1. Disruptive technologies: prediction or recommendation?
Stephen J. Stose
July 2008
Background
Crossbows and longbows enable precise shooting and hence are an effective weapon, but
only when employed by trained expert users. When the musket was invented, however, it
provided an easy to learn substitute for the unskilled everyman, but with much less
precision and effectiveness. This made almost anyone a soldier, and over time, as this
weapon’s demand allowed the innovation of stronger qualities, it obliterated even the
expert’s need for a crossbow to be an effective soldier.
A similar phenomenon was witnessed with the introduction of desktop copiers in the
1980’s. Their introduction meant that businesses no longer had to outsource their copying
costs to copy centers, nor did individuals have to wait in line at one of these centers.
In a provocative 1996 articlei, Clayton M. Christensen and Joseph Bower coined the term
“disruptive technology” to describe this process. Low-end disruption occurs when a
particular product or service overshoots the need of the ordinary mainstream user (e.g.,
the crossbow). When a similar, lower-cost replacement product is developed (e.g., the
musket) to fill the need of these “low-end” users with lower performance needs, it gains a
foothold in the market. At first, this company is satisfied to serve these less profitable
customers, but over time it begins to innovate and improve its profit margin, and little by
little begins to enter specialty markets. As this is occurring, the incumbent company will
do little to move down-market, but is squeezed into ever more profitable sectors of high-
end users, until eventually driven out by the more dominant disrupter that now is able to
compete in all sectors with better prices.

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The theory has been extensively praised in the business press, and Christensen has been
elevated to the status of “guru” for his work in this areaii. His work is indeed of an
uncommon quality for the scholarly study of business administration, and we praise it.
However, while explaining in more detail some of its theoretical implications, we wish to
highlight some important issues that qualify some of the rather exaggerated pretensions to
the theory’s validity and predictive capacity, as well as its implications for business
incumbents. Specifically, we will address three assertions:
1. Disruptive technology fails as a theory, but succeeds in making strategic
recommendations.
2. Potential markets may be the key to forecasting disruptive technology.
3. Disruptive technology is distinct from disruptive business models.
These assertions support our larger goal of addressing the need for informational
structures that
Disruptive technology fails as a theory, but succeeds in making strategic
recommendations.
The theory’s beauty lies in its unintuitive implications for strategic decision making in
the planning of sustained technological growth. Concentrating on a profitable niche that
continually demands higher performance may indeed sustain the technology and allow
great innovations to emerge from its success. Nevertheless, such specialization begins to
ignore the less stringent performance demands of the mainstream. “Products based on
disruptive technology are typically cheaper, simpler, smaller, and, frequently, more
convenient to useiii.” Thus, traditional “good management practices” that make the
company competitive and extract the most value from a company’s assets are the very
factor that destroys the company.

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Managers may well heed these words when making strategic planning decisions. A
commonly cited disruptive technology is the bare bones terminal that serves only the
needs of Internet and basic spreadsheet users, and is backed up through a centralized
server. Some analysts project a 10-40% savings with the use of such machines in the
workplace, as such machines require less maintenance, are refreshed less often, and are
often more secureiv. The technology for technology’s sake mentality may keep managers
from making the move, however; the belief that technology equals automatic value is
deeply entrenched in the American mind. In Japan, on the other hand, where performance
instead of capital budgeting serves as the benchmark, such machines (actually just older
terminals leveraged) play a part in many successful firms. There, performance on the
market drives management strategy, whereas here many managers do not question the
assumption that cutting-edge technology is the smartest and cheapest choicev.
Additionally, Christensen argues that his theory can help managers predict which
technologies will prove disruptive to their current product line. In the case of these
“dumb machines,” it may be obvious which technology is going to be disruptive. Many
argue, however, that disruptive technologies can only be described after the fact. The
main criticism his idea has undergone is that it sampled the very success stories it meant
to explain. Hindsight is 20/20, but can managers predict ex ante based on the current
emerging technologies what the market will demand in terms of performance variables,
or does this occur merely by chancevi?
We argue that successful emergent technologies that disrupt the market from below
indeed can be observed, but only once they have caught the attention of observers.
Historical extrapolation of earlier trends gives little insight into future demands. Demand
is created by the very success of sustaining technologies, but Christensen’s framework
provides no convincing way of allowing managers to predict when and if it will occur
and to which sector.
There are ways for incumbents facing technological disruption not to fail

