end but very good and efficient product for the mainstream customers who didn’t want to pay a large sum for an advanced micro processor in their computers. Intel successfully disrupted the industry and stayed on top adopting this method.
Second: the discount retailers such as Wal-Mart and K-Mart, where they sold commodities at a much lesser price than the other retailers. This created their own sweet space in the market where they got customers who were willing to travel a little outside of the cities and do the shopping at a much cheaper rate. And now the hard goods specialty discounters like home depot, toys R us, Staples etc. They are now come in from the bottom and have disrupted the market. They don’t create new markets but they create a lower cost business model that allows the disrupted innovator to discount prices that are required to win market share.
There is a lot of creation involved to effectively use these disruption technologies. The companies are constantly looking at targeting the existing customers or are trying to cater to new customers with their innovations. For example the vacuum valve was replaced by the disrupted innovation of transistors which were much smaller in size. Then Sony later came out with a much smaller portable radio which was cheaper and also convenient for the youth to carry around with them. These competed with non consumption, as we also saw when portable television was invented.
The voice processor is a new venture that technology oriented companies are targeting at. They want to substitute the word processor with a word processor. So by merely launching the technology won’t help the companies if they don’t find a way to disrupt the market and make the technology cheaper than the current technology! The main hurdle here is to predict whether technology can make the life easier for the larger group of the targeted population who lack the historic skills or the money to participate in the market. Whether the new technology will be helpful where the substituted technology can be a little difficult to use, or are people are willing to buy the crummy products.
We will have to wait and see what these innovations hold in the lives of the common man in future. In a very short span of 2 decades we have moved from ancient boxes that could compute numbers and do word processing for us, to the wireless and nano technology age where computers are getting smaller and smarter. We have seen gadgets change, replace old ones and evolve, and we are yet to see so many path-breaking innovations that researchers and scientists are currently working on...
What the industry challenges will be... how the customers’ demands will be met...only time will tell!
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