Disruptive Technologies and Small New Markets
HBR, Disruptive Technologies: Catching the Wave by Joseph L. Bower and Clayton M. Christensen, explains why historically companies prefer investing on sustaining technologies versus disruptive technologies, which can make their business fail in times that markets are constantly changing, and offers alternatives to companies to avoid this scenario of failure. This article from the Harvard Business Review was written back in 1995, and even though you may think that companies would have learned from past mistakes, currently in 2009, they still making the same mistake. But why?
Earlier in the article the authors explained that one of the main reasons of this failure is because companies stay close to their customers. They usually ask their customers if they want this new technology to find out the size of the market and if this new product will bring profits to the company. But why is this wrong, after all according to late strategies in business, they should be listening to their customers? For example, according to The Cluetrain Manifesto by Levine, Locke, Searls and Winberger, companies need to engage in old market models in which customers talk about a product and offer their opinion about it, and most importantly, companies will listen. Why is this model of listening to the customers not working for established businesses dealing with disruptive technologies?
One of the main reasons is that most of their mainstream customers only want a product with high performance and not a new product, which only appeals to small or emerging markets. However, later when the disruptive technologies become successful in these new markets, then those mainstream customers want that technology that they initially rejected. This brings me back to The Cluetrain Manifesto in which it states that the power of word of mouth is very powerful and that is why companies need to listen to the customers. In the case of establish companies dealing with disruptive technologies, they have only listened to mainstream customers. But why?
Some of the reasons besides bureaucracy, arrogance, poor planning and short-term investments are the company’s revenue and cost structure, “Generally disruptive technologies look financially unattractive.” However, there are alternatives that these companies can use like going down-market and accept lower profit margins from the emerging markets or after these companies have spotted this new disruptive technology, they need to create an organization within the company that is completely independent from the mainstream business, so that they can build up the market. One good example of failure as a result of ignoring a disruptive technology with a small market was the American automobile industry. They decided to ignore the green technology perhaps because it was financially unattractive, after all the market for cars with green technology was very small ten years ago, but as we learned more about global warming and green technology this market grew. In this case the American companies paid more attention to the sustaining technology and ignore the new disruptive technology. The mistake they made was not to pay any attention to the small new market.
Currently, there are many potential small markets out there and established companies need to pay more attention to them. They need to think out of the box, they need to realize that just because they won’t make huge profits at first it doesn’t mean that later their profits won’t increase, they need to remember that any new technology once is tried and successful in a small market then the power of the word of mouth will take care of the mainstream market. So far it has been proven to be the case.
Entry filed under: Reflection.