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And what about the incumbents that do succeed? Does innovation ever originate from the
same industry leaders of that sector? To this effect, some have garnered evidence that
directly contradict Christensen’s claim that companies facing disruptive technologies
ultimately fail. After reviewing some of the negative examples, instead of just the one’s
Christensen chose to delineate in support of his theory, this “incumbent’s curse” becomes
obviously overstatedvii. One example is how most major radio manufacturers were
responsible for the incredible breakthroughs in television transmission, and did not fail
because of it.
One principle that has been established is: Firms with prior experience with other market
sectors often surviveviii. For example, Charles Schwab took over E*trade, an entrant
online company with disruptive technology, but had previous experience fighting another
disrupter in Merril Lynch’s discount brokerage threats. Also, Kodak and Fuji survived the
digital camera onslaught, a commonly cited disruptive technology, whereas Polaroid
failed to. Another explanation is that success or failure depends on the degree of
technological shift. Many successful disrupters introduce new technologies that
incumbent competencies cannot adapt to. In other words, they are “competency-
destroying,” whereas surviving incumbents were able to enhance their existing
competencies. This may explain why Polaroid failed to survive. In any case, given that
there is no current theoretical explanation for why some firms adapt and other fail in the
face of technological disruption, little can be advocated in the way of predictive validity
for future forecasting.
Another issue that many analysts point to for such explanation is a closer analysis into the
kinds of disrupters. Some researchers have pointed to a separate kind of disrupters
distinct from technological disrupters: business-model disruptersix. These kinds of
disrupters have been cited with being much less robust against potential incumbents,
insofar as they have little likelihood of becoming the industry standard. Take Internet
banking, Internet brokerage, or budget no-frills airlines. While all of these business-
models have had phenomenal success, as a business model (and not a product or

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technology per se), they are not necessarily superior to the models incumbent companies
already employ.
It may certainly call for a cost-benefit analysis to consider the pros and cons of whether
such a business model might reasonably be created in replacement of the current
processes, or whether a separate unit may be budgeted that incorporates a new business-
model (e.g., the e-commerce model) alongside the current one. In any case, most
business-model adjustments in the face of potential disrupters just do not make much
sense for many businesses, as these business-processes are typically part and parcel of the
value they offer. For instance, many airlines rely on travel agents, something the budget
airlines have bypassed for savings passed to the consumer. As a result, they have
captured at 20% of the market, but may never replace the old way of doing business.
Thus, not all companies facing disruptive innovation fail, indicating the need for much
more precise thinking if the theory is to be externally valid and enable precise
predictions. There are some indicators that allow business leader to do some forecasting,
however. The degree of technical shift may need to be measured as a continuous variable,
instead of categorized. There have been many definitional problems with the term
technological disruption, as it is easily confused with innovation or revolution. Such
precision may clear the air. Additionally, a companies experience with prior shifts has
also been an indication of success. We’d like to discuss one more indicator of
technological disruption: the study of potential untapped markets.
Potential markets may be the key to forecasting disruptive technology
Christensen and Bower (1996) state, "Our conclusion is that a primary reason why such
firms lose their positions of industry leadership when faced with certain types of
technological change … because they listen too carefully to their customers" (p. 198).
While Christensen exaggerates his own position on prediction, here others exaggerate for
him and argue that managers should not be so customer-focused at all. Herein lies the

