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When do Low-End Innovations becomeDisruptive Innovations?Jeffrey FunkAssociate ProfessorDivision of Engineering & Technolo...
Why is this Issue Important? (1)• Some people assume that low-end innovationsnaturally become disruptive innovations• This...
Why is this Issue Important? (2)• Calling a disruptive innovation a low-end innovation– Focuses students’ attention on the...
Transitive Property: If a=b and b=c, then a=ca:low-endinnovationc: the following phenomenonb:disruptiveinnovationIf we def...
Why is this Issue Important? (3)• Because my students had learned thesethings ……,– 1/3 of my students made the followingar...
One Final Example: Case of “Double Disruption• Is a combination two-low end innovations evenbetter than one?• For example,...
Don’t be Fooled by Hype• Many people offer simple models thatsound good• But these simple models don’t accuratelyrepresent...
Outline• Conventional Wisdom on Drivers of Improvements,i.e., Technological Change• What drives improvements in cost andpe...
Conventional Wisdom on Drivers of Improvements• Costs fall as cumulative production grows in learningor experience curve a...
Problems with Learning Curve• Can’t use learning curve until production has begun• Learning curve assumes all components a...
Outline• Conventional Wisdom on Drivers of Improvements,i.e., Technological Change• What drives improvements in cost andpe...
What drives improvements?• Some technologies have the potential for largerimprovements in cost and performance than do oth...
Luminosity per watt (lm/W) of lights anddisplaysOrganicTransistors
TechnologyDomainSub-TechnologyDimensionsof measureDifferent Classes of MaterialsEnergyTrans-formationLighting Light intens...
New Processes are Often Key Part ofCreating New Materials• New materials for electronics usually involve newprocesses– Sem...
Incremental Improvements to theseprocesses are also important• Learning curve emphasizes small changesto the processes, wh...
Outline• Conventional Wisdom on Drivers of Improvements,i.e., Technological Change• What drives improvements in cost andpe...
Geometric Scaling (1)• Definition– relationship between the technology’s core concepts (Dosi, 1982;Henderson and Clark, 19...
Geometric Scaling (2)• For technologies that benefit from smaller scale– the benefits can be particularly large, since• co...
Figure 2. Declining Feature Size0.0010.010.11101001960 1965 1970 1975 1980 1985 1990 1995 2000YearMicrometers(Microns)Gate...
ArealRecordingDensity ofHard DiskPlatter
Example of Benefits from Larger Scale: EnginesDiameter of cylinder (D)Cost of cylinderor piston is functionof cylinder’s s...
1101001000100001 10 100 1000 10000Output (Scale)PriceperOutputPrice Per Output (Horsepower)Marine EngineLargest is 90,000 HP
1101001000100000.1 1 10 100 1000 10000RelativePriceperOutputRelative Price Per Output Falls as Scale IncreasesSteam Engine...
Outline• Conventional Wisdom on Drivers of Improvements,i.e., Technological Change• What drives improvements in cost andpe...
Improvements in Computations Per Second (Koomey et al, 2011)Why do computersexperienceimprovements inprocessingspeed?Are t...
Components and Systems (1)• Some components have a large impact onperformance of a system• Components that benefit from sc...
Components and Systems (2)• Improvements in engines impacted on– Locomotives, ships– Automobiles, aircraft• How about sola...
Components and Systems (3)• Improvements in ICs are still driving theemergence of new electronic systems such as newforms ...
Components and Systems (4)• Similar things are happening with bio-electronics,MEMS, nanotechnology: they are enabling newf...
For these and other Technologies• What is the minimum level of performance in acomponent (such as an IC) that might enable...
Outline• Conventional Wisdom on Drivers of Improvements,i.e., Technological Change• What drives improvements in cost andpe...
All the Disruptive Innovations in Christensen’s 1997Book Exhibit Geometric ScalingSystem Component GeometricScalingCompute...
