IT Innovation Evaluating an Innovation GP Dhillon, PhD Associate Professor of IS School of Business, VCU
Functionality and Cost Time Innovation and Diffusion S Curve • Examples: • First Technology: incremental improvements to the original ferrite-head/oxide disk technology enabled manufacturers to grind the heads to smaller, more precise dimensions. • Second Technology: thin-film photolithography displaced ferrite-heads in most disk drives between 1979 and 1990. • Third Technology: magneto-resistive heads.
Application (Market) “A” Application (Market) “A” Application (Market) “B” Technology 2 Technology 2 Performance as in application “A” Performance as in application “A” Technology 2 Technology 1 Technology 1 Time or Engineering Effort Time or Engineering Effort Disruptive technology S-Curve
Internet Commerce is a disruptive technology • Certain Internet based solutions are disruptive technologies within a given market (e.g. e-commerce solutions relating to selling books are disruptive technologies within the market of selling books).
Managing disruptive technology principles • Companies that utilize disruptive technologies or have a product or a service that is disruptive, should remember that their success depends on both the customers and investors for resources. • Since small markets don't solve the growth needs of large companies, the launch and sustainability of a disruptive product or service needs to be positioned accordingly. • Since disruptive technology products and services are novel, it is hard to analyze their respective markets, which do not exist. • Ability to create a business model, product or a service does not necessarily mean that there is a demand for such a product or service, i.e. technology supply may not equal market demand.
Companies depend on customers and investors for resources • If a company has invested more than necessary into a disruptive technology and the customers seem to like it, but it has a negative cash flow and has a bad debt load, there is a strong likelihood that the investors (or venture capitalists) would not be as enthusiastic as they would have been. • In the B2B arena nearly $800 million was invested into 77 e-exchanges in early 2000 and another $500 million in mid 2000 but the customers have not been too responsive. • E.g. Industrialvortex.com attempted to aggregate products from numerous suppliers, they faced stiff resistance since the suppliers felt that such an e-marketplace would give buyers an easy access to cheap suppliers
Small markets don't solve the growth needs of large companies. • Companies that successfully leverage the disruptive technologies to their advantage, gain significant first mover advantages. However once these companies get entrenched in their specific market, then find it difficult to enter newer small markets, which could potentially be very profitable. • Amazon vs Barnesandnoble.com and Barnes & Noble
Markets that don't exist can't be analyzed • Since research about future success can only be carried out for technological impacts that have already taken place, it is difficult, if not impossible, to analyze a market for disruptive technology. Such analysis can only be carried out for sustaining technologies. • It has been rather difficult for Amazon to adequately forecast demand for newer products. And on $676 million in sales for the fourth quarter (1999), Amazon had to write down $38 million on inventories, particularly for electronics and toys.
Technology supply may not equal market demand • Since the pace of technological improvement usually far exceeds the performance improvement rate than mainstream customers can absorb, the companies whose technological features match customer demands today may overshoot mainstream market needs tomorrow. • Consider developing conventional photographic films. The first mover advantage clearly went to AOL and Kodak. The service was carefully positioned to address the needs of those who wanted to have the ability to share digital photographs with friends and family. Hence the emphasis was on functionality. • Then came Ememories (sluggish) and Ofoto (low reliability) who started offering free processing along with the ability to share digital photographs. Such advancement was clearly surpassing what the current market could absorb. The customer expectation hovered around functionality and reliability aspects.
Conclusion • In the end success will be defined by the ability of the respective firms to differentiate between sustaining and disruptive technologies and their ability to manage the resource allocation problem, competence in matching the market to the technology and systematically identify and position their capabilities.