Blog #3: How disruptive technologies topple well-established organizations

In his book “The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail”, Clayton M. Christensen distinguishes sustaining technology from disruptive technology based on the financial impact they have on the well-established organizations. Established practices that improve product and financial performance of organizations and helps them set themselves apart from their competitors are sustaining technologies. Most technologies in any given industry fall under this category. Disruptive technologies, on the other hand, usurp the leading firms in the industry by causing their products to perform poorly. Disruptive technologies often fail in the mainstream markets, but occasionally they can transform the industry entirely and propel the major firms into a financial hellhole.

Amazon's revolutionizing of the book retail industry through e-commerce is one of the best examples of the transformational impact of disruptive technology. In 1996,  Barnes & Nobles, Border, B. Dalton, were the major retail booksellers while Amazon was a budding startup that sold books online with $16 million in sales. The top management at Barnes & Noble chose to ignore the online retail technology and stated in its 1998 annual report that though the internet offered profound possibilities, retail bookstores will remain the foundation of the industry and it's woven securely into the fabric of American culture. Further, it decided to fight Amazon in the late ’90s. Managers either ignore it or fight disruptive trends and it is a common mistake. The reasons for this are disruptive technologies don’t result in large margins for established firms to grow, and managers are reluctant to spend resources on disruptive technologies as their success rate is very low. Instead, they choose to focus on bettering what’s currently working for them. Today, Amazon dominates with a 50%  market share in printed books and Barnes & Noble is on the verge of insolvency. It's online attempts have been a major failure resulting in just 2% of the share compared to Amazon's 84%. Its stock price has plummeted since the $30 peak in 2007, and today it stands at a dismal $5.

The author states that established organizations shouldn’t rely on traditional strategies and forecasts when dealing with disruptive technology. It is because accurately analyzing and using traditional strategies in a market that doesn’t exist is futile. Organizations need to get into disruptive markets with an intent to learn and identify assumptions on which their business plans are built instead of implementing strategies directly. Overall, the key takeaway from this week’s readings were disruptive technologies can be transformative and tumble even the most well-managed organizations. While careful planning and strategizing works in established markets, the disruptive markets need unlearning of older ways and strategizing on what works best in the new markets. 

References:

1) Christensen, C. M. (1997). The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail. Harvard Business School Publishing.

2) Erica Pandey (7 October, 2018). How Barnes & Noble, the last big bookstore, fell to Amazon. Retrieved from Axios: https://www.axios.com/barnes-and-noble-book-stores-sale-amazon-effect-4f2753d2-818c-49d1-878a-60f0c3a5b3f7.html

3) John Maxfield (15 August, 2012). How Barnes & Noble destroyed itself. Retrieved from The Motley Fool https://www.fool.com/investing/general/2012/08/15/how-barnes--noble-destroyed-itself.aspx

4) Yahoo Finance