Geometric Scaling in Disruptive Innovationsfrom Christensen’s Other Publications• “The Great Disruption,” article in Forei...
When do Low-End Innovations becomeDisruptive Innovations? (1)• When the needs in market segments are similar– Ron Adner (2...
When do … Disruptive Innovations? (2)• When improvements in a component have bigger impacton a low than high-end product• ...
When do ….. Disruptive Innovations? (3)• When improvements in components impact on adimension of performance for which tec...
Example of when they do not• Improvements in ICs, LCDs and other components enable– improvements in applications and user ...
Summary (1)• Technologies that experience large improvements inperformance and cost are more likely to form the basis forn...
Summary (2)• We need to help students understand when a newtechnology might offer a superior value proposition in orderfor...
When do Low End Innovations Become Disruptive Innovations?
When do Low End Innovations Become Disruptive Innovations?
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When do Low End Innovations Become Disruptive Innovations?

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Although it is easy to create low-end innovations, it is difficult to understand when low-end innovations might become disruptive innovations. These slides describe the conditions under which low-end innovations have a high chance of becoming disruptive innovations.

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  • Transcript of "When do Low End Innovations Become Disruptive Innovations?"

    1. 1. When do Low-End Innovations becomeDisruptive Innovations?Jeffrey FunkAssociate ProfessorDivision of Engineering & Technology ManagementNational University of SingaporeMail: etmfjl@nus.edu.sgThese slides summarize ideas that are described in What Drives Exponential Improvements, California ManagementReview, Spring 2013. Technology Change and the Rise of New Industries, Stanford University Press, and “WhatDrives Improvements in Performance and Cost,” also on my slide share account
    2. 2. Why is this Issue Important? (1)• Some people assume that low-end innovationsnaturally become disruptive innovations• This assumption grows from problems withconventional wisdom on technology change (morelater)– costs fall as cumulative production increases and as firmsintroduce equipment and organize it into flow lines(Utterback, 1994)– Christensen: emergence of a niche product leads toinvestment and thus improvements in both performanceand costs• This assumption becomes more common when– disruptive innovations are called “low-end innovations”– radical innovations are defined as “high-end innovations”
    3. 3. Why is this Issue Important? (2)• Calling a disruptive innovation a low-end innovation– Focuses students’ attention on the characteristics of initial productand market and not on the• degree of similarity between markets (Adner, SMJ, 2002)• technology’s potential for improvements– For example, some argue the keys to creating disruptiveinnovations are doing such things as• miniaturizing products and• reducing the number of features• Calling a radical innovation a high-end innovation– Makes it hard for students to understand the importance of theconcept that forms the basis for new technologies (Henderson andClark, 1990) and thus the• technology’s potential for improvements– For example, low-end phones do not have potential for diffusionunless they are based on a new concept that provides potential foreventual superiority in multiple segments
    4. 4. Transitive Property: If a=b and b=c, then a=ca:low-endinnovationc: the following phenomenonb:disruptiveinnovationIf we define disruptive innovations (b) as low-end innovations (a)and the phenomenon of disruptive innovations is represented bythe above figure (c), then low-end innovations automaticallyreplace the mainstream technology as shown in (c)
    5. 5. Why is this Issue Important? (3)• Because my students had learned thesethings ……,– 1/3 of my students made the followingargument: “technology A is inferior to theexisting technology and thus is a disruptiveinnovation and will replace the existingtechnology”– and seemed to believe that no further analysisneeds to be done
    6. 6. One Final Example: Case of “Double Disruption• Is a combination two-low end innovations evenbetter than one?• For example, should producers of solar cellsfocus on– ones with poor efficiency (e.g., ones based onphotosensitive dyes) because they are inferior to high-efficiency ones– users of low-end electrical devices such as electricbicycles (they have lower performance than doautomobiles)?– By selling low-end solar cells to users of electricbicycles, producers of solar cells will somehow benefitfrom a “double disruption” when the electric bicyclesnaturally replace automobiles and the low efficiencycells naturally replace the high efficiency ones
    7. 7. Don’t be Fooled by Hype• Many people offer simple models thatsound good• But these simple models don’t accuratelyrepresent the phenomenon• There is a better way: Let’s understandwhen low-end innovations might becomedisruptive innovations by understandingwhat drives improvements in cost andperformance
    8. 8. Outline• Conventional Wisdom on Drivers of Improvements,i.e., Technological Change• What drives improvements in cost andperformance?– Creating materials to exploit physical phenomena– Geometrical scaling– Some technologies directly experience improvementsthrough the two mechanisms while others indirectlyexperience them through improvements in specific“components”• Implications for Disruptive Innovations• Summary
    9. 9. Conventional Wisdom on Drivers of Improvements• Costs fall as cumulative production grows in learningor experience curve as automated manufacturingequipment is– introduced and organized into flow lines• Implications: stimulating demand will lead to costreductions. This is one reason why manygovernments subsidize the introduction of cleanenergy more than they subsidize R&D spending• Clayton Christensen’s theory of disruptive innovationalso implies that increases in demand will naturallylead to reductions in cost and improvements inperformance
    10. 10. Problems with Learning Curve• Can’t use learning curve until production has begun• Learning curve assumes all components are unique to new product• Learning curve doesn’t help us understand why some technologiesexperience more improvements in cost and performance than doother technologies• An emphasis on cumulative production– focuses analyses on the production of the final product– implies that learning done outside of a factory is either unimportant or isbeing driven by the production of the final product• But many cost reductions or performance improvements are theresult of activities done outside of the factory– advances in technology or science done in laboratories– reductions in scale (e.g., ICs) or increases in scale (e.g., oil tankers)– improvements in complementary technologies such as components whosedemand are being driven by other systems
    11. 11. Outline• Conventional Wisdom on Drivers of Improvements,i.e., Technological Change• What drives improvements in cost andperformance?– Creating materials to exploit physical phenomena– Geometrical scaling– Some technologies directly experience improvementsthrough the two mechanisms while others indirectlyexperience them through improvements in specific“components”• Implications for Disruptive Innovations• Summary
    12. 12. What drives improvements?• Some technologies have the potential for largerimprovements in cost and performance than do othertechnologies. Improvements come from– Creating materials to exploit physical phenomena– Geometrical scaling• When a technology has a strong impact on performanceand cost of higher-level system and the technologyexperiences large (e.g., exponential) improvements inperformance and cost, such a technology can– drive large improvements in cost and performance of system– and lead to or facilitate discontinuities in systems• For students– When might a technology offer a superior value proposition and forwhat customers?
    13. 13. Luminosity per watt (lm/W) of lights anddisplaysOrganicTransistors
    14. 14. TechnologyDomainSub-TechnologyDimensionsof measureDifferent Classes of MaterialsEnergyTrans-formationLighting Light intensityper unit costCandle wax, gas, carbon and tungsten filaments,semiconductor and organic materials for LEDsLEDs Luminosity perWattGroup III-V, IV-IV, and II-VI semiconductorsOrganic LEDs Small molecules, polymers, phosphorescent materialsSolar Cells Power outputper unit costSilicon, Gallium Arsenide, Cadmium Telluride,Cadmium Indium Gallium Selenide, Dye-Sensitized,OrganicEnergystorageBatteries Energy storedper unitvolume, massor costLead acid, Nickel Cadmium, Nickel Metal Hydride,Lithium Polymer, Lithium-ionCapacitors Carbons, polymers, metal oxides, ruthenium oxide, ionicliquidsFlywheels Stone, steel, glass, carbon fibersInformationTrans-formationOrganicTransistorsMobility (cm2/Volt-seconds)Polythiophenes, thiophene oligomers, polymers,hthalocyanines, heteroacenes, tetrathiafulvalenes,perylene diimides naphthalene diimides, acenes, C60LivingOrganismsBiologicaltransformationU.S. cornoutput per areaOpen pollinated, double cross, single cross, biotechGMOMaterials Load Bearing Strength toweight ratioIron, Steel, Composites, Carbon FibersMagnetic Strength Steel/Alnico Alloys, Fine particles, Rare earthsCoercivity Steel/Alnico Alloys, SmCo, PtCo, MaBi, Ferrites,Different Classes of Materials were found for Many Technologies
