Disruptive Technology: Use and Abuse of the Concept Dr. Michael Bell Chief of Naval Operations (N61F)

1. Disruptive Technology: Use and Abuse of the ConceptDr. Michael BellChief of Naval Operations (N61F) Presentation to the Information Age Metrics Working Group 23 April 2004

2. The Innovator’s Dilemma

3. The Dilemma “One of the most consistent patterns in business is the failure of leading companies to stay at the top of their industries when technologies or markets change.” “Why is it that companies like these invest aggressively – and successfully – in the technologies necessary to retain their current customers but then fail to make certain other technological investments that customers of the future will demand? Undoubtedly, bureaucracy, arrogance, tired executive blood, poor planning, and short-term investment horizons have all played a role. But a more fundamental reason lies at the heart of the paradox: leading companies succumb to one of the most popular, and valuable, management dogmas. They stay close to their customers.”

4. Definitions Performance trajectory – the rate at which the performance of a product has improved, and is expected to improve, over time Sustaining technologies – tend to maintain a rate of improvement; that is, they give customers something more or better in the attributes they already value Disruptive technologies – introduce a very different package of attributes from the one mainstream customers historically value, and they often perform far worse along one or two dimensions that are particularly important to those customers. Performance trajectory – the rate at which the performance of a product has improved, and is expected to improve, over time

5. Disruptive Technology The Impact of Sustaining and Disruptive Technological Change Progress due to Sustaining technologies Performance demanded at the high end of the market Product Performance Performance demanded at the low end of the market Disruptive technological innovation Time Source: C. Christensen, The Innovator’s Dilemma

7. “Marketing and financial managers, because of their managerial and financial incentives, will rarely support a disruptive technology.” “Lead customers are reliably accurate when it comes to assessing the potential of sustaining technologies, but they are reliably inaccurate when it comes to assessing the potential of disruptive technologies.” “Small, hungry organizations are good at placing economical bets, rolling with the punches, and agilely changing product and market strategies in response to feedback from initial forays into the market.” “In the history of the disk-drive industry, every company that has tried to manage mainstream and disruptive businesses within a single organization failed.” Managing Disruptive Technology

9. Value Networks “A company’s revenue and cost structures play a critical role in the way it evaluates proposed technological innovations.” • Value network – the context within which a firm identifies and responds to customers’ needs, solves problems, procures input, reacts to competitors, and strives for profit • “Within a value network, each firm's competitive strategy, and particularly its past choice of markets, determines its perceptions of the economic value of new technology.”

10. Portable Personal Computing Notebook Computers 2.5-inch Disk Drives Metal-in-Gap Ferrite Heads Sample Value Network Word processing and spreadsheet software Modems, etc. Zenith Toshiba Dell Light and compact Rugged Easy to use CISC microprocessor Displays, etc. Connor Quantum Western Digital Ruggedness Low power consumption Low profile Thin-film disks AT/SCSI embedded interface, etc. Cost Availability in high unit volumes Applied Magnetics

11. Skunkworks “The strategy of forming small teams into skunk-works projects to isolate them from the stifling demands of mainstream organizations is widely known but poorly understood.” “Creating a separate organization is necessary only when the disruptive technology has a lower profit margin than the mainstream business and must serve the unique needs of a new set of customers.”

12. Questions • What drives and maintains a rate of capability growth in the technology beyond what is demanded by the market? • How does technology cross the “valley of death” between markets (value networks) if there is no market in the gap?

13. Asymmetry • Mobility is upward because development costs must be recovered or justified • Attack is from below because that is how the value networks are merged

14. What’s Wrong with this Picture? The Impact of Sustaining and Disruptive Technological Change Progress due to Sustaining technologies No technology, no market Performance demanded at the high end of the market Product Performance Performance demanded at the low end of the market Disruptive technological innovation Disruption at bottom of market Time Source: C. Christensen, The Innovator’s Dilemma

15. Improved Picture The Impact of Sustaining and Disruptive Technological Change Progress due to Sustaining technologies Performance demanded at the high end of the market Product Performance Performance demanded at the low end of the market Disruptive technological innovation Time Source: C. Christensen, The Innovator’s Dilemma

16. Implications for Defense • What is our (DoD’s or DoN’s) value network? • Do we have multiple value networks? • Aviation, surface warfare, undersea warfare, expeditionary warfare, special operations… • Asymmetry • Attack is from below • Mobility is upward • This could “explain” the blurring we have seen between scales of conflicts

17. Competition vs. Conflict • Companies compete to satisfy their customers; the market decides • VHS format meets customer needs better than Beta • Militaries attack one another; the battlefield decides • Improved precision (air) strike is not the same as better air/missile defense

18. The Defense “Market” • High end – high-intensity conflict • Low end – whatever we are told (generally assumed to be a “lesser included case”) • Is this really a single market? • In peacetime, our “customers” are internal • E.g., the UK Equipment Capability Customer

19. Delivering Innovation Hand-off to institutionalize Prototype Decision: SJFHQ and its enabling concepts (Chairman’s Guidance letter, 26 November, 2002) Future Prototype Decisions Joint Concept Development Focus, FY03-05 (Joint Chiefs of Staff and Combatant Commanders Approval - Jan 03) Rapid Decisive Operations (RDO) - featured Millennium Challenge 2002 (MC02) concept (CJCS Guidance, 17 April, 2000)

20. Capability Growth “The typical framework of intersecting S-curves… is a conceptualization of sustaining technological changes within a single value network.”

21. Anti-Disruptive Technology J. H. Helms, Ford Research Lab.