Globalization and innovation (Part 1)

One of the most common ways in which one tends describe technological innovation is that it is “disruptive”. Ask an entrepreneur what he is upto and chances are he will say that he is working on a “disruptive idea”. Ask a VC what his funding theme is and he’d probably say that he is looking to invest in the next “disruptive technology”. Yet, not too many people really understand what this concept of “disruption” actually stands for. One is generally inclined to believe that anything that is cutting edge or novel is “disruptive”. However, thats not the case. The phrase “disruptive technology” has a specific connotation and was actually coined by a Harvard professor, Clayton Christensen, which he later elaborated on in his book “The Innovator’s Dilemma”. It was borne out of a study conducted by him, which tried to ascertain why established companies found it hard to keep pace with innovation. He concluded that it was not poor management or even the failure to detect technology trends in big companies that prevented them from nurturing these new technologies. It was the fact that the economics for building a successful business on such new technologies was unviable under their present cost structures that made such the commercialization of these new technologies difficult. Such “disruptive” technologies are typically inferior to existing technologies to start with and hence command a far less price as compared to existing technologies. Therefore, the market for these relatively inferior low cost technologies is not the one that consists of existing customers of large companies but a new one, which is less attractive to such companies. However, with time, such “disruptive” technologies undergo dramatic improvements to the extent that they become capable of threatening even the established hi-end technologies. Therefore, these technologies present a great conundrum to managers. How should companies go about transitioning from a sustaining to a disruptive technology?