    15. 15. New Processes are Often Key Part ofCreating New Materials• New materials for electronics usually involve newprocesses– Semiconductor ICs, MEMS, bio-electronic ICs,nanotechnology, lighting, displays, batteries• Radical new processes have also played a role inmore traditional industries– Bessemer process, basic oxygen furnace, andcontinuous casting for steel– Haber-Bosch process for ammonia– Float glass process– Hall–Héroult process for aluminum
    16. 16. Incremental Improvements to theseprocesses are also important• Learning curve emphasizes small changesto the processes, which do play a role inachieving improvements• But small changes to the processes can’texplain exponential improvements inperformance• Without new materials and most importantlynew classes of materials, exponentialimprovements would not be achieved
    17. 17. Outline• Conventional Wisdom on Drivers of Improvements,i.e., Technological Change• What drives improvements in cost andperformance?– Creating materials to exploit physical phenomena– Geometrical scaling: both smaller and larger scale– Some technologies directly experience improvementsthrough the two mechanisms while others indirectlyexperience them through improvements in specific“components”• Implications for Disruptive Innovations• Summary
    18. 18. Geometric Scaling (1)• Definition– relationship between the technology’s core concepts (Dosi, 1982;Henderson and Clark, 1990), physical laws and dimensions(scale), and effectiveness– “scale effects are permanently embedded in geometry andphysical nature of the world in which we live” (Lipsey et al,2005)• Studied by some engineers, but only within their discipline– chemical engineers: chemical plants (many references)– mechanical engineers: engines, tankers, aircraft (fewer references)– electrical engineers: integrated circuits, magnetic and opticalstorage (many)• But few references (and even fewer analyses) by management oreconomic scholars (Nelson and Winter, 1982; Sahal, 1985;Rosenberg, 1994; Freeman and Soete, 1997; Lipsey et al, 2005;Winter, 2008)
    19. 19. Geometric Scaling (2)• For technologies that benefit from smaller scale– the benefits can be particularly large, since• costs of material, equipment, factory, and transportation typically fallover long term as size is reduced• but performance of only some technologies such as ICs and magneticstorage experience increases in performance as size is reduced.• placing more transistors or magnetic or optical storage regions in acertain area can increase speed and functionality and reduce both powerconsumption and size of final product• For technologies that benefit from larger scale– output is roughly proportional to one dimension (e.g., lengthcubed or volume) more than is the costs (e.g., length squared orarea) thus causing output to rise faster than do costs, as thescale of technology is increased
    20. 20. Figure 2. Declining Feature Size0.0010.010.11101001960 1965 1970 1975 1980 1985 1990 1995 2000YearMicrometers(Microns)Gate OxideThicknessJunction DepthFeature lengthSource: (ONeil, 2003)
    21. 21. ArealRecordingDensity ofHard DiskPlatter
    22. 22. Example of Benefits from Larger Scale: EnginesDiameter of cylinder (D)Cost of cylinderor piston is functionof cylinder’s surfacearea (πDH)Output of engineis function ofcylinder’svolume (πD2H/4)Result: output risesfaster than costs asdiameter is increasedHeightofcylinder(H)
    23. 23. 1101001000100001 10 100 1000 10000Output (Scale)PriceperOutputPrice Per Output (Horsepower)Marine EngineLargest is 90,000 HP
    24. 24. 1101001000100000.1 1 10 100 1000 10000RelativePriceperOutputRelative Price Per Output Falls as Scale IncreasesSteam Engine (inHP) Maximum scale:1.3 M HPMarine EngineLargest is90,000 HPChemical Plant:1000s of tons of ethyleneper year; much smaller plantsbuiltCommercial aircraftSmallest one had12 passengersOil Tanker:1000s of tonsSmallest was1807 tonsOutput (Scale)LCD Mfg Equip:Largest panel size is16 square metersAluminum(1000s ofamps)Electric PowerPlants (in MW); muchsmaller ones built
    25. 25. Outline• Conventional Wisdom on Drivers of Improvements,i.e., Technological Change• What drives improvements in cost andperformance?– Creating materials to exploit physical phenomena– Geometrical scaling: both smaller and larger scale– Some technologies directly experience improvementsthrough the two mechanisms while others indirectlyexperience them through improvements in specific“components”• Implications for Disruptive Innovations• Summary
    26. 26. Improvements in Computations Per Second (Koomey et al, 2011)Why do computersexperienceimprovements inprocessingspeed?Are these large (orsmall)improvements inprocessingspeed?How many otherproductsexperience suchlargeimprovements?
