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r 2004 Product Development & Management Association

Disruptive Technology Reconsidered:

A Critique and Research Agenda

Erwin Danneels

The popular work by Clayton Christensen and colleagues on disruptive technology

serves as a springboard to examine ve key issues concerning the effect of techno-
logical change on rms and industries. This article challenges and integrates current
theory in this domain, and raises questions to initiate new work. The discussion is
organized around the following themes: the definition of disruptive technology, the
predictive use of the theory of technological disruption, explaining the success of
incumbents, the implications of the theory for the merits of being customer-oriented,
and the merits of creating a spin-off to commercialize the disruptive technology.
Examination of these themes shows the relationship of the disruptive technology
work with research in a variety of related areas. Many of these links have not been
made explicit before, and several of them have been misunderstood. This article is
intended to encourage further research on disruptive technology and spur debate by
practitioners and scholars alike.

I
t is rare that a scholarly work draws so much disruptive technology, as well as its mecha-
attention as Harvard Business School professor nisms and effects on rms and industries. Although
Clayton Christensens work on disruptive tech- Christensens work has contributed to our under-
nology. His book The Innovators Dilemma (1997) has standing of the impact of technological innovations
sold over 200,000 copies since its release in May 1997 on the fates of rms and the dynamics of industries, a
and has received extensive coverage in business pub- close reading of his book and the articles he has co-
lications. Christensen was elevated by the business authored with his colleagues has left many questions
press to the status of guru (Scherreik, 2000). His unanswered. To promote further systematic inquiry
work also has been cited extensively by scholars work- into this eld this article carefully reexamines the no-
ing in diverse disciplines and topic areas, including tion of disruptive technological change, its mecha-
new product development (NPD), marketing, strate- nisms, and its consequences for rms and industries.
gy, management, technology management, and so The contribution of this article is twofold. First, it will
forth. link the work on disruptive technology to a wide
However, despite how widespread Christensens range of related literature streams, thus revealing new
work on disruptive technology has become in busi- connections to be explored. Second, this article devel-
ness circles, there seems to be a lack of constructive ops a research agenda that may inspire further theo-
criticism of the core concept of his theory, namely retical and empirical work on the nature and effects of
disruptive technological change in particular and
Address correspondence to Erwin Danneels, Department of Man- technological change in general. Hopefully, inspired
agement, Worcester Polytechnic Institute, 100 Institute Road, Worces-
ter, MA 01609. Tel: (508) 831-5181. Email: erwin@wpi.edu. by the linkages to related literatures, a programmatic
 I am indebted to students at Emory University and the Worcester
stream of research in this domain may be developed.
Polytechnic Institute for their insightful discussions. Special thanks to
Hank Chesbrough, Andy King, and Chris Tucci for their feedback on
The discussion is organized around the following
my interpretation of their ndings. themes: (1) the definition of disruptive technology;
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(2) the predictive use of the theory; (3) explaining the catching up with the lead of the entrants that emerged
success of incumbents; (4) the implications of the the- based on the disruptive technologies. Therefore, dis-
ory for the merits of being customer-oriented; and (5) ruptive technologies tend be associated with the re-
the merits of creating a spin-off to commercialize the placement of incumbents by entrants.
disruptive technology. Table 1 presents an overview of From the previous summary, it seems that a dis-
the research questions that could inspire program- ruptive technology is a specific type of technological
matic research in each of these themes. change, which operates through a specific mechanism,
