Impact of Disruptive Innovations on Adjacent Markets - Research Paper Example

Introduction Fresh technological innovations have emerged as the major drivers of trade in almost all sectors including curative, entertainment, telecommunications, farming, and manufacturing industries drastically affected by fresh tools that have cut down and unlocked novel digitised processes. Innovation thus encompasses tools, systems, strategies, procedures, commodities and services. These innovations involve either disruptive or sustaining technologies depending on the resultant impacted market. Nevertheless, disruptive technologies or disruptive innovations are inventions that enhance commodities or services through unanticipated methods by the market, principally emerging as inexpensive alternatives to the established products or intended for a divergent group of clientele. This study will thus examine the impact of disruptive technologies on established markets leaders by contrasting component and system level innovations. Definition of the Term disruptive Innovation According to Thomond and Lettice (2002: 2), disruptive innovations are a expression applied to express innovations that are of extremely irregular or radical manner, which is the contrary of transformational or incremental novelty. Utterback and Acee (2005: 1) following Christensen (1997) describe the term disruptive technologies as denoting fresh technologies with lesser outlays and performance when considered by conventional decisive factors, but conversely having superior additional utility in contemporary terms. Definition of General Purpose Technologies General purpose technologies (GPTs) are tools that can impinge on an entire market (typically at a nationwide or international level). GPTs have the possibility of radically modify civilization due to the effect on pre-existing economic and community formations hence inducing macro-invention rather than the conventional firm-level innovations. These include locomotives, power, the vehicle, the workstations, and the online (Lipsey et al. 2005). Definition of Specific Purpose Technologies Specific Purpose Technologies (SPT) are in contrast to GPT innovations specialised localised tools that focus on specific industries hence merely transaform the intended sector but have minimal effect at national levels. These include such innovations at component level where alterations in design may radically disrupt the existing products by introducing fresh ideas like in computer hard disk, memmory drives and vehicle engines. Distinction of Component and System Level Innovation Systems innovation comprise of mechanisms, interactions between components, and their features or qualities transformed into fresh units. This indicates that the innovation is aimed at altering or transforming the entire unit to better performance or upgrade in a sector. Conversely, component level innovations describe those innovations that deal with particular segments or components of a system. Inventions on special units of the system like hard disk, miniature designs and other components improve on the existing system or unit but don’t transform the entire sector. Impact of disruptive Innovation A Global CEO Study in 2004, indicated that majority of contemporary CEOs have discerned the import of innovative technologies as the foremost key driver in a firm’s competitiveness due to the resultant brand worth and less outlay as opposed to M & A that often necessitates hefty overheads (Day, 2007: 7). He went to postulate that though “nanotechnologies, artificial intelligence, smart sensors, digital photos, and the innumerable other advances in genomics and proteomics” proffer radical transformations, it’s not easy to forecast whether the inventions can be positive or negative to the existing marketing players through disruptive or enduring growth (Day, 2007, p. 15). Nevertheless, disruptive innovations or technologies can be categorised into two major segments encompassing the component and system level innovations. The former indicates the micro level while the latter describes the macro levels in the impact of the innovations. IMPACT OF COMPONENT LEVEL INNOVATIONS This indicates enhancement of products to enhance their efficiency by devising structural changes and mechanisms. It is aptly exemplified by the Japanese based Kaizen model, which has drastically reduced outlays within production processes. According to Monden and Lee (1993: 22), Kaizen is a Japanese innovative technique used to manage costs throughout a product's scheduling and design phases. The practice aims at reducing costs through diverse techniques including “value engineering and functional analyses” for every production unit. Kaizen costing unlike target costing is integrated while the product is still in the process rather than prior as in the later. Through cost reduction, the firms are able to appropriately reduce the product price hence effectively compete in the market after several innovative reengeering stages. At Toyota, kaizen emphasise not only in the reduction in costing, but also on increasing the appropriate sales revenue of the product per unit of production. Variable costs progressively amplify as production improve hence leading to higher costs. Kaizen at Toyota allocates expedient variable production costs to each unit (kaizen unit) to be enhanced including daily functional process, hi-tech and engineering developments (Lawless, 2006: 6). Thus Japanese automakers and electronic firms were able to penetrate US and European markets through secondary innovation whereby through kaizen, the continuous improvement on design and cost reduction ensured market leadership disrupting traditional giants like General Motors and Chrysler in the US and British Leyland, Renault, and Peugeot from France. While in electronics, Philips and Kodak were dislodged by Sony, NEC etc. as the latter improved on existing designs to fill the market gaps and eventually also encroach on others. The Japanese automakers and electronic firms were therefore able to upstage the dominant Western products whereby some were rendered absolute through their innovative technologies that not only