    27. 27. Components and Systems (1)• Some components have a large impact onperformance of a system• Components that benefit from scaling can– have a large impact on performance and cost of systems,even before system is implemented– lead to changes in relative importance of cost andperformance and between various dimensions ofperformance– lead to discontinuities in systems• These components may have a larger impact onperformance and cost than– novel combinations of components
    28. 28. Components and Systems (2)• Improvements in engines impacted on– Locomotives, ships– Automobiles, aircraft• How about solar cells?• Improvements in ICs impacted on– computers, servers, routers, telecommunication systemsand the Internet– radios, televisions, recording devices, and other consumerelectronics– mobile phones and other handheld devices– controls for many mechanical products• Improvements in ICs led to many discontinuities insystems
    29. 29. Components and Systems (3)• Improvements in ICs are still driving theemergence of new electronic systems such as newforms of– Computers (e.g., tablet computers)– networks of RFID tags, smart dust, and other sensors– Cloud/utility computing– Internet content (e.g., mashups, 3D content, videoconferencing)– human-computer interface (touch, gesture, neural)– Mobile phones– Mobile phone systems (e.g., 4G, 5G, cognitive radio)– Autonomous vehicles– Holographic display systems
    30. 30. Components and Systems (4)• Similar things are happening with bio-electronics,MEMS, nanotechnology: they are enabling newforms of systems to emerge– point-care diagnostic devices– Other forms of sensors and sensor-based systems– Even new forms of mobile phones• Better forms of DNA sequencers and synthesizersare being driven by reductions in scale offeatures. They will impact on higher-level systems
    31. 31. For these and other Technologies• What is the minimum level of performance in acomponent (such as an IC) that might enable anew electronic system to offer a superior valueproposition in for example,– Gesture and neural-based human-computer interfaces?– Cognitive radio for mobile phone systems?– Autonomous vehicles?• When the concepts and principles that form thebasis for a new system are relatively well known,components are often the bottleneck for newsystems– This is the case for many technologies
    32. 32. Outline• Conventional Wisdom on Drivers of Improvements,i.e., Technological Change• What drives improvements in cost andperformance?– Creating materials to exploit physical phenomena– Geometrical scaling: both smaller and larger scale– Some technologies directly experience improvementsthrough the two mechanisms while others indirectlyexperience them through improvements in specific“components”• Implications for Disruptive Innovations• Summary
    33. 33. All the Disruptive Innovations in Christensen’s 1997Book Exhibit Geometric ScalingSystem Component GeometricScalingComputers ICs In componentHard Disk Drives Platter In componentRetail Outlets (&their info systems)ICs (via impact oncomputers)In componentMechanicalExcavatorsHydraulic actuators(has piston, cylinder)In componentElectric Arc Furnace(Mini-mills)Furnace In system
    34. 34. Geometric Scaling in Disruptive Innovationsfrom Christensen’s Other Publications• “The Great Disruption,” article in Foreign Affairs– transistors and ICs in transistor radios and TV– magnetic tape in audio and video recording equipment• The Innovator’s Prescription– advances in medical science and improvements in informationtechnology (IT), of which latter depends on scaling in ICs, enableprecision medicine to be implemented and this precision medicineenables health care to depend more on low-wage nurses (andpatients) than on high-wage doctors– In addition to better computers, this IT also comes in the form ofbetter imaging, molecular medicine, and biochemistry.• Disrupting Class– improvements in information technology also enable morecustomized learning than do existing methods