and has specific consequences. However, these in-
sights need to be rened further. Therefore, my rst
What Is a Disruptive Technology? and most essential question concerns what a disrup-
tive technology actually is. If disruptive technologies
Before starting the reexamination of the notion of pose a threat to industry incumbents and an oppor-
disruptive technology, it is useful to summarize briefly tunity to entrants, managers and scholars need to be
Christensens notion of disruptive technology. Even able to distinguish disruptive from sustaining technol-
though disruptive technologies initially underperform ogy. What makes a technology disruptive? What are
established ones in serving the mainstream market, the exact criteria for identifying a disruptive technol-
they eventually displace the established technologies. ogy? Christensen does not establish clear-cut criteria
In the process, entrant rms that supported the to determine whether or not a given technology is
disruptive technology displace incumbent rms that considered a disruptive technology. In his review of
supported the prior technology. The process is 16 empirical studies of the impact of technological
understood best by the joint consideration of the shifts on incumbent rms, Chesbrough (2001) noted
trajectories of performance offered by technological the studies used inconsistent terminology; in other
alternatives and the trajectories of performance words, they lacked common criteria to classify differ-
demanded in various market segments. Initially, dis- ent types of technologies.
ruptive technologies do not satisfy the minimum re- A question that remains is whether a technology is
quirement along the performance metric most valued inherently disruptive or if disruptiveness is a func-
by customers in the mainstream segment and thus are tion of the perspective of the companies subject to it.
considered inappropriate by incumbents in the main- Christensen has argued (e.g., Christensen et al., 2000;
stream market for satisfying the needs of their cus- Christensen and Raynor, 2003) that the Internet is
tomers. The products based on the disruptive disruptive to some but sustaining to other rms, de-
technology initially only satisfy a niche market seg- pending on whether it is consistent with their business
ment, which values dimensions of performance on model. For instance, the Internet is sustaining to cata-
which the disruptive technology does excel. Over time, log retailers and discount brokers, but it is disruptive
as research and development (R&D) investments are to department stores and full-service brokers.
made and the technology matures, the performance Another important question is at what point in
supplied by the disruptive technology improves to the time a technology becomes disruptive. Does it become
point where it also can satisfy the requirements of the disruptive once it invades an existing market and dis-
mainstream market. Incumbent rms, who focused places another technology? For instance, at what
R&D attention on improvements to existing technol- point does digital imaging become a disruptive tech-
ogies (i.e., sustaining technologies), have a hard time nology? Also, is disruptiveness a function of the
market in which products are sold? Several markets
BIOGRAPHICAL SKETCH could be subject to disruption by digital imaging,
Erwin Danneels is assistant professor of marketing at Worcester such as photo-processing labs, lm manufacturers,
Polytechnic Institute in Massachusetts. He obtained his Ph.D. in and camera manufacturers. Does the technology be-
marketing from Pennsylvania State University. His research area of
come disruptive when photographers substitute lm-
interest includes the growth and renewal of corporations through
product innovation, the nature and consequences of product inno- based cameras for digital ones or when chemical
vativeness, the characteristics of corporations with innovative new photo processing labs go out of business because
product programs, and the performance effects of innovative new their services no longer are needed? In other words,
product programs. He has published in journals such as the Journal
of Product Innovation Management and the Strategic Management
is a technology disruptive only once it displaces
Journal. incumbents that built their business on the prior
technology?
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Table 1. Themes and Questions for Disruptive Technology Research

