Disruptive Technologies or ‘Looking for the Next Big Thing’

Motley Fool logoThis posting has nothing to do with history, Michigan or job hunting. Instead, it has to do with technology and finances. That means it’s totally different from my other postings. These are also topics in which I am not well versed. I can figure out how to work my DVD player and load new software on my computer and I do buy and sell stock (usually buying high and selling low) but otherwise I am, like many in my generation, technologically unsavvy.

I am posting this because I found the topic fascinating when I read it on a discussion board at The Motley Fool.com. Motley Fool is a investment site that seeks to help unsophisticated people (like me) make money (or in my case loss less), and the discussion boards allow people to interact.

This particular post summarized four key principles of disruptive innovation as talked about in a book called The Innovator’s Dilemma by Clayton Christensen. Although the discussion board I “borrowed” this from was talking about Netflix and its future, the principles discussed should be of interest to anyone interested in how companies invest in technology and where the next innovative idea (like the iPod) will come from. If you have read the book I would be interested in knowing your thoughts on whether it is worth reading and aimed at the techno unsavvy. Oh, and if you follow Netflix whether it’s a buy, sell or hold

P.S. I hope “Awesomestockdude” won’t hate me for posting the fruits of his labor.

1. Companies Depend on Customers and Investors for Resources

“In order to survive, companies must provide customers and investors with the products, services, and profits that they require. The highest performing companies, therefore, have well-developed systems for killing ideas that their customers don’t want. As a result, these companies find it very difficult to invest adequate resources in disruptive technologies — lower-margin opportunities that their customers don’t want — until their customers want them. And by then, it is too late.”

2. Small Markets Don’t Solve the Growth Needs of Large Companies

“To maintain their share prices and create internal opportunities for their employees, successful companies need to grow. It isn’t necessary that they increase their growth rates, but they must maintain them. And as they get larger, they need increasing amounts of new revenue just to maintain the same growth rate. Therefore, it becomes progressively more difficult for them to enter the newer, smaller markets that are destined to become large markets of the future. To maintain their growth rates, they must focus on large markets”

3. Markets That Don’t Exist Can’t Be Analyzed

“Sound market research and good planning followed by execution according to plan are the hallmarks of good management. But companies whose investment processes demand quantification of market size and financial returns before they can enter a market get paralyzed when faced with disruptive technologies because they demand data on markets that don’t yet exist.”

4. Technology Supply May Not Equal Market Demand

“Although disruptive technologies can initially be used only in small markets, they eventually become competitive in mainstream markets. This is because the pace of technological progress often exceeds the rate of improvement that mainstream customers want or can absorb. As a result, the products that are currently in the mainstream eventually will overshoot the performance that mainstream markets demand, while the disruptive technologies that under-perform relative to customer expectations in the mainstream market today may become directly competitive tomorrow. Once two or more products are offering adequate performance, customers will find other criteria for choosing. These criteria tend to move toward reliability, convenience, and price, all of which are areas in which the newer technologies often have advantages.”

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