I have been asked to give a specific example of disruptive innovation. In this post I will summarize, through verbatim quotations, the hypothetical sequence of events followed by Sony, as described by Professor Christensen. In theory, this sequence of events would explain how the small workshop that was Sony at its very beginning became the global corporation of today.
“Scientists at AT&T’s Bell Laboratories invented the transistor in 1947. It was disruptive relative to the prior technology, vacuum tubes. The early transistors could not handle the power required for the electronic products of the 1950s—tabletop radios, floor-standing televisions, early digital computers, and products for military and commercial telecommunications.. the vacuum tube makers, such as RCA, licensed the transistor from Bell Laboratories and brought it into their own laboratories, framing it as a technology problem. As a group they aggressively invested hundreds of millions of dollars trying to make solid-state technology good enough that it could be used in the market.”
Initially, the performance of the innovative technology is inadequate, when measured by the usual and accepted market metrics…
“Then in 1955 Sony introduced the world’s first battery-powered, pocket transistor radio an application that again valued transistors for attributes that were irrelevant in mainstream markets, such as low power consumption, ruggedness, and compactness.”
“Compared with the tabletop radios made by RCA, the sound from the Sony pocket radio was tinny and static-laced. But Sony thrived because it chose to compete against nonconsumption in a new value network. Rather than marketing its radio to consumers who owned tabletop devices, Sony instead targeted the rebar of humanity—teenagers, few of whom could afford big vacuum tube radios. The portable transistor radio offered them a rare treat: the chance to listen to rock and roll music with their friends in new places out of the earshot of their parents.”
…nevertheless, the new technology opens a new range of opportunities when applied differently. New entrants find a variety of new customers −initially different from those of the main stream− who value the new products.
“The next application emerged in 1959, with the introduction of Sony’s twelve-inch black-and-white portable television”
“Sony and the other vendors of transistor-based products therefore had to create a new channel in their new value network. These were chain stores such as F. W. Woolworth and discount retailers such as Korvette’s and Kmart, which themselves had been “nonvendors”—they hadn’t been able to sell radios and televisions because they had lacked the ability to service burned-out vacuum tubes.”
Dissemination of the innovation generates a new business model which differs from the model used by industry leaders.
“As these major new disruptive markets for transistor-based products emerged, the traditional makers of vacuum tube-based appliances felt no pain because Sony wasn’t competing for their customers.”
“When solid-state electronics finally became good enough to handle the power required in large televisions and radios, Sony and its retailers simply vacuumed out the customers from the original plane.. Within a few years the vacuum tube-based companies, including the venerable RCA, had vaporized.. They were immersed in an aggressive up-market foray of their own into color television. These were large, complicated machines that sold for very attractive margins in their original value network.”
“When the crisis became clear, the manufacturers of vacuum tube products couldn’t just switch to the new technology and pull customers back into their old business model.”
The development of the new technology generates better and better performance and it ends up overcoming the traditional technology, even when performance is measured applying traditional metrics.
New entrants displace industry leaders from important market segments or even from the entire market.
This particular example − assuming it corresponds to reality− would conform to the typical sequence of disruptive innovations suggested by Christensen. It would be a perfect example to illustrate the theory.
The Sony case was one of my favourites, until I did an in-depth analysis. Regretfully, my research proved that the sequence of events was totally different from the one described here. I will present my findings in the next post.
For teaching and research purposes we quote verbatim texts from “The Innovator’s Solutions”, 2003, Clayton M. Christensen and Michael E. Raynor, copyright Harvard Business School Publishing Corporation.