Definition of Disruptive Technology
 Are there different types of technological change? What would be the dimensions of a typology?
 Is disruptive technology a distinct type of technological change, and if so, how is it different?
 Is a technology inherently disruptive, or does disruptiveness depend on the perspective of the rms confronted with the technological
change?
 At what point can disruption be said to have occurred?
 Do different types of technological change have different sorts of impact on rms and industries?
 What are the mechanisms by which technological change impacts rms and industries?
 Does the impact of technological disruption depend on the structure (i.e., size, heterogeneity, evolution) of the market
segments?

Predictive Use of the Theory of Technological Disruption

 Can a theory of the impact of technological change be used to make ex ante predictions about the fates of particular rms and
industries?
 Do these predictions generalize across different industries?
 Can these predictions form the basis for managerial prescriptions?
 How can a potentially disruptive technology be spotted in its early stage?
 Can predictions be made regarding the origin and likely success of entrants?

Explaining the Success of Incumbents

 What are characteristics of incumbents that survive and prosper in the face of disruptive technological change in comparison with
those that falter?
 What innovation processes (e.g., resource allocation, culture, decision-making) characterize successful versus faltering incumbents?
 How does the legacy (e.g., in assets, operating procedures, relational embeddedness) of incumbent rms affect their ability to
harness technological change?
 Where do entrants come from? What is the basis of their success?
 How do modes of resource acquisition (such as alliances, joint ventures, acquisitions, and licensing) affect the fates of entrants
and incumbents?
 What is the impact of a marketing capability on the fate of incumbents when faced with a disruptive technology?
 What is the role of the competence of individual middle- or top-level managers of incumbent rms?
 What aspects of national context affect the success of incumbents relative to entrants?

The Merits of Being Customer-Oriented under Disruptive Technological Change

 Is a customer-oriented rm less apt to survive a technological change?
 Does the focus of customer orientation to current versus potential customers impact the fate of incumbents?
 How does the relationship with current customers drive investments in technological alternatives?
 Which customer research tools inhibit versus facilitate successful harnessing of technological disruption?

The Merits of Creating a Spin-Off to Pursue Disruptive Technology

 What are the advantages and disadvantages of creating a separate organization to pursue disruptive technology?
 Are these advantages and disadvantages different for the technological and commercial stages of this pursuit?
 What should be the nature of the separation between the spin-off and the mainstream organization, in terms of resource allocation,
decision-processes, culture, and so forth?
 How should the relationship between the mainstream organization and the spin-off be structured (e.g., in terms of resources,
governance, ownership, incentives) to minimize the interference and maximize the synergies between the spin-off and the
mainstream organizations?
 Under what conditions is a spin-off the best way to pursue disruptive technology?

Another way to conceive of disruption is relative to It is important to emphasize that Christensen

