Moore’s Law and Big Bang Disruption

bigbang

In 1964 the CDC 6600 was the world’s most powerful supercomputer. Three times as fast as its closest rival, the CDC 6600 was considered a bargain at a price of $5 million, filled a good sized room, and was capable of executing a then-impressive 3 million floating point operations per second (FLOPS).

The subsequent explosion in processing power means that the most basic of today’s desktop computers are capable of several billion operations per second.

More than a hundred CDC 6600s were built, but even their combined computing power wouldn’t have come close to matching a cheap modern mobile phone.

Moore’s Law

In the decades since the launch of the CDC 6600 computers have become smaller, vastly more powerful, and affordable enough to be accessible to everybody. It’s a remarkable trend that was foreseen by Gordon Moore, the co-founder of Intel, in 1965.

Moore noted that the number of transistors per square inch on integrated circuits had doubled every year since their invention. This meant that computer chips were becoming twice as powerful every year.

While Moore initially believed this exponential increase in computing power might last for something in the region of five to ten years, it is only now that the end1 appears to be in sight.

The Computer Chip Revolution

Thomas J Watson of IBM reportedly claimed that there would be a worldwide market for about five computers. Since it is estimated there are now well in excess of one billion computers in existence, it was not one of history’s most insightful predictions.

It has become increasingly difficult to even distinguish between what is and what isn’t a computer. As computer chips have conformed to Moore’s law by becoming smaller, cheaper, and more powerful, it has become economically viable to include them in a dizzying array of products.

Everything from toasters, to automobiles, greeting cards, and even shoes and fishing reels2 have been enhanced with digital technology.

Disruptive Technology

In 1997 Clayton Christensen coined the term disruptive innovation3, referring to an emerging technology that disrupts or entirely displaces an established one.

Christensen described these disruptive technologies as initially inferior to existing products. For example, the first liquid-crystal-display (LCD) televisions commanded only a niche market because their picture quality was markedly inferior to cathode ray technology (CRT) screens. In 2007, almost twenty years after their commercial launch, sales of LCD screens surpassed CRT for the first time. LCD televisions and monitors had retained their advantages of being compact and lightweight, while improvements in the technology gradually closed the gap in quality.

Clayton Christensen’s ideas remain hugely influential, but it has been argued that the exponential increase in computing power has rendered this picture of slowly emerging disruptive technology as largely obsolete.

Big Bang Disruption

In 2014 Larry Downes and Paul Nunes introduced the world to the concept of Big Bang Disruption4. Big Bang Disrupters behave differently to the disrupters described by Christensen. They don’t emerge on the edges of the market, they explode into being fully-formed, almost as if out of nowhere.

Big Bang Disruptors are able to compete with established products right from their release, offering superior features, more customisation, and all of this is often made available to the customer at a better price.

Thanks to more than half a century of exponentially increasing computing power, the invention of the internet, and the advent of cloud computing, it’s become possible for innovators to combine existing technologies to launch new products that are immediately superior to those they threaten to displace.

Google Maps

Downes and Nunes put forward Google Maps as a prime example of a Big Bang Disruptor. When Google announced that it would offer GPS directions on android phones in 2009, shares in TomTom5 and other navigation service providers plummeted by 20% overnight.

Google Maps offered all of the features available on a traditional satellite navigation device, with the added advantage that it could be accessed through a smartphone. TomTom would be fighting a losing battle to match the functionality and convenience of Google Maps, but with Google Maps available for free they had already lost the war on price.

TomTom became a victim of Big Bang Disruption, and they took the hit from a company that hadn’t even traditionally been a competitor.

Surviving Big Bang Disruption

Under Clayton Christensen’s model of disruptive technology, established firms had enough time to spot the disruption coming and react accordingly. The rapid march of technology means that Big Bang Disruptors such as Google Maps are far more explosive and difficult to foresee.

The very nature of Big Bang Disruption means that it’s impossible for organisations to completely shield themselves against its shockwaves. The best defence is an understanding of the new reality of disruptive technology and an ability to innovate and diversify.

TomTom could have been destroyed by Google, but the company proved to be agile enough to survive. While TomTom no longer dominates the GPS market, the company has branched out6 into wearable technology and positioned itself to take advantage of the forthcoming driverless car revolution.

 

Links:

1 – http://www.economist.com/technology-quarterly/2016-03-12/after-moores-law

2 – http://www.statesman.com/news/business/microchips-are-showing-up-in-low-tech-products-1/nRWNz/

3 – http://www.claytonchristensen.com/key-concepts/

4 – https://www.amazon.co.uk/Big-Bang-Disruption-Business-Innovation/dp/0241003520

5 – http://www.businessinsider.com/googles-free-gps-service-crushes-garmin-tomtom-shares-2009-10?IR=T

6 – http://www.afr.com/technology/google-maps-couldnt-kill-tomtom-now-it-is-poised-for-a-driverless-future-20160122-gmbtzu

The Innovator’s Dilemma

Disruptive innovation

In business there’s no such thing as too big to fail. Products have a lifespan, trends come and go, and new inventions can pull the rug out from underneath successful companies sending their profits into freefall and placing their very survival in question.

The fall of a corporate giant can come as a shock, particularly if it has been an established household name for decades. However, the downfall of such companies has often followed a pattern. It’s a pattern that Clayton Christensen attempted to lay bare in his famous 1997 book The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail.1

Disruptive Technology

Christensen draws a distinction between sustaining and disruptive technology2. Most established firms tend to focus on the former. Rather than looking to develop a radically new technology, they will usually concentrate on making incremental improvements to their existing products.

Disruptive technologies are different. In their infancy they have a limited market, inferior performance to existing technology, and are unlikely to have any great initial mass market appeal. Established companies often fail to invest in these disruptive technologies and in the short-term it might seem to be an entirely sensible decision. However, while a company might appear to be doing the right thing by investing in its core products and satisfying the needs of existing customers, its entire market could be destroyed when a disruptive technology matures and bursts into the mainstream.

Disruptive Technology in Action

Examples of disruptive technology aren’t difficult to find. They’re the reason we make telephone calls rather than send telegrams, why we travel in cars rather than by horse and cart, and why almost nobody uses video cassettes anymore.

It’s in the nature of disruptive technology to shake up the existing order of things. If a company fails to properly anticipate the threat, the consequences can be catastrophic. The downfall of the film and camera giant Kodak is too recent to feature in Clayton Christensen’s book, but it offers an excellent picture of disruptive technology in action.

The name Kodak was synonymous with photography, and the company commanded a huge market share in sales of film and cameras. While Kodak was fully aware of the emergence of digital cameras, they didn’t recognise them as a significant threat to their core business. The first digital cameras3 were clunky, produced poor quality photos, and the images had to be saved to a separate device rather than to the camera itself.

Kodak4 dismissed the digital devices as little more than a toy that would hold little to no appeal for their existing customers. They didn’t believe that digital could ever be a replacement for film. In choosing to focus on the existing needs of their current customers and underestimating the potential of digital camera technology, Kodak fell prey to Christensen’s innovator’s dilemma.

As improving technology allowed digital cameras to break out into the mainstream, Kodak’s market value collapsed. In 1996 Kodak was the fifth most valuable brand in the world; by 2012 the company had filed for bankruptcy and was fighting a desperate struggle for survival.

Resolving the innovator’s dilemma

Kodak couldn’t claim to have been entirely blindsided by the emergence of digital cameras. The first such device was even invented by a Kodak engineer in 1975, but the company’s executives showed little interest in it and failed to recognise its potential.

So what should Kodak have done? In order to remain successful, they might have been well advised to stop paying quite so much attention to what their customers thought they wanted. As Henry Ford is supposed to have once said: “If I’d asked my customers what they wanted, they’d have asked for a faster horse.”

The most innovative organisations don’t wait for disruptive technology to emerge elsewhere, they actively attempt to disrupt themselves. In 2012 Facebook employees were given a copy of the “Little Red Book5” which explains the company’s culture and history. It says: “If we don’t create the thing that kills Facebook, someone else will.”

It’s not always easy for an organisation to attempt to disrupt itself. A firm’s established culture and processes cannot always be readily adapted to the development of a radical new technology, particularly one that has the potential to destroy the core business.

Christensen did put forward a solution: “Create a separate subsidiary; free it to attack the parent.”

However, not everybody is convinced that this is the best solution to the problem, and it has been argued that the nature of disruptive technology has already fundamentally changed.

 

Links

1 – https://www.amazon.co.uk/Innovators-Dilemma-Technologies-Management-Innovation/dp/142219602X

2 – http://www.investopedia.com/terms/d/disruptive-technology.asp

3 – http://www.popphoto.com/gear/2013/10/30-most-important-digital-cameras

4 – http://www.forbes.com/sites/daviddisalvo/2011/10/02/what-i-saw-as-kodak-crumbled/#2590e0a720f5

5 – http://uk.businessinsider.com/inside-facebooks-little-red-book-2015-5