The Impact of Distructive Technologies on the Large Established Corporations
Disruptive technologies are the engine of progress, but large established corporations experience difficulties with their implementation because they create a threat to their businesses. These technologies remove outdated technologies, products, and services introducing the new ones. Innovations need investments that could be easily found by small firms than large companies. Therefore, large corporations seldom initiate disruptive innovations since they carry a threat to their business operations. Disruptive technologies make well-established products obsolete that threaten managers. Oftentimes, they do not know how to solve these problems and experience conflicts in the workplace. This phenomenon has become rather urgent in the modern markets. Many entrepreneurs are searching for ways that can keep their businesses running and make them compatible at the international market. Large corporations experience more challenges than small firms because of innovations. Nevertheless, disruptive technologies emerge in the modern life very fast, and large established corporations should find strategies to adapt these technologies to keep their customers and attract the new ones.
What Is Disruptive Technology?
Disruptive technologies mean innovations that remove the old technologies creating the new ones. New technologies or innovations displace old market leaders, shaking the whole industry, creating a new one that differs entirely from the previous one. The concept was introduced and explained by Clayton M. Christensen in 1995, and it continues to be of the greatest concern of many entrepreneurs today (Dobbs, Manyika & Woetzel 2015, p. 43). A disruptive technology breaks outdated products replacing them by innovations. For example, computers displaced typewriters, changing the way of printing forever. Various disruptive innovations have changed the way of working and communication introducing more sophisticated devices and products. Thus, the introduction of cell phones, smartphones, email, personal computing, etc. has changed different industries and the way of people’s communication. Disruptive technologies often bring more convenience into life, but, often, they threaten the large established corporations. Their products become obsolete, and corporations become old-fashioned producing goods that are no longer in demand.
While analyzing a disruptive technology, Christensen (2011, p. 25) assumed that disruptive technology emerges very often into the human life that change their way of thinking and doing things. The Internet, the greatest innovation of the 20th century, has dramatically changed the way of communication that affected various industries: from the telecom to the television one. Large corporations, like any other businesses regardless of their size, moved from paper memos to email and mobile phones. Due to the Internet existence, companies received an access to a web presence that promotes business activities. The invention of smartphones allows their users not only to make a telephone call and send text messages but also use the Internet and other services. Disruptive technologies offer a variety of services that were not available in the nearest past. People received the opportunity to collaborate and communicate with each other via the Internet and modern devices.
Disruptive technologies change human life making it more convenient, and there are many examples that prove the importance of disruptive approach. According to Evans (2013, p. 64), personal computers have changed not only industries but people’s way of life. With a wide introduction of personal computers and the Internet in every family, the television industry lost appeal to the public. Thus, innovations disrupted many industries and corporations that were used to be prosperous and successful before. Nowadays, practically nobody needs to write letters or post greeting cards because everybody can easily do this by means of cell phones or email. The telecom industry is displaced by cell phones, and cell phones seem to be displaced by smartphones. Rapid technological changes and innovations are a reality in modern life, and corporations should realize this threat.
Disruptive Technologies and Business Environment
Many findings reveal that disruptive technologies are usually products of outsiders, and market leaders do not support them (Fiske, Cuddy & Glick 2013, p. 15). From the first glimpse, disruptive innovations seem dangerous for well-established corporations that do not need any changes. When a change arises, nobody knows whether they will be profitable or not, and their implementation can threaten sustaining innovations. In the beginning, disruptive innovations need time and scarce resources for their development, and this process may be rather risky. However, once they are developed and checked, they reach fast penetration and establishment on the market. These changes may be rather damaging for large corporations that are used to work in accordance with all standards and equipment. As a result, the company may experience decay and even bankruptcy. A disruptive innovation may change products in an industry according to demand based on competition, and they target businesses like missiles making old things practically obsolete.
Business history has shown that large established corporations fail to pursue disruptive technologies. As a result, they often found themselves out of business in the existing markets, but those who admit the future development through disruptive innovation, such as Johnson & Johnson, Intel, P&G, IBM, and Dow Corning have received a profit (Evans & Lindsay 2012, p. 114). Moreover, large corporations that reshape their business by delivering convenient, simple, and low-cost innovations supplement growth in their business operations and achieve considerable success, unlike those leaders who ignored innovations. For example, Walmart successfully used disruptive technologies targeting consumers and non-consumers to buy inexpensive products in their discount retailers instead of going to the dentist for tooth paste. By making various products less expensive and more affordable, the company has proved to create a new growth business due to its innovations and flexibility.
Many studies reported that disruption is the key to the company’s growth, and it should always continue sustaining innovations to enforce this growth providing customers to its core offerings (HM Government Transparency Report 2015, p. 14). Professional managers understand how to receive higher profits by introducing better products to the most sophisticated customers in the market. Historically, well-established large corporations have concentrated on core products, in case disruptive innovations occurred. However, these technologies do not necessarily improve customers’ needs or raise profit margins. In their pursuit of profits, some large corporations ignore customers who are less-demanding willing to buy products at lower prices, and they also ignore low-skilled workers. It helps them find better business operations solutions. Nevertheless, large corporations should develop business strategies that can improve their businesses instead of destructing them.
What Makes an Innovation Disruptive?
The concept ‘disruptive technologies’ has a very specific meaning, and many observers use it in a loose way. They consider disruptive any innovation that affects the existing players. Many studies assume that it must begin as inferior in the aspects of performance that mainstreams customers’ expectation but superior in another aspect, such as price (Needham 2013, p. 212). However, low price is not what makes an innovation disruptive; it should rather attract the attention of mainstream Western customers that disrupt the established corporations. Not to fail, large established corporations should not only maintain a product’s price superiority but also to improve the quality of products or services that can become good enough for mainstream customers. It would be perfect if Western customers find the product good enough and show their desire to switch to it. After all, customers may find the product much better and not simply good enough.
Obviously, if the established corporation attempts to compete with the disruptive innovation, it will harm its main line of business operations because innovation will conflict with the existing way of doing business, and it will cannibalize the existing business (Vozikis, Mescon & Feldman 2014, p. 75). For example, British Airways may risk alienating the travel agents by distributing its tickets via the Internet. The existence of such conflicts may lead to the degradation of the existing activities. The existence of conflicts because of destructive technologies encourages large established corporations to refuse to implement them into their markets. Moreover, the company’s managers may motivate their position that disruptive innovations are small and insignificant for their business that does not attract consumers. Furthermore, even if they become good enough, they will cannibalize the existing business requiring a large investment to start a new business model (Vass 2014, p. 21). Finally, they may reject disruptive innovations because it can take a long time to become profitable.
Disselkamp (2013, p. 87) assumes that disruptive innovations are seldom considered as better opportunities for large established corporations, instead they are perceived as major threats. They create new markets damaging the old ones and negatively affect businesses. For managers who used to perform in the existing markets, the new radical changes are very challenging. Even if these changes are rather successful, established corporations may not be enthusiastic to support them. It happens due to the fact that new markets usually involve small businesses and not large established corporations because they require large investments. For all of these reasons, it is difficult to find new disruptive technologies being created by large established corporations. Moreover, it is particularly difficult for a large corporation to discover whether disruptive technologies may benefit its business. Such firms do not pioneer radical new markets; however, this fact should not stop them from exploiting these markets.
Disruptive and Sustaining Innovations
There are differences in disruptive and sustaining innovations, and it is important to understand them. Fundamental findings reveal that Christiansen paid special attention to these two concepts writing a whole book (Needham 2013, p. 239). Sustaining innovations are based on the customers’ needs and serve to satisfy them in the existing markets while disruptive innovations create new markets. Sustaining innovations are more appealing to large corporations than disruptive ones because they refer to the most valuable consumers and improve the business operation. These innovations fit the existing market, and leaders understand how to implement them to maintain the growth of their corporations. Disruptive innovations pose great challenges to the existing markets because they offer new product markets and not merely improved products. It is estimated that 65%-75% of established products fail due to disruptive technologies, because they offer new decisions and approaches to the business operations (Tsutsui & Lim 2015, p. 98). In fact, companies should innovate faster than consumers’ lives. Thus, sustaining innovations make products more expensive and less convenient what open doors for disruptive innovations that offer more convenient and less expensive products.