    35. 35. When do Low-End Innovations becomeDisruptive Innovations? (1)• When the needs in market segments are similar– Ron Adner (2002, Strategic Management Journal) callsthis “preference overlap”– Low-end products are more likely to diffuse acrosssegments when there is high preference overlap acrosssegments• When the technology has high potential forimprovements, as characterized by rapidimprovements through– Creating materials to exploit physical phenomena– Geometrical scaling
    36. 36. When do … Disruptive Innovations? (2)• When improvements in a component have bigger impacton a low than high-end product• Low-end transistor radios and televisions replaced high-end ones because– transistors and ICs were initially more appropriate for low-endradios and televisions– improvements in these transistor and ICs directly improved costand performance of initially low-end radios and televisions.• Low-end magnetic disks replaced magnetic cores anddrums because– improvements in magnetic recording density impacted more ontheir performance and costs than on those of magnetic cores anddrums.• Improvements in Internet have much larger impact onperformance of SaaS, which has started with low-endusers, than on performance of packaged software– thus these improvements may cause SaaS to replace packagedsoftware
    37. 37. When do ….. Disruptive Innovations? (3)• When improvements in components impact on adimension of performance for which technology overshootmay occur• Increases in recording density of hard disk platters– caused hard disk capacity to overshoot needs of most users– this facilitated the replacement of large with smaller hard disks• Improvements in magnetic recording density of tape– caused high-end systems to overshoot needs of most users– this facilitated their replacement with low-end systems such asVHS• Increases in number of transistors per chip caused– mainframe computers to overshoot the needs of most users interms of processing speeds– this facilitated their partial replacement with mini- and personalcomputers
    38. 38. Example of when they do not• Improvements in ICs, LCDs and other components enable– improvements in applications and user interface of high-end smartphones and thus drive their diffusion– Unlikely that low-end mobile phone (unless it is based oncompletely new concept such as wireless LAN) will form basis of aproduct that displaces current mobile phones• Key point is not whether mobile phone is low-end or not, itis whether– mobile phone is based on technology with more potential forimprovements than existing technology• This example reinforces why it is dangerous to call adisruptive innovation a low-end innovation (and a radicalinnovation a high-end innovation)– If students hear about high- and low-end and not changes inconcepts and architectures– they will not understand that key question is whether the low-endinnovation involves a change in concept or architecture that willenable it to have large potential for improvements
    39. 39. Summary (1)• Technologies that experience large improvements inperformance and cost are more likely to form the basis fornew industries than are other technologies• The following concepts provide a better understanding ofwhy and how improvements occurred than does thelearning curve, i.e., increases in cumulative production– Creating materials to exploit physical phenomena– Geometrical scaling• We (including students) can use these concepts to thinkabout– when a new technology might offer a superior value proposition– whether that technology is appropriate for low-end or high-endmarket– whether a low-end innovation will become a disruptive innovation
    40. 40. Summary (2)• We need to help students understand when a newtechnology might offer a superior value proposition in orderfor them to– create new businesses– understand the limitations of proposed solutions to global problems– come up with better solutions• For new technologies, students need to assess– Current advantages and disadvantages– Sources and rates of improvement– Do we expect these improvements to accelerate or de-accelerate?• Let’s give students the necessary tools for them to– design their own future– including find disruptive technologies
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