Disruptive Technology, Innovation and the Need to Include them In Strategic Planning by CIOs From the onset of modern technologies in the early 20th Century, scholars have always argued about the importance of technology in promoting business and economic progress. Noteworthy, was Harrod Domar who introduced the theory of the importance of technology in the early 1930s (Besomi 1999). In light of this, recent developments in this field such as effects of disruptive technologies, innovations on business are a continuation of this theory.
Disruptive innovation, a term that was first coined by Christensen in 1997, refers to new technologies that have lower costs, superior performance when compared to traditional methods, and other complementary advantages. In essence, Christen posits that these technologies have the ability to replace the existing ones or lead to the collapse of businesses that fail to embrace them. Disruptive technologies on the other hand refer to the emergence of new technological changes that affect the manner in which business services, operations, or products are offered. Notably, these changes may be small in nature; nonetheless, they have substantial complementary advantages that make them be easily adaptable by most consumers. In effect, due to this attributes they are easily accepted by most customers over time and invade the already established markets. Generally, this term was first coined by Zeleny in 2006. Due to the presumed impacts of these technologies and innovations on businesses, most managers and especially the chief operating officers (CIOs) should be concerned on their emergence and their implications to a company’s business.
In the theory of disruptive technology, Christensen points out that disruptive technology may lead to the establishment of new markets segments that consume the newly developed technology. Progressively, as the technology reaches the early and late adopters, it begins to compete with established products in the traditional markets. In effect, high quality technological products which are also highly priced are sold in most demanding market segments and they slowly move towards mass markets. In brief, Christensen’s 1997 thesis on disruptive technology espouses that there are five premises of these kind of technology.
- The new disruptive technology initially underperforms the dominant ones among mainstream customers.
- Disruptive technology has many new features that customers’ value, they are cheaper, simpler, smaller, or more convenient than the established ones.
- The leading firms are slow to adopt these technologies; therefore, they are first commercialized in emerging markets.
- Overtime, the disruptive technologies improve and meet the qualities demanded by mainstream markets.
- Once the disruptive technologies have attained the qualities demanded by mainstream markets, they displace the dominant incumbent in this market.
In an expanded view, disruptive technology and innovations present interesting facts that affect businesses. Generally, it is important to view the extent to which this innovations and new technologies affect businesses or create opportunities for new entrants. A disruptive technological innovation is usually characterized with a disruptive business model innovation and a disruptive product innovation. Basically, these innovations arise in different ways, have different competitive advantages, and require different responses from the incumbents (Henderson & Clark 1990).
Given that technology can act as a creator of new businesses and destroyer of the old ones by making them obsolete, market leaders should continuously innovate to maintain their positions (Schumpter 1939). Similarly, Cooper and Schendel (1976) noted that major technological changes had the ability to lead to a decline of sales of traditional market leaders, as well as displacing them from that position. In addition, even when existing market leaders decide to introduce these new changes into their businesses, they are always faced with a myriad of changes that affect their ability to succeed when using this model. Primarily, these companies continue to make their commitment to older technologies even when the sales are reducing. According to Cooper and Schendel (1976), the adoption of the new technologies have implications on the business existing production methods, as well as old skills and positions that were used in traditional products. Generally, these factors derail the business from failing to make full commitments to new technologies.
Dosi (1982) alluded that once technological changes are established, they lead to the significant exclusion of traditional businesses. Notably, Dosi was able to create a sound argument to support his idea. Basically, he noted that technological changes have economic and social conditions that interact and influence the customer on the decisions he/she will make when selecting which product to buy. Given the risks that technology innovations pose to existing businesses, innovations that expand the market are easier to cope with for established businesses than those that create substitute products (Cooper and Schendel 1976).
In order to create a distinction on the various types of technologies that exist in businesses Christen 1997 described a framework of three components. Firstly, he created a distinction between disruptive and sustaining technologies. Basically, sustaining technologies are those that improve the performance of established products on dimensions that mainstream customers in major markets value. Disruptive technologies are those that underperform in established markets but excel in small new markets due to unique desirable features. Secondly, it is the evaluation of the established product ability to enter and thrive in markets that were traditionally dominated by the dominant incumbent. Thirdly, Christensen remarks that an investment by a market leader in disruptive technologies is irrational since these technologies usually have lower profit margins. In light of this, if an existing market leader is able to identify these changes from an upcoming competitor and they establish necessary counter attack methods, they may be able to maintain their market dominance. In general, the only way to fight disruptive technologies is to accept it and find different way of exploiting it (Christensen & Raynor 2003). Notably, this can be found in the case of the establishment of compact disks to compete with magnetic film tapes. In this case, the magnetic films tapes companies accepted the arrival of the new technology and adopted it. In effect, the competitors were unable to displace them as market leaders.
Business Model Innovation
In general, business model innovations are the discovery different business models in the existing business. Basically, these include the establishment of companies such as Amazon, Barnes & Nobles, and easyJet. Noteworthy, to qualify as a business model innovation, the new business must be able to increase the size of the market by either attracting new consumers or encouraging the existing ones to consume more products. Importantly, since new markets have different success factors, these innovations require a combination of tailored activities such as value chain management, internal processing, business culture, and organization structures.
Although Christensen (2003) posits that innovative technologies lead to replacement of incumbents, available literature does not agree with these results (Markides 2006). To begin with, despite the initial hype on the growth of internet banking, this business has only captured 20% of the market to date (Markides 2006). Nonetheless, there are at times when innovations are the most appropriate move. Notably, Markides (1997) points out that when business innovations enter a new market they have fast mover advantage. Secondly, when the business bottom line has been negatively affected for some time, innovations may be the best option. Thirdly, business should consider it when attempting to expand their business. Further, Markides and Charitou (2004) suggest that establishing a new department to tryout the new innovation is the best way for a company to benefit from potential gains of the new business model without creating a conflict with its existing operations.
Radical Product Innovation
Notably, these are innovative products that undermine the competencies and complementary assets that established businesses have built their processes upon. In essence, these innovative products are originated form researchers and inventors. Their low profit margins are usually not attractive for businesses to develop these innovations. The market characteristics from these innovations are as follows:
- Invasion of the newly created markets by hordes of new entrants who are usually in hundreds.
- Development of many varieties of the established product.
- Dropout of many entrants who had entered the market.
- The period within which these changes occur is usually long, and it is possible that the businesses that finally operate the new system are not the ones who introduced the innovation (Klepper & Simons 2004).
According to Markides and Geroski (2005) established companies can exploit disruptive products by owning share ownership in small companies that have innovative and skillful personnel. Meanwhile these companies should concentrate on consolidating large markets. Alternatively, the large companies can establish formal strategic alliances with the small companies. These strategic alliances can ensure that the innovative products from the rival small companies do not harm the established company products profitability.
Strategic planning has been described in various ways by scholars as a managerial tool. According to Ansoff (1970), strategic planning is the process of matching an organizations products and technologies with the market. Similarly, Drucker (1954) explains that strategic planning is a set of managerial scheduled organized activities that are aimed at enabling the management make the most optimal decisions. Wendy (1997) explained that strategic planning comprise of three elements that turn an organization vision and mission into reality. Essentially, these elements are strategic choice, analysis, and implementation. Notably, the strategic analysis entails setting the organization direction by formulation a clear vision and mission and objectives. Therefore, strategic analysis entails articulating the company’s intent and directing efforts towards their achievements. Strategic choice entails generating, evaluating and formulating the most appropriate strategy for the organization. Finally, strategic implementation involves laying down the relevant policies and structures that will aid in translating chosen strategies into actionable forms.
Importantly, it has been established that there is a clear and distinct relationship between strategic planning and a firms performance. Kotter (1996) explains that strategic planning help in guiding an organization set out its strategic priorities and to focus on its main objectives. Similarly, David (1997) contends that strategic planning enables organizations to be proactive in in shaping their future and influencing activities in their environs. Viljoen (1995) contends that strategic planning enables organizations to be more systematic in their efforts of achieving the organizations plans. Moreover, the systematic approach enables organizations to focus most of their energies in achieving these plans.
Notably, since strategic planning applies a systematic approach by looking at the company’s subsystems, it enables managers to observe how the individuals’ actions of their departments influence the overall performance of the organization (Arasa & ‘Obonyo 2012). In this way, the strategic planning enables managers to coordinate their individual departments with an overall view of benefiting the entire organization. With this in mind, strategic planning is a vital component that influences the performance of Chief Information Officers (CIOs) who mostly act as ICT managers. In essence, CIOs are the ones who are most appropriately positioned to understand the changes in technology and how they may affect the business. Importantly, strategic planning results in an organized match between the business operations and its external environment (Kotter 1996). In effect, CIOs can indicate if the business activities are relevant to the prevailing technological changes.
A study by Thune and House (1970) on 36 companies established that companies using formal planning were most effective in achieving their strategic plans. Similarly