Disruptive innovations have nothing to do with sustaining innovations and replace them with absolutely new products. As a rule, large corporations are unable to enter new markets because of the reasons mentioned above. On the other hand, small firms enter new markets rather easily using new technologies that allow them to establish a niche brand (Burke 2006, p. 214). It is hard to predict how a new market may look like in the future, and large companies with big capital do not want to enter a risky business. Thus, they often lose opportunities to become innovators in different industries. Managers who implement disruptive technologies often find first customers at the bottom of the market, offering them low prices for their products. But meanwhile, these products are tested, more and more customers become interested in them. In this way, new markets steal customers from old markets that fail. For example, long distance calls were replaced by Skype, and the entire telecom industry was threatened by a disruptive technology. Google displaced libraries providing more convenience to consumers who could find any book sitting at home at their PCs.
What Strategies Can a Large Corporation Implement to Cope with Disruptive Forces?
In order to cope with disruptive forces, large established corporations should develop strategies and make up plans that can prevent them from failure. The academic literature suggests established corporations to subcontract the task of introducing new product markets to start-up firms globally that can succeed in this game (O’Connor & Sidorko 2010, p. 67). An effective plan can help big corporations to enter new markets and justify investments of capital and resources. Many internet companies have adopted this strategy and succeed in identifying a true technology and their place in a new market. However, many other companies are still uncertain with their strategies, and disruptive innovations turn their industries upside down. For example, in the mobile phone industry, Nokia that was a leading company now lags behind comparatively new firms like Samsung and Apple. Biotech innovations in healthcare substitute traditional R&D force making it obsolete. Shopping online threatens traditional retailors changing the whole industry.
Big corporations should realize how to operate in a new business environment and be ready to take a new market away from pioneers and scale it up (Chatterjee 2009, p. 67). They are usually good in scaling up a market, and this awareness may help them focus their attention and resources in the right direction. To succeed, corporations should exploit a new market and obtain knowledge and right resources in order to understand when to make a move. The literature on disruptive strategies proposes that the best way to cope with disruptive forces is to create, sustain, and nurture a network of feeder firms that have involved into a new market (Cook & Cusack 2011, p. 34). Through its development functions, the large established corporations might serve as a venture capitalist to these small companies. Then, when it is time to reinforce its position, it should move quickly and acquire the feeding company with the most perspective potential. Such creative industries as movie, theater, book, and visual arts have already used this strategy.
Bell (2011, p. 204) assumes that large established corporations can achieve success in implementing disruptive technologies if they can achieve integration and differentiation simultaneously. Moreover, new units should have a freedom to operate in a new market. This autonomy does not mean the absence of control but rather closer cooperation and active exploitation of synergies. Large established corporations should gain access to new ideas and be ready to investigate them. New knowledge, skills, and competencies can help entrepreneurs to make good choices and emerge new markets. Managers should be trained how to behave in new circumstances and make perfect decisions.
Disruptive technologies have emerged the modern life, and it is necessary to be well aware of the fact how to implement them in well-established business. Large established corporations need disruptive technologies to take hold and prosper in emerging markets. Even if they are unlikely to introduce disruptive innovations, they could still play a key role in the growth. They can do so by picking special innovations that local entrepreneurs have introduced and support them through the scaling up process. The problem is that large established corporations do not know how to adopt the innovations. They must, therefore, accept a strategy that allows them to develop skills, knowledge, and competencies needed to exploit disruptive innovations. They should also create a network of alliances or equity partnerships with these innovators. Over time, they can decide how these innovations work, and they can move in the innovation process.