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double-edged sword for strategic managers: they need to listen to their current customers
and their potential customers. Indeed, Chandy and Tellis (1998), for example, found that
companies with more product innovation often focused more on future customers, instead
of only sustaining their current products by listening exclusively to the ever-narrowing
niche of high-end users. In this sense, they must “cannibalize” their assets to serve the
mainstream needsx.
Instead, disruption occurs due to incumbent’s lack of insight into sacrificing its “good
management practices” and hence dipping into its assets in order to serve the needs of the
lower-end market. Indeed, they often fail to monitor those consumers/businesses that are
not using the product, as they often are to willing to and perhaps restrained on just
pleasing the current users. In other words, strategic planning needs to take into
consideration not only the attributes and metric of the increasing product-consumer
specialization tendencies, but also the negative attributes and metric of the product-
consumer relationship that have changed over the products evolution. Thus, the question
should become not only how should the product evolve for the current users; but what
users are being abandoned and, due to this evolution, what attributes of the product need
be reconsidered to also maintain a strategic advantage to those whose requirements the
initial model no longer satisfy.
This also requires companies to develop insight into more than just a superficial
evaluation of customer needs. Often, sustaining technologies focus on only a subset of
selection criteria, typically those that made the product popular in the first place. As
customers mature with the product, however, latent and untapped preferences develop.
This could imply considering price and real educational need in the case of the creation
of network-compatible laptops such as Apple attempted with its eMac. Also, disk storage
technologies were disrupted when companies realized that the capacity of the drive
outstripped most customer needs, and that customers were interested in smaller devices,
such that pen-drive technology emerged and matured.

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We do side with Christensen, however, and agree with his recommendations that
allocation-driven companies must dedicate part of their overhead to research into
disruptive technologies. However, doing so may lead to other problems. When many
companies attempt to develop an online presence to compete, they often forgo developing
their competence in qualities important to their initial ventures, like marketing, branding,
purchasing, and customer service. Barnes and Noble is a classic example.
Conclusion
What we recommend to strategic planners is to not allow technology for its own sake to
drive decision-making. Users are savvy, but savvyness includes a realization that
particular types of products are unnecessary and—while impressive—may not evolve
with customer or business realities. This should not imply they should not innovate
according to good management practices for their evolving clients; but that they should
sacrifice the speed of this evolution for continued research into the evolving tastes and
preferences of the market sector it either slowly abandons due to over-specialization,
unreasonable costs, or uselessness, just initially ignored; and the market sector perhaps
ignored in the first place. Businesses sometimes get caught up rewarding its original
fans, at the expense of potential clients. Additionally, if businesses are to use the “theory”
of disruptive technology, independent samples must be drawn—not just those confirming
the dependent variable—of both companies that fail in the face of disrupters, but also
those that adapt and succeed. In this way, a clearer and more refined analysis of the
precursors of success and failure given different kinds of disrupters can be outlined and
tested. In any case, the idea does make strong recommendations to businesses, which I
hope to have outlined here effectively.

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Footnotes
i
Christensen, Clayton M. and Bower, Joseph L. (1996). Customer Power, Strategic
Investment, and the Failure of Leading Firms. Strategic Management Journal 17 (3):
197–218.
ii
Scherreik, Susan (2000). When a Guru Manages Money. Business Week , July 31,
2000. http://www.businessweek.com/2000/00_31/b3692113.htm.
iii
Christensen, Clayton M. and Bower, Joseph L. (1996). Ibid.
iv
Lawson, Christopher (January 2007). ‘Dumb terminals’ can be a smart move. WSJ.
http://online.wsj.com/public/article/SB117011971274291861-
oJ6FWrnA8NMPfMXw3vBILth1EiE_20080129.html.
v
Bensaou, M. & Earl, M. (1998). The right mind-set for managing information
technology. Harvard Business Review,
vi
Barney, Jay B. (1997). On Flipping Coins and Making Technology Choices: Luck as an
Explanation of Technological Foresight and Oversight. In: Technological Innovation:
Oversights and Foresights. R. Garud, P.R. Nayyar, and Z.B. Shapira (eds.). New York:
Cambridge University Press, 13–19.
vii
Chandy, Rajesh K. and Tellis, Gerard J. (2000). The Incumbent's Curse? Incumbency,
Size, and Radical Product Innovation. Journal of Marketing 64 (3): 1–17. Links
viii
King, Andrew A. and Tucci, Christopher L. (2002). Incumbent Entry into New Market
Niches: The Role of Experience and Managerial Choice in the Creation of Dynamic
Capabilities. Management Science 48 (2): 171–86.
ix
Markides, C. (2005). Disruptive management: In need of better theory. Journal of
Product Innovation Management, 23(1).
x
Chandy, Rajesh K. and Tellis, Gerard J. (1998). Organizing for Radical Product
Innovation: The Overlooked Role of Willingness to Cannibalize. Journal of Marketing
Research, 35(4): 474–87.