Quote from F. Kotler’s book “Chaotica”
The term “disruptive technology” was introduced by Clayton M. Christensen, a professor at Harvard Business School, in his 1995 article “Disruptive Technologies: Catching the Wave” published in the Harvard Business Review. He later elaborated on this concept in his book “The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail.”
In his later book, The Innovator’s Solution: Creating and Sustaining Successful Growth, Christensen ultimately replaced the term “disruptive technology” with a new concept he called “disruptive innovation,” because he recognized that few technologies are truly revolutionary in essence. The strategy or business model enabled by a new technology creates a revolutionary impact. The concept of disruptive technology continues a long-standing tradition of identifying radical technological changes. The great Harvard economist Joseph Schumpeter conducted research on how radical innovations lead to “creative destruction” and are essential for a dynamic economy.
Revolutionary technology, or revolutionary innovation, is a term that describes a technological innovation, product, or service that employs a “revolutionary” strategy rather than an “evolutionary” or “stable” strategy, overturning existing dominant technologies or products and disrupting the status quo in the market. It has been systematically demonstrated to the scientific community that the most revolutionary innovations are in the minority compared to evolutionary innovations, which merely enhance the consumer properties of existing products. True examples of revolutionary innovations are rare.
The key aspect of revolutionary innovation is that it creates a dramatic change in the market, causing existing technology to become obsolete in a short period of time. Such an event generates significant turbulence for all participants, both from existing and emerging technologies. Some technologies that we can consider revolutionary and that have emerged in the last five years include cloud computing, ubiquitous computing, contextual computing, virtualization, distributed computing, augmented reality, social networks, and social software. Revolutionary technology has the potential to be the main “game changer” that can create chaos across the entire industry, especially for victim companies that have ignored the turbulence swirling around them until it was too late (see Figure 1-4).
Christensen distinguishes between a “low-end disruption,” which pertains to consumers who do not require the full performance valued by high-end customers, and a “new market disruption,” which addresses consumers whose needs were previously unmet or inadequately met.
Christensen argues that a “low-end revolution” occurs when consumer spending on a new product surpasses spending on an improved old one. Therefore, at some point, the product’s features exceed the needs of certain consumer segments. Additionally, a revolutionary technology may enter the market and offer a product that does not match the characteristics of the old product but exceeds the requirements of specific segments, thereby establishing itself in the market.
Once the disruptor establishes itself in this consumer segment, it will continue to develop the technology with the aim of increasing profits. Typically, the victim companies do not take significant actions to protect their positions in the less profitable segment and focus on improving quality to attract more appealing and profitable customers. Ultimately, the victim is pushed into increasingly narrow markets until the disruptive technology finally begins to meet the demands of the most profitable segment, ultimately driving the victim out of the market entirely.
For example, early desktop publishing systems could not match the capabilities or quality of high-end professional systems. However, the first desktop publishing systems lowered the entry cost to the publishing market, and the economic effect of scale ultimately allowed them to match and then surpass the functionality of older, specialized publishing systems. As printers, especially laser printers, improved over time in both speed and quality, they became increasingly competitive.
According to Christensen, a “new market revolution” occurs when a product meets the needs of a new or emerging market segment that is not served by existing companies in the industry. For example, when the Linux operating system was first introduced, it performed much worse than other operating systems like Unix and Windows NT. However, Linux was much cheaper in comparison. After many years of ongoing improvements, Linux is now installed on 84.6 percent of the world’s 500 fastest supercomputers.
In battles involving revolutionary technology, revolutionaries typically outperform victims who are using older technologies in the industry. The first reason is the asymmetry in financial effects. The revolutionary can see vast opportunities, while the victim perceives much less. Initially, the victim may even find the emergence of the new technology somewhat beneficial, especially if the revolutionary technology takes on most of the unprofitable and unpleasant customers, allowing the victim to focus on a more profitable market. As the victim’s profit margins increase, they may even feel tempted to ignore the encroaching competition. Meanwhile, the revolutionary quietly continues to innovate their technology until it reaches a level sufficient to capture the victim’s core market.
Another reason why revolutionaries often win over victims is the fact that larger, successful operating companies are organized into product divisions, whose managers closely monitor the offerings of their well-known competitors to ensure that their own products are adequately represented in the market. This inherent weakness of many operating companies is exacerbated by the tradition of building organizational silos within companies. Not only does each product division operate in its own silo, but new silos are also created within each product division. These silos do not communicate: R&D does not sufficiently interact with design, production, marketing, sales, and business development. This silo effect has dire consequences and causes the company to behave in the market like a large, unwieldy ship instead of being a nimble speedboat. It is vital to organize collaboration between divisions. Revolutionaries, however, do not care about products as much as they care about the consumers who do not use the victims’ products. Revolutionaries want to see what needs exist among these consumers that have not yet been adequately met.
When attacked by revolutionaries, the first reaction of leaders in established tech companies is usually to protect their well-paid positions and their worn-out, comfortable business models. The typical response is: Close your eyes, and maybe it will pass. Sometimes it does pass, but usually it doesn’t, and chaos eventually takes hold: a battle for layoffs, disputes and debates, doing everything possible to prevent consumers from adopting new technology. Victim companies typically do everything in their power to delay the day of technological reckoning because their biggest problem is that they have to bear the burden of supporting older technology and the business model built around it, all while trying to experiment and transition to new structures and business models. Meanwhile, technological revolutionaries do not carry this double burden of costs. For revolutionaries, everything is light and relatively inexpensive. And while the victims struggle to make sense of the chaos they are deeply entrenched in, the revolutionaries relentlessly push forward, riding the waves and winds of turbulence blowing at their backs.
Today, for example, Microsoft can be completely comfortable knowing that Excel has the most extensive functionality among other spreadsheet programs on the market. On the other hand, a potential disruptor like Google, with its suite of office programs Google Docs, which includes the free spreadsheet program Google Sheets, may attract consumers who are frustrated with transferring files from an old computer to a new one, or those Excel users who dread having to pay Microsoft even more money to get the latest version of Excel. If the path that the disruptor must take is traversed again, then Microsoft’s current dominant position in the spreadsheet market could be lost to Google’s free alternative.