Exam 2 Flashcards
What are the two characteristics of disruptive innovations (sometimes referred to as disruptive technologies)?
First, they come to market with a set of performance attributes that existing customers don’t value. Second, over time the performance attributes improve to the point where they invade established markets.
The acronym VoIP is considered by many to be a disruptive innovation. It refers to:
the technology used in internet telephony.
Disruptive innovations are often so damaging because the new technology has better margins than the incumbent technology being displaced.
False; The most disruptive technologies also often have worse margins than the initially dominant incumbent offerings. Since these markets don’t look attractive, big firms don’t dedicate resources to developing the potential technology or nurturing the needs of a new customer base.
Firms that listen to their customers are more likely to be able to counteract the onslaught of potentially disruptive technologies.
False; The majority of a firm’s current customers don’t want the initially poor-performing new technology.
ARM chips are generally not as powerful as desktop chips, however, Moore’s law is making these chips powerful enough for server tasks, bringing with them the added benefit of requiring less energy to operate.
True; ARM chips (once computational weaklings) are now fast enough to invade the established market for laptop and server chips. ARM designs are especially attractive to smartphone manufacturers because they are far more power-efficient than the chips Intel sells for PCs, laptops, and servers. The Intel chips were never designed for power efficiency; they evolved from markets where computers were always plugged in.
This firm’s processor designs power the majority of smart phones on the planet.
ARM; Chips based on Intel rival ARM power nearly all of the smartphones on the planet. Samsung, Apple, Motorola, and Xiaomi all use chips with ARM smarts.
ARM has been so successful because its chip designs can run any software originally designed to run on Intel chips.
False; Unlike Intel-compatible rival AMD, ARM chips can’t run software that conforms to the Intel x86 standard used in most PCs and servers, so all of a firm’s old code would need to be rewritten and compiled to work on any ARM-powered servers, laptops, or desktop (a potentially big switching cost).
Example of once-large firms that failed to make the transition as new technologies emerge to redefine markets.
Kodak
- market share near 90 percent
- anything more lucrative was illegal
- crushed by shift from chemistry to bits
- today, bankrupt and 1/14 of its workforce
The tech industry is the most fertile ground for disruptive innovation.
True; price elasticity created by markets for fast/cheap technology speeds ups the fall of giants. Whole new markets open up.
What is disruptive innovation?
Giant-killing market shocks that catalyze growth; show why so many once-large firms have failed and sheds light on practices that may help firms recognize and respond to threats.
General examples of disruptive technologies.
- digital cameras (Kodak)
- digital music; As storage became smaller and cheaper, Apple came with iTunes and a near monopoly, then came Spotify with streaming music
- digital video; Netflix leveraged dominance to create a business within its business
- mobile phones
- tablet computing
- Internet telephony
- ride-sharing services; not yet reliable as opposed to cab. then came Uber, there were more Uber drivers than taxis, ride prices fell, reliability and security rose
Why don’t disruptive technologies need to perform better than incumbents?
They simply need to perform well enough to appeal to customers of the incumbents (lower price). They come to the market with features not demanded by existing customers, but they improve over time until the innovation can invade est. markets.
Why do big firms fail?
Fail to see disruptive innovations as a threat because they listen to their customers and the markets aren’t attractive at first.
How are big firms left behind?
By the time the new market demonstrates itself, startups have been at it and have the expertise, benefitting from increasing sale and growing customer base. Big firms forced to play catch-up.
Microsoft’s CEO did not think iPhone was going to get any significant market share.
True; but Apple did and became the most profitable and valuable public company in the US. Microsoft focused on software and Windows desktop, server operating systems, Xbox.
How was Intel disrupted?
Due to fast and cheap tech and a shift in demand for something it had not invested in, the firm’s chips that cost a lot and have great margin was disrupted by ARM power. ARM doesn’t manufacture chips itself but licenses designs to rivals who tweak them. Attractive to smartphones because more power-efficient than Intel’s chips for PCs, laptops, and servers.
How did ARM chips grow?
Apple used ARM tech in its smartphones, laptop and desktop chips, beginning with the M1.
________ left WebEx Cisco division to eventually create ______—the multibillion-dollar firm that would win video calling in the midst of the pandemic.
Eric Yuan; Zoom
While no crystal ball exists to identify disruptive technologies with perfect accuracy, firms that have external conversations with innovative external groups, as well as improving internal communication with technologies can help.
True; Having conversations with those outside the firm working on the experimental edge of advancements is key. Top-tier scientific researchers and venture capitalists can be particularly good sources for information on new trends. Increasing conversations across product groups and between managers and technologists can also be helpful. Many disruptive firms were started by former employees of the disrupted giants. Employees who feel so passionate about a trajectory for future technology that they are willing to leave the firm and risk it all on a new endeavor may be a signal that a development is worth paying attention to.
Facebook requires employees to leave their teams for new assignments at least once every eighteen months.
True; It’s common for many firms to regularly rotate staff (both management and engineering) to improve idea sharing and innovation.
If you want to have conversations with colleagues, clients, and potential employers, you’ll need to speak their language and understand their vocabulary. One term you may hear is ____________________. The phrase is often used to refer to disruptive technology theory and it is also the name of Prof. Clayton Christensen’s book (Christensen is considered the father of Disruptive Innovation theory).
Innovator’s Dilemma
As disruptive technologies emerge, by definition they will eventually take market share away from a firm’s higher-margin incumbent offerings. The result of the transition could
Lower profits, incur losses, contract corporate revenues;Trying to nurture new technology in-house is also a challenge. Top tech talent will often never be assigned to experimental products, or they may be pulled off emerging efforts to work on the firm’s most lucrative offerings if the next version of a major product is delayed or in need of staff. And as disruptive technologies emerge, by definition they will eventually take market share away from a firm’s higher-margin incumbent offerings.
The packaged software company, Intuit appears to be successfully navigating the rough waters of disruptive innovation. They have done through acquisition of competition and developing cloud-based products.
True; One firm that appears to be successfully navigating the rough waters of disruptive innovation is Intuit. The highly profitable, multibillion-dollar firm is the leader in several packaged software categories, including personal finance (Quicken), small business (QuickBooks), and tax prep (TurboTax) software. Acquisition of rivals is one way Intuit has dealt with disruption. But the future is in the cloud. The firm’s TurboTax now has cloud-based offerings and a free SnapTax app—take a photo of your W2 and the app fills out your taxes for you automatically.
Intuit has shifted from the disruption caused by the emergence of cloud computing by shifting to markets for packaged software.
False; Intuit has been a leader in several packaged software categories, including personal finance (Quicken), small business (QuickBooks), and tax prep (TurboTax) software, but has effectively shifted to cloud-based offerings, some of which are initially free. So-called connected services that either run in the cloud or enhance existing offerings make up over 65 percent of the firm’s revenues.
