Managing disruptive technological change
Chapter 10 of The Innovator’s Dilemma provides a case study of how to take advantage of disruptive change. I thought the chapter was particularly valuable, so I’m summarizing it here.
The case study in the chapter deals with the electric car, and how to structure a product such that it could take advantage of the disruptive technology and eventually overtake the mainstream market.
Step 1: Determine if the technology is disruptive
Note that the hybrid car concept has changed the electric car from a disruptive technology to a sustaining one.
However, were that not the case, then I would say that a laptop battery powered bike assisting electric motor for use in the city would be an ideal way to break into the electric car market, I’ll explore the reasons why in another post.
- Graph the trajectory of the performance improvement demanded by the market with compared to the trajectory of the performance improvement of the technology. In the case of the electric car, the market demands only mild performance improvement in speed and driving ranges. The technological performance improvement in battery technology is happening at a much greater pace.
- Important: ”To measure market needs, I would watch carefully what customers do, not simply listen to what they say.”
- Make sure the technology is not a sustaining technology. That is, it does not and cannot currently meet the needs of the mainstream market. In the case of the electric car, the cruising range and charging time make it fundamentally unmarketable to the mainstream.
Step 2: Determine where to market the disruptive technology
- Do not try to market it to the existing, mainstream market. You will surely fail.
- Do not leave the technology in the laboratory until the technology is ready for the existing market. History has found enormous value in learning from having the technology in the market and getting a disruptive technology to market first..
- It is often the case, the same attributes that make technologies a poor fit for mainstream markets are seen as positives in new markets. In the electric car example, for instance, can a limited range be seen as a positive in a new market?
- Important: ”No one can learn from market research what the early market(s) for electric vehicles will be.”
- Plan to learn, rather than to succeed. ”Plan to be wrong and to learn what is right as fast as possible.” Do not blow your nest egg on an “all-or-nothing first-time bet.”
Step 3: Determine a strategy
- “Without a market, there is no obvious or reliable source of customer input; without a product that addresses customers’ needs, there can be no market.” So prepare to experiment.
- Important: ”the basis of competition will change over a product’s life cycle.” When one feature of the product is “good enough,” people will begin to care about a different feature. For example, when acceleration of the electric car is “good enough,” people will begin to care about range. Only when range is good enough will people care about other attributes, like fuel economy.
- Focus on attributes like simplicity, reliability, and convenience. Focus on the low-margin, low end of the market, rather than the power user.
- Since the market is unknown, and can change, “design a product in which feature, function, and styling changes can be made quickly and at low cost.”
- Hit a low price point. Not necessarily price per feature, but low unit price. For example, don’t worry about a lower price per mile of range than the current automobile. Make your product a low-cost investment for potential people in the market to try out.
- Do not count on technological breakthroughs, or even feel the need to create your own technology. Pull together components of proven technologies into a new product and market. For example, in the electric car, count on laptop batteries, rather than creating a new battery technology.
- Do not count on an existing distribution channel (especially if it involves salespeople) to sell the product. The disruptive technology will be lower margin, hence lower commission and will get less focus than it deserves from existing channels. For example, do not try to sell your electric car through an existing auto franchise.
- Create an organization small enough to be excited about a small market. You’re not going to get to the big wins for a long-time, and the organization should be small enough to be happy about the small ones. Selling $10 million dollars worth of product is nothing to an automobile manufacture, but it’s a huge amount of revenue for a 100-person company.