The personal computer is an example of a disruptive innovation that allowed a whole new population of people to use it. Eventually it was improved to the point that the PC made the old technology obsolete.
Question: What is a disruptive technology?
Christensen: At the beginning of almost every industry, the available products and services are so expensive to own and complicated to use that only people with a lot of money and a lot of skill have access to them. A disruptive technology is an innovation that simplifies the product and makes it so affordable that a whole new population of people can now have one and use it at the beginning for simple applications, and then it improves to the point that it makes the old technology obsolete.
Question: What is a disruptive innovation?
Christensen: Well, every disruptive innovation is powered by a simplifying technology, and then the technology has to get embedded in a different kind of a business model. So, if I could illustrate that, the early… the first two decades of digital computing were characterized by these huge mainframe computers that filled a whole room, and they cost $1 to $4 million, had to be operated by PhD Computer Scientists. It took the engineers at IBM about four years to design these mainframe computers because there were no rules. It was an intuitive art and just by trial and error and experimentation they would evolve to a computer that worked. The personal computer was a disruptive innovation relative to the mainframe because it enabled even a [poor fool] like me to have a computer and use it, and it was enabled by the development of the micro processor. The micro processor made it so simple to design and build a computer that [IB] could throw in together in a garage and Michael Dell could assemble one in his dorm room. And so, you have that simplifying technology as a part of every disruptive innovation. It then becomes an innovation when the technology is embedded in a different business model that can take the simplified solution to the market in a cost-effective way.
Question: Which is more important and why?
Christensen: The innovations are far more important because the technology itself has now way to impact the world for good until it’s embedded in the business model. And it’s a great question because in innovation it’s the combination of the simplifying technology and the business model. A great example of this is through the ‘70s and most of the ‘80s, there was this huge mini-computer company in the Boston area called Digital Equipment Corporation, and at the time they probably was the most widely admired of all the companies in the world economy. When the personal computer emerged, Digital had access to all kinds of micro-processors, but their business model could not profitably build and sell a computer for less than $50,000, and so they were killed by the personal computer. IBM had access to the very same processors, but they went to Florida and created a business model that could make money at 25% gross margin, selling millions of units a year, which was a wildly different business than selling hundreds of mainframes a year with 60% margins. And it was the coupling of the technological enabler with a business model innovation that allowed IBM to change the world.
Question: Should certain industries focus only on disruptive technologies even though innovation is more important?
Christensen: Generally, the technology that enables disruption is developed in the companies that are the practitioners of the original technology. That’s where the understanding of the technology first comes together. They usually can’t commercialize the technology because they have to couple it with the business model innovation, and because they tend to try to take all of their technologies to market through their original business model, somebody else just picks up the technology and changes the world through the business model innovation.