targeted fresh market strategies but also continuous mass market production techniques. The concept has been also upheld by Apple Inc. whose iPod, iPhone, iPad and iTunes that have periodically been upgraded as their iconic CEO Steve Jobs always anticipates or forecasts market demand thus ensuring the continued market leadership in smart technologies through highly innovative products. Therefore to avoid the negative impact of disruptive technologies, many established firms evolve their products by identifying new areas of unexploited market segment and launch merchandise to serve the sectors. The hybrid and electric vehicles are now being massively produced after the established market leaders like Toyota and GM anticipated the market demand will expand despite the lukewarm reception and high costs in their formative years. Disruptive technologies are mostly intense in the media industry where the fast evolving innovations tend to render the prevailing ones redundant within very short intervals. This was the case in move from cassettes to CDs-DVDs- MP3- MP4s- Flashdisks and online streaming that have all made the industry very dynamic and unpredictable. The key firms have hence been rapidly overstretched by the turn of events with many recording huge losses to their profits (Moreau, 2009:13). These indicate a component level innovation that radically disrupts the existing ones to transform the market. IMPACT OF SYSTEM LEVEL INNOVATIONS Systems are described as a set or arrangement of components so interrelated or linked as to form a unison or raw intact unit. Innovation technologies can be thus be categorised as being spread countrywide, locally, divisionally, or technically but all invoking the conception, dissemination, and application of skills. Consequently, Sapsed et al. (2007: 1317) while commenting on the diverse Sectoral Systems of Innovation (SSI) concept, argue that bridging firms can resolve disused sectors of inventiveness and latent disruptive innovation by filling the gaps in the system instigated by the overlap of old technology and emergent ones. Disruptive technologies originate from fresh emergent innovations whereas technology is used as a basis for an inimitable systematic code, on which corporations formulate merchandise to supply clients’ requirements in distinct markets. Mostly these innovations enhance reputable products by expanding their efficiency either wholly or some components. Within markets described as set of customers whose analogous desires are being provided for by a chain of rival technologies, companies, and products, there is a likelihood of emergent technological attacks on the market leader. This generates either a lower attack; whereby the fresh technology is unable to subdue the dominant technology; or an upper attack prevalent when the emergent technology outshines the popular market leader (Sood and Tellis, 2010:1). Innovative Technologies and Environmental Conservation The need for environmental conservation in view of the rapid deteriorating ecology and the ozone layer has led to many organisations and nations actively adopting green or bioenergy technologies (Tapaninen, 2008:6). Nevertheless, the initiatives have faced stiff resistance by some quarters due to the perceived threat to their market leadership. Some of these organisations hesitant to support the environmental conservation efforts include energy firms like oil firms and other large automotives manufacturing companies fearing the disruptive technologies from hybrid and electric cars. Others are in the agricultural sector where biotechnology has seen many progressive genetically modified plants thrive in modest conditions against the wishes of other established farming entities. In Europe their have been much push for the reduction of emissions of greenhouse gases through such efforts like biofuels to replace gasoline and wood pellet burning technologies, applied for domestic heating technique rather than natural gas. The EC thus aims at increasing the use of renewable energy through effective use of green technologies by 10 percent by 2020 (Tapaninen, 2008:2). IMPACT ON FUTURE TECHNOLOGIES AND MARKETS Cloud Computing One of the most eagerly anticipated disruptive technologies to emerge in recent years has been cloud computing which is projected to radically change the way organisations operate their businesses inexpensive IT outsourcing potential. Consequently, the prospects of the firm that evolves the most compelling system confident of being the market leader is obvious, thus organisations must get acquainted with the technology to cushion them against the looming drastic revolution (Deloitte, 2010). According to consultant firm Deloitte (2010:2), cloud computing is a concept that offers “on-demand, self-service computing resources with ubiquitous network access, location-independent resource pooling, rapid elasticity, and a pay per use business model” (Pg. 2). Some of the leading providers include Amazon Web Services, Google App Engine, and Force.com who all together have generated thousands of such applications. Through strategic partnership and candour, the firms have offered their clients access to each other’s databases generating finer applications in their respective cloud. Rapid appraisals by pioneering cloud contributors have thus produced four distinctive levels of facilities including: infrastructure as a service (IaaS), platform as a service (PaaS), software as a service (SaaS), and business as a service (BaaS). However these changes portend a major threat to large firms that offer same services at a premium since cloud computing is gradually lowering the expenditure to the minimum through its corroborative and partnership nature. Accordingly as the new technologies get more enhanced, the prevailing IT architectures will gradually become redundant as the applications ascend into the ‘cloud’ (Deloitte, 2010:3). Nevertheless, the nature of the progression is projected to be into those sectors not served by the existing models. Figure 1 Source: Deloitte (2010) According to Deloitte (2010;3), the progression of cloud computing will engender four stratums of escalating disruption [see above], decided by an intricate interchange of segments of clients with unfulfilled production desires, embryonic cloud computing capacities and fresh sets of suppliers rising to convey these facilities to clients. The four disruptions levels categorised by cloud computing encompass: the expansion of latest technology release systems; the progression of a new-fangled IT architecture to tackle unfulfilled requirements of trade environments; swift espousal top to the reorganization of the IT sector; and the disruption of erstwhile businesses further than soaring technology founded on these innovative capacities. RESPONSES TO DISRUPTIVE INNOVATION Disruptive Technologies and Biotechnology Disruptive technologies have the ability to transform markets positively and negatively for the emergent firm and incumbent organisations respectively. Nevertheless, most of these disruptive innovations have a progressive impact on the consumers. One of the most controversial disruptive technologies is biotechnology. This is due to the wider impact on economies and nations particularly on agricultural and energy products amongst developing nations. Biotechnology is prevalent in biomedical and agricultural research has been described as the use of systematic and implements on live organisms in addition to components, commodities and strategies thereof, to modify live or inorganic material for the invention of awareness, commodities and services (Rasmussen, 2005: 3). Biotechnology thus encompass all the advances to develop living creatures (whether complete or component), utilised to invent or alter stuff, to expand plant life or vegetation and fauna, or to press forward microbes for a specific use. It is a blend of assorted scientific disciplines ranging from: heredity, biochemistry, molecular natural science, embryology, and environmental science which are put together or produced by applying chemical engineering, robotics, and hi-tech computer skills (IUFoST, 2010: 1). Biotechnology is therefore capable of offering genetically modified technologies that eliminates diseases in vegetables and other plant life while enhancing their productivity capacities. Utterback and Acee (2005: 2) following Christensen’s analogy assert that traditional market leaders are contrary to conventional perception the leaders in R&D for new products but the long-term nature of generating a breakthrough means they are overtaken by new emergent firms that build their innovations from the already developed concepts. This was evidenced by IBM developing a film head on hard disc drives but fresh firms basing their innovation on that overtook them and thus took over the market. Likewise Microsoft based their Windows concept from that of Apple refining it and repackaging in simpler market friendly platform to eventually dominate the operating system market. Nevertheless, Apple has since learned from its mistake and now actively bases its products on continuous innovation always making sure they are ahead of the competition in gadgetry and smart products. As evidenced by Japanese firms application of Kaizen costing concept of continuous improvement, imbedded in their psyche for perfection through innovative readjustments. Although fresh emergent products render the existing market leaders to lose their niche, they nevertheless introduce fresh market players who bring better products for the consumers as well as enhancing efficiency thus reducing production outlay and ultimately the market price. The consumer also get gain access to products previously the domain of the privileged few as exemplified by the introduction of digital cameras, mobile phones explosion and earlier the desktop PCs that all enabled mainstream ownership of sublime goods. Thus Utterback & Acee (2005: 14) assert that innovations that expand the market generate scope for fresh companies to enter the market hence most of the new entrants emanate from outside the conventional markets. Rather than aiming at introduction new products and concepts traditional corporations should target consumers demand gaps that emphasise on finding ways of enticing the market demand to shift to already marketed commodities that are shunned due to their high prices or designs. Utterback and Acee (2005: 15) therefore support Christensen’s (2002) recent assertion of firms seeking innovative ways of enhancing their current products to widen their reach instead of concentrating on disruptive technologies. According to Christensen et al. (2002), “it’s much easier to target potential consumers who aren’t buying at all than to steal customers from an entrenched competitor” (Pg. 32). An alternating renovation can radically boost the aggregate demand for the commodities as exemplified in the fountain pen being replaced by the ball-point pen or digitalisation in telecommunications whereby products usually start off as ostensibly high-priced but gradually through each successive innovative stage in turn become inexpensive as compared to the established products. Eco-efficiency has been described as the production of reasonably priced commodities and services that gratify individual desires and convey value of existence while gradually improving environmental impact and supply strength in their life cycles, to a point at minimum aligned with the planet’s approximate capability. Eco-efficiency is a wide-ranging conception that is generally calculated at the commodities or service stage. Eco-efficiency thus encompasses “less environmental impact per unit of product or service value” (Kemp and Foxon, 2007, p. 20). Eco-Efficiency = Product or Service Value Environmental Impact Eco-innovation often leads to disruptive tendencies as established products are gradually dislodged by the emergent green technologies like hybrid cars vis-à-vis gasoline vehicles or leather garments being ostracised. Role of ICT Information and Communication Technologies (ICT) have added considerable backing to production modernization and capital creation for institutions, communities and government. ICT has also assisted critically to ecological deprivation after the significance of the need to take action to increasing ecological trepidation in civilization, administrative necessities and market demands; however numerous trade executives still vacillate on how best to tackle this ominous cataclysm. Accordingly, novel disruptive technologies still offer the surest route to enhanced productivity and escape as emergent fresh technologies in biotechnology, nanotechnology, and perioperative schemes provide an avenue for better green technologies (Verweire and Berghe, 2008: 74). Contemporary businesses have thus integrated the swift transformations in ICT as the communication sector changes necessitate modern organisations to incorporate these processes, which are not only technically superior, but also more client- focussed. The significance of a structure based ICT platform to propagate business services is exemplified by the emergence of Web 2.0 an e-Information scheme that uses innovative technologies in client focussed policies, essentially altering the manner services and other business are conducted (Blowers, 2006: 2). The fundamental motivation for the (Web 2.0 technologies) is thus exploiting shared capacities of diverse experts or adept to generate higher or complex systems [figure 4]. Figure 2 Impact of Disruptive Technologies from Emerging Markets As firms seek to expand their market presence through fresh technological innovations, there is a need to consider the local prevailing economic conditions in view of poverty levels or purchasing power hence evolve technologies that will be accessible to the target market. Nevertheless while the Western companies have failed to effectively penetrate the disparate developing countries markets, the disruptive nature of the mass market targeted cheap technologies from the merging nations have not only remained dominant in their markets but virtually taken over the developed world markets. These countries include China and India who have evolved disruptive technologies through inventions of cheap commodities whereby the lack of patent rights and outright plagiarism of the already existing technologies enable them produce simplified low-cost products that easily dislodge the leading market leaders. Following this, Brown and Seely (2005: 37) have examined the nature of the emergent disruptive technologies from these countries including mobile phones, garment brands, or computers that have their key components copied and cheapened to reproduce replica brands that erode the market position of the original brand. The authors thus asserted that this was an innovative blowback as the ‘inventor copycats’ from these nations’ practised disruptive practices in the wake of many developed countries relocating there to access cheap labour hence exposing their competitive technologies to the obviously unethical local citizens. This has enabled the Chinese and Indian firms to modify the formerly leading miniaturised Japanese low-priced technologies to even lower-priced models that have effectively pushed them from many markets. Dominant models like Honda, Suzuki and Yamaha motorcycles have been eclipsed in the global market with the Chinese emergent models like Dachangjiang, Longxin and Cixi Zongshen predominant amongst the developing countries and thus controlling over 50 percent of the global market (Brown and Seely, 2005: 39). In Vietnam, Honda’s 90 percent market position in 1997 was dislodged in five years to 30 percent in 2002. Localising Innovations Although the emerging nations have been accused of copying existing designs rather than having own inventions, Brown and Seely (2005: 41) argue that innovation is not merely radical “Big Bang Theory” inventions but involve transforming other production components into viable less costly methods. This was earlier examined in the Kaizen model but ironically the Japanese are not amused by the Indian and Chinese firms improving on their production methodologies to further drive down the production costs. These disruptive technologies conform to the component level innovation that is less system based but more on perfecting less expensive method of productions. Many of the components used are hence outsourced as there are minimal brand rights and many small firms share their competencies indiscriminately to the detriment of the more expended products from established firms now unable to compete with this disruptive technological derived products. In India, the miniaturisation of not only portable gadgets but automobiles including tractors, tricycles, and recently the world’s smallest car has enabled the firms there access a viable market that was deprived of such products. Extremely cheap but non-durable mobile phones and other inexpensive products are also found viable for the less endowed populace in developing markets retailing at very cheap prices hence not requiring much outlay to develop (Day, 2007: 20). Clearly networked strategies are needed by many western firms who expand heavily in R&D only to lose out to fresh emergent disruptive technologies that base their innovations on their prototypes, thus the triumph of an innovating companies necessities both the capacity to assemble its individual innovation resources and in addition ventures from other firms in its industry. Conclusion Innovation has been variously considered a major driver organisation’s ability to engender a competitive edge for their products and hence a critical impetus to global market penetration. In this regard, organisations have always actively sought to invent fresh technologies that will assist them achieve the goals but are generally eclipsed by upstart firms that emerge with disruptive technologies. Disruptive technologies nevertheless have opened up markets for new products and players who capitalise on the unexploited segments while simultaneously stimulating growth in consumerism as fresh inexpensive products become accessible to new clients. Component level technological innovations have now overhauled the dominance of the system level inventions particularly from the emerging nations. To sustain their market position, western firms must embrace new strategies including specialisation to avoid been eclipsed by these disruptive technologies. 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