Transcript How Can Great Firms Fail? Insights from the Hard Disk

How Can Great Firms Fail?
Insights from the Hard Disk Drive Industry by Clay Christensen
Presentation by Helge Döring
How Can Great Firms Fail?
How disk drives work:
-A hard disk contains of platters, spindle, engine, actuator arm with a
read and write head
-The components above work like a „record player“. Read and write
head on the actuator arm functions like the phonographic arm and
needle of a record player
-Today's engines spin the platters with an average of 10000 rpm
(rounds per minute) in 0.05 µm height over the medium
-Binary Data is transferred into positive and negative magnetic force
Presentation by Helge Döring
How Can Great Firms Fail?
Price per Megabyte (Constant 1982 Dollars)
Price Development in the Hard Drive Industry:
Average
Computer
80286
20 MB HD
Price 4000$
1.000,00
1977
100,00
10,00
Average
Computer
8086
10 MB HD
Price 6000$
Average
Computer
80486
200 MB HD
Price 2500$
1980
1985
Average
Computer
80386
40 MB HD
Price 3000$
1,00
Average
Computer
Pentium
1 GB HD
Price 3500$
1990
1994
0,10
10
100
1000
10.000
100.000
Cumulative Terabytes Produced
Presentation by Helge Döring
How Can Great Firms Fail?
Price Development in the Hard Drive Industry:
-The number of megabits (Mb) put in a square inch has increased by
35% per year. From 50 Kilobytes (Kb) in 1967 to more than 1 Gigabyte
(Gb) in 1995
-Today “seagate” manages to put 100 Gb on one single platter
-My own 160 Gb Samsung hard disk costs 0,0005$ per Mb ≈ 80$
-With each doubling of cumulative terabytes sold in the market
the cost per megabyte fell by 53%. That`s an outstanding performance
no where else to be found.
-Dimensions:
The average 3.5” Floppy Disk has a capacity of 1.44 Mb or
1.509.949 bytes / 100 Gb equal 107.374.182.400 bytes
or 71111 of the above mentioned 3.5” Floppy Disks
Presentation by Helge Döring
How Can Great Firms Fail?
Improvements in Recording Density:
Arial Recording Density
(Millions of Megabits per Square Inch)
Magneto-resistive heads
1000
100
Ferrite-oxide heads
Thin-film heads
10
1975
1980
1985
1990
1995
Year
Presentation by Helge Döring
How Can Great Firms Fail?
Innovations in the recording industry:
-In 1973 IBM develops the first hard disk of modern kind; the
winchester 14” model based on “ferrite oxide heads”
(incremental improvements are made by increasing the density)
-There is no other technique until 1985 when “thin film heads” emerge
(this can be named a radical new technology)
-The performance data of “ferrite oxide heads” then is much higher,
than the new “thin film heads”, but the last named has much more
potential (incremental improvements vs. radical improvements)
-By 1993 “magneto-resistive heads” emerge and outperform both other
techniques after a short while (next radical step up the ladder)
-Today's tests base on glass fiber as the material of the future
(a radical innovation again)
Presentation by Helge Döring
How Can Great Firms Fail?
The technology mudslide hypothesis:
Market
Leading Company
Market development direction
Presentation by Helge Döring
How Can Great Firms Fail?
Behind the mudslide hypothesis:
-Which companies lead, which stay behind?
-What have the leading companies got that enables them to
lead the market?
-Which innovations lead to a revolution in the market (make the
established firms fall behind and catapult the entrant firms in front)?
-Is market pace or a company’s ability responsible for success?
-Are passiveness, arrogance or a risk-averse strategy the reasons for
failure in this economy?
Presentation by Helge Döring
How Can Great Firms Fail?
Portfolio of the computer and disk drive evolution:
Mainframe Computer
- uses 14“ drive
Minicomputer
- uses 8“ drive
- later 8“ and smaller
clockwise: the evolution
of the computer
- uses 3.5“ drive
- uses 5.25“ drive
- later 2.5“
- later 3.5“
Portable / Notebook
Desktop Computer
Presentation by Helge Döring
How Can Great Firms Fail?
Portfolio of the computer and leading disk drive manufacturers:
Mainframe Computer
Minicomputer
IBM / Diablo / Ampex /
Memorex / EMM/ Wang /
Western Digital /
Read Rite / Control Data /
Burroughs / Univac /
Micropolis…
IBM / Western Digital /
Micropolis / Seagate /
Fujitsu / Hitachi / NEC
At first 129
companies
later
clockwise: the evolution
of the computer
Excelstore / IBM-Hitachi /
only 20
Fujitsu / Maxtor /
left
Samsung / Seagate /
Toshiba / Western Digital
Portable / Notebook
90 ´s
Quantum / Connor /
Maxtor / Samsung /
Toshiba / Kalog /
Mitsumi / IBM /
Western Digital /
Seagate / Micropolis/
Fujitsu / Hitachi /
NEC
Desktop Computer
80 ´s
Presentation by Helge Döring
How Can Great Firms Fail?
Boston Consulting Group Portfolio:
Presentation by Helge Döring
How Can Great Firms Fail?
Disruptive Innovations vs. Sustaining Innovations:
-Sustaining technologies foster improved product performance
(be it a incremental, discontinuous or radical one)
-The disk in focus has a higher density, is faster, but still 5.25” in size
-An established product is being improved by sustaining technology
-Disruptive technologies are sometimes worse than the established
product and under perform them in the near term
-Disruptive technologies are typically cheaper, simpler, smaller and
sometimes more convenient to use
-The disk in focus here is smaller (2.5”), slower, needs less power and
is used in a completely different market (portable computers)
Presentation by Helge Döring
How Can Great Firms Fail?
Evil Customers:
-Disruptive Technologies are not wanted by today’s customers, but
by tomorrows customers
-The market is usually ahead of customers needs
-Customers want the product they already know
-Markets that don’t exist today can’t be analyzed
-In 1980 a portable Computer wasn’t even in sight, in 2004 it’s a
common good
-If you stick to your customers you might miss the chance to enter
tomorrows markets
Presentation by Helge Döring
How Can Great Firms Fail?
Established firms vs. entrant firms:
Established firms:
-are responsible for their customers
-use mostly incremental / sustaining innovations (to keep customers happy)
-depend on their customers
-have only a biased inside view of the market
Entrant firms:
-are independent
-use mostly radical / disruptive innovations (to access new markets)
-have an unbiased outside view of the market
“If you can’t beat your competitor on his own ground take the battle to
another level!”
Presentation by Helge Döring
How Can Great Firms Fail?
Critical inquiry:
-129 companies in the past reduced to 20 at present; a familiar process
of evolution that can be found in many other industries e.g. Software,
Automobile, Brewery Business etc.
-The companies didn’t fade away but merged like Seagate/Connor or
IBM/Hitachi (joint venture) or concentrated on different subjects and
later returned to the same market again like IBM, Wang and Mitsumi
-p.21 Quantum is still a significant manufacturer of hard disks and
didn’t perish
Presentation by Helge Döring
How Can Great Firms Fail?
Discussion:
-Is it so easy to differentiate between disruptive and sustaining techs?
-Isn’t it poor management if you do the same mistakes your competitor
did when you overtook him?
Presentation by Helge Döring