The Technology Strategy team in PPB was formed in November 2017 and has since worked on a strategic vision for technologies on the horizon, or “2021 vision”. Our team’s contention is simple: the history of emerging technology, particularly that which is characterised as disruptive, means it always warrants a keen eye.
Often waiting for maturity is a more cost-effective approach to using something which another entity will do the groundwork on. The danger, however, lies in how pronounced a disruptive effect someone else could have with that technology in the meantime.
The History of Disruptive Technology
The term “disruptive technology” as we know it now was coined in Bower and Christensen’s 1995 article in the Harvard Business Review titled Disruptive Technologies: Catching the Wave. A disruptive technology is one which “creates a new market by providing a different set of values, which ultimately, and unexpectedly, overtakes an existing market”. The narrative of that work was that disruptive technology works on the premise the disrupter begins with an inferior offering which erodes less profitable segments of the customer base. Clayton Christensen later warned incumbents in his book The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail to recognise the hallmarks of industry transformation by the picking off of those low-end customers.
The question which we must ask ourselves as an organisation which wants to stop itself from being technologically disrupted is simple; how might we get caught out by such an occurrence? Bower and Christensen described it succinctly in their 1995 piece:
“[The] fundamental reason lies at the heart of the paradox: leading companies succumb to one of the most popular, and valuable, management dogmas. They stay close to their customers.”¹
This invokes a memory of Henry Ford’s most famous adage: “If I had asked people what they wanted, they would have said faster horses.” It’s a juxtaposition to what we know about when it comes to good practice around addressing customer needs, something which Bower and Christensen acknowledged themselves:
“After all, meeting the needs of established customers and fending off competitors takes all the resources a company has, and then some. In well-managed companies, the processes used to identify customers’ needs, forecast technological trends, assess profitability, allocate resources across competing proposals for investment, and take new products to market are focused—for all the right reasons—on current customers and markets. These processes are designed to weed out proposed products and technologies that do not address customers’ needs.”¹
The issue is simple: the correct approach to take when it comes to satisfying customers’ needs is one that should discard those technologies which have no immediate value. It would be flawed to devote substantial resources to technology on the distant horizon, with no immediate discernible value, given the nature of competition. Disruptive technologies don’t catch on with mainstream customers until quality firstly catches up to their standards and thereafter redefines them.
PlayStation & The Pinball Machine: A Shot Across The Bow
Much of the narrative around where disruptive technologies appear makes them sound incredibly difficult to identify. They seemingly come from so radical a place in the left-field, you’re blindsided while focusing too much on what puts food on the table. The reality is that a technology will develop tangentially to the market it will ultimately affect, in many cases not appearing until the last moment, but not to such an extent that everybody was unaware of it.
The history of the pinball machine fits in well with that narrative. What was a thriving industry imploded overnight with the full realisation of home gaming but over 20 years after the first commercial home video game console, the Magnavox Odyssey, in 1972.
- Early arcade video games were seen a compliment to the pinball machine with the likes of Space Invaders, Pac-Man, Asteroids and the cohort of other simple coin-operated classics brought people to arcades in their droves.
- Pinball machine sales hit an all-time high in 1993 with over 130,000 units sold.
- In 1994, Sony released PlayStation, a home gaming console which offered superior play than the arcade consoles at a reasonable price.
- Where people had been offered an expensive console before with a limited offering of games, it played out as an overly expensive and poor substitute to the sociable and broad-ranged arcade. Now there were a range of games as good if not better than arcades, which players could play again ad infinitum at no additional cost, and the nickel-per-play model of the arcades suddenly carried the strain of being the inferior economic offering.
- Pinball sales imploded as arcades closed in rapid succession and within a handful of years all but one of the major pinball manufacturers had gone out of business.
The PlayStation had beaten the pinball machine across:
- Price – the cost now being sufficiently competitive relative to the offering
- Innovation – games likes Tekken, Doom and Tomb Raider bettered the arcade’s offering
- Proposition – all from the comfort of one’s home
Disruption happened rapidly with no warning signs that home consoles were even competing with arcade machines. The customers who were initially eroded, those who could afford to spend a comparative fortune on those expensive, early consoles which were in an entirely different spectrum to arcades, fit in well with the description of disruption by Christensen.
Big Bang Disruption
Now 18 years later, Christensen’s work was beginning to show its age. The rate of adoption of goods and services was accelerating rapidly. While the dishwasher took 80 years from invention for Americans to adopt en masse, the consumer internet became commonplace in less than a decade. It was in fact that same commercial internet which was accelerating the adoption; lifecycles no longer met tail-to-tail and whole markets were being attacked overnight.
Uber, founded in 2009 as UberCab, launched in San Francisco in 2011 and disrupted the transportation supply chain at every level. In much the same way as the PlayStation, Uber won out by virtue of a superior offering on convenience and pricing. It went from early adopters in its beta, to the entirety of the market in two jumps which defied Everett Roger’s market segments for adoption. Then think Netflix to DVD sales and rental. Think Spotify to the CD and music purchases. Think Amazon to the bookstore. If the games console was a disruptive technology, then the PlayStation was a “big bang” innovation – a seminal technological use that razed an industry. And now it was becoming a more frequent occurrence because the means of distribution online had accelerated this once more.
“Big-Bang Disruption” was the term which Larry Downes and Paul Nunes used in an article by the same name in the Harvard Business Review in 2013. Big-Bang Disruption happens at such an accelerated pace, by being manufactured and distributed through online channels, conventional strategies fail and whole industries collapse.
“But perhaps the biggest challenge to incumbents is that big-bang innovations come out of left field, combining existing technologies that don’t even seem related to your offerings to achieve a dramatically better value proposition. Big-bang disrupters may not even see you as competition. They don’t share your approach to solving customer needs. And they’re not sizing up your product line and figuring out ways to offer slightly better price or performance with hopes of gaining a short-term advantage. Usually, they’re just tossing something shiny in the direction of your customers, hoping to attract them to a business that’s completely different from yours.²
The hallmarks of these disrupters are:
- Unencumbered development: hacked together, minimum viable products launched directly into the market
- Unconstrained growth: unlike the 5 sections we expect to see in Roger’s model
- Undisciplined strategy: with no alignment to any of Porter’s strategic goals of operational excellence, product leadership or customer intimacy but often winning in all 3
All those traits make it extremely difficult for an incumbent to survive a disruption. A reasonable approach is continuously trying to disrupt oneself before you become disrupted.
For us as a corporate group which derives our revenue mostly through online channels, we are potentially at the mercy of rapid technological disruptions. Skunk Works was the official pseudonym for Lockheed’s Advanced Development Programs which famously delivered the P-80 Shooting Star just 143 days from the start of the design process to when production models were flying during World War II. The lexicon of technological innovation still includes skunkworks as a descriptor for a small group focused on radical projects – Facebook’s Building 8 is their hub for hardware development and has been referred to as such. Unfortunately, we don’t carry anything as interesting a title. We as a team do, however, have a remit to appraise and test the viability of emerging technologies. From this point on, we’ll look to update this blog semi-frequently with insights from our world.
Sources of the quotations and further reading:
- Joseph L. Bower and Clayton M. Christensen (1995) Disruptive Technologies: Catching the Wave: https://hbr.org/2013/03/big-bang-disruption
- Larry Downes and Paul Nunes (2013) Big Bang Disruption: https://hbr.org/1995/01/disruptive-technologies-catching-the-wave
- Clayton M. Christensen (1997) The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail, Harvard Business Review Press