How Can Great Firms Fail

8/6/2019 How Can Great Firms Fail

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How Can Great Firms Fail?

Presentation by Helge Döring

Insights from the Hard Disk Drive Industry by Clay Christensen




How disk drives work:


-A hard disk contains of platters, spindle, engine, actuator arm with a readand write head

-The components above work like a „record player“. Read and writehead on the actuator arm functions like the phonographic arm andneedle 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



0,10

1,00

10,00

100,00

1.000,00

10 100 1000 10.000 100.000Price

perMegabyte

(Con

stant1982D

ollars)

Cumulative Terabytes Produced

Price Development in the Hard Drive Industry:



1977

AverageComputer

808610 MB HDPrice 6000$

1980

AverageComputer 8028620 MB HDPrice 4000$

1985


1990


1994

AverageComputer Pentium1 GB HDPrice 3500$




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) in1995

-Today “seagate” manages to put 100 Gb on one single platter

-With each doubling of cumulative terabytes sold in the marketthe cost per megabyte fell by 53%. That`s an outstanding performanceno 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 bytesor 71111 of the above mentioned 3.5” Floppy Disks

-My own 160 Gb Samsung hard disk costs 0,0005$ per Mb ≈ 80$



1975 1980 1985 1990 1995

10

100

1000


Year

ArialRecordingD

ensity

(Mill

ionso

fMegabitsper

Sq

uareInch

)

Improvements in Recording Density:


Ferrite-oxide headsThin-film heads

Magneto-resistive heads




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 morepotential (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)




The technology mudslide hypothesis:


Leading Company

Market

Market development direction


http://slidepdf.com/reader/full/how-can-great-firms-fail 8/16Presentation by Helge Döring

Behind the mudslide hypothesis:


-Which companies lead, which stay behind?

-What have the leading companies got that enables them tolead the market?

-Which innovations lead to a revolution in the market (make theestablished 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?




Portfolio of the computer and disk drive evolution:


- uses 14“ drive

- later 8“ and smaller

- uses 8“ drive

- uses 5.25“ drive

- later 3.5“

- uses 3.5“ drive

- later 2.5“

Mainframe Computer Minicomputer

Portable / Notebook Desktop Computer

clockwise: the evolution

of the computer




Portfolio of the computer and leading disk drive manufacturers:


IBM / Western Digital /Micropolis / Seagate /Fujitsu / Hitachi / NEC

Mainframe Computer Minicomputer

Portable / Notebook Desktop Computer

clockwise: the evolution

of the computer

IBM / Diablo / Ampex /Memorex / EMM/ Wang /Western Digital /Read Rite / Control Data /Burroughs / Univac /

Micropolis…

Quantum / Connor /Maxtor / Samsung /Toshiba / Kalog /Mitsumi / IBM /

Western Digital /Seagate / Micropolis/Fujitsu / Hitachi /NEC

80 ´s90 ´s

Excelstore / IBM-Hitachi /Fujitsu / Maxtor /Samsung / Seagate /Toshiba / Western Digital

At first 129companies

only 20left

l a t e

r



Boston Consulting Group Portfolio:





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 establishedproduct 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 andis used in a completely different market (portable computers)



Evil Customers:


-Disruptive Technologies are not wanted by today’s customers, butby 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




Established firms vs. entrant firms:


Established firms:

Entrant firms:

-are independent-use mostly radical / disruptive innovations (to access new markets)

-have an unbiased outside view of the market

-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

“If you can’t beat your competitor on his own ground take the battle to

another level!”




Critical inquiry:


-129 companies in the past reduced to 20 at present; a familiar processof 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 andlater 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




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?

How Can Great Firms Fail

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