Disruptive vs. Sustaining Technologies

by Melanie Simko

The distinction between disruptive and sustaining technologies and the different strategies associated with each were key takeaways from the readings this week. As noted in the Innovator’s Dilemma excerpt, when leading companies evaluate whether to develop or acquire disruptive technologies, it requires leadership to essentially abandon the strategies that have made them so successful. Much of the investment in technological innovation by these companies is focused on improving existing product offerings based on features that their current customers value and maintaining the status quo. It is not likely that investing in disruptive technology will result in increased profits or sales growth in the short term so it is often a less attractive option for company leadership.

Most established companies use customer feedback to guide their product innovations for sustaining technologies because that is where the largest profit margins exist, but the readings offered a strategy that companies can use to discover the disruptive technology that will keep them competitive in the future. John Chambers and Cisco’s approach of listening to their customers’ perspectives on new technologies in order to find their next big opportunity requires meaningful conversation beyond just looking for the next sale. This method can also be used effectively to explore larger emerging trends for novel technologies when there is not much available in the way of traditional market analysis.

Disruptive technologies often begin as low-end products and, in this way, they can fly under the radar of industry leaders. The Innovator’s Dilemma reading alluded to mini mills as disrupters in the steel industry. Throughout the 1970’s, Nucor revolutionized the steel industry with its disruptive technology of converting scrap metal into raw materials for steel production with the use of electric arc furnaces¹. This method allowed the company to produce bar steel cheaper than it could buy from domestic or foreign suppliers. Its upfront capital costs were also far less than the larger, integrated steel mills who had already invested in infrastructure to support traditional coke and iron manufacturing processes. Ultimately, some of the larger mills that clung to the costlier integrated model, such as Bethlehem National and Republic Steel, were unable to compete on price with Nucor and they were forced out of business.

At the time that the decision was made to adopt the mini mill technology, Nucor was already a major player in the steel joist market and its sales and profits were growing. They could have kept this strategy that seemed to be working for them using the sustaining technology but in this case, they were able to successfully integrate the disruptive innovation and position themselves to gain significant market share in not only the steel joist market but also in steel decking and sheet steel.

Reference

1.     http://www.fundinguniverse.com/company-histories/nucor-corporation-history/