the resources or competences of the innovating rms explicitly notes that the classications of disruptive
(Charitou and Markides, 2003). This notion of dis- versus sustaining and of competence-destroying versus
ruption is consistent with the distinction drawn by competence-enhancing are distinct. He notes that
Tushman and Anderson (1986) between competence- many of the incumbents he studied had no difculty
enhancing and competence-destroying technological surviving competence-destroying technological shifts,
shifts. Disruptive technologies then would be those as long as the competence-destroying technologies ad-
technologies that render established technologies dressed the needs of the incumbents mainstream cus-
obsolete and therefore destroy the value of the tomers. A footnote in Christensen and Bower (1996)
investments that incumbents have made in those reads, We contest the conclusions of scholars such as
technologies. Tushman and Anderson (1986), who have argued that
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incumbent rms are most threatened by attacking en- provided by alternative technologies. In his frame-
trants when the innovation in question destroys, or work, disruption occurs when the trajectory of per-
does not build upon, the competence of the rm. We formance provided by the disruptive technology
observe that established rms, though often at great intersects with the trajectory of performance demand-
cost, have led their industries in developing critical ed in the mainstream market. In Christensens cases
competence-destroying technologies, when the new often only one or two performance dimensions dom-
technology was needed to meet existing customers inate the customers choice. For instance, in his focal
demands (p. 199). example of disk drives, size and capacity are the dom-
In my opinion, the core of the definition of a dis- inant choice criteria. However, in many cases the
ruptive technology is this: A disruptive technology is a number of performance dimensions is much higher,
technology that changes the bases of competition by and customers trade them off against each other,
changing the performance metrics along which rms making for a complex and recursive set of variables.
compete. Customer needs drive customers to seek cer- For instance, for cars, key performance dimensions
tain benets in the products they use and form the include speed, range, acceleration, styling, conven-
basis for customer choices between competing prod- ience of fueling, fuel efciency, weight, towing capac-
ucts. Benets sought by customers determine which ity, crash safety, reliability, maintenance, durability,
product attributes they value, and different customer noise, vibration, theft risk, pollution, purchase and
groups (i.e., market segments) may value different at- operating costs, and so forth. The multitude of rele-
tributes (MacMillan and McGrath, 2000). Competing vant performance dimensions and their complex in-
products (or more broadly offerings, which are con- terrelationships may make the use of trajectory
stituted by physical goods and/or services) offer dif- diagrams challenging.
fering levels of performance on varying dimensions. In this vein, Adner (2002) focused attention on the
These performance levels of the product, or attribute demand side of this interplay between markets and
sets (MacMillan and McGrath, 2000), are possible technologies. He argued for the need to understand
because of the technology embedded in the product. the structure of demand in order to clarify the nature
Customer needs determine which performance dimen- and effects of disruptive technology. Building on
sions form relevant bases of competitioni.e., differ- Christensen, he developed a formal modeling ap-
entiate meaningfully between competing offerings. At proach to characterize the nature and evolution of
any given time, a particular technology has perform- demand in various market segments and identied
ance constraints, which limit the current product at- which kind of market structures are susceptible to
tribute set. New products based on a disruptive disruption. His approach potentially could be extend-
technology have different attribute sets than existing ed to include various interrelated dimensions of
products. These new products initially have lower performance, as viewed from both market and tech-
performance on dimensions relevant to the main- nological perspectives.
stream market segment but have higher performance One question that has been left unanswered is this:
on dimensions valued by remote or emerging market what are the essential characteristics of a disruptive
segments. However, the performance that a technol- technology, and what are ancillary characteristics?
ogy enables increases over time, and eventually the Christensen (2000) stated that disruptive technolo-
performance levels offered by a disruptive technology gies are typically simpler, cheaper, and more reliable
meet or exceed the minimum levels demanded by the and convenient than established technologies (p. 192).
mainstream market. Disruptive technologies change These characteristics may be typical, but not neces-
the bases of competition because they introduce a di- sary, characteristics of disruptive technology. For in-
mension of performance along which products did not stance, do mainstream customers never initially value
compete previously. For instance, in disk drives, once disruptive technology? Does disruptive technology al-
drive capacity exceeded the requirement of a certain ways mature in a low-end segment? Does disruptive
market segment, size of the drive became a basis of technology always start with lower performance?
competition. Mini-mills started in the lower-end rebar segment,
The most powerful analytical tool provided by but Amazon.com started in the mainstream market.
Christensen is a diagram that jointly portrays trajec- Digital cameras are more expensive than traditional
tories over time of (1) performance demanded by lm cameras to purchase but less expensive to use.
different market segments; and of (2) performance Digital video discs (DVDs) always have had higher
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image quality than videocassettes. If a technology Can the Disruptive Technology Framework
does not t these ancillary characteristics, is it then Make Ex Ante Predictions?
not a disruptive technology?
Perhaps some of the ancillary characteristics are Christensen has been accused of cherry-picking
essential for a technology to be disruptive, i.e., for the examples to support his framework (Cohan, 2000).
mechanism of disruption of industry leaders to oper- All of Christensens case studies are of disruptive
ate. Christensen argues that because a disruptive tech- technologies that did succeed. However, there are
nology initially only serves a small, low-margin many potentially disruptive technologies that fail
market, it is ignored by incumbents that are serving (e.g., the Iridium global satellite phone system;
more attractive segments. It seems key to the mech- see Finkelstein and Sanford, 2000). Perhaps that is
anism of disruption that the technology matures in the why established companies tend to be skeptical of
marginal market and eventually increases its perform- disruptive technologies. Entrants have less to lose,
ance so as to satisfy the needs of higher-end segments. and for them a disruptive technology may be the only
This is when the disruption to incumbents takes place. chance to gain a foothold. Even though Christensen
In contrast, the most recent version of the frame- never claims that all (potentially) disruptive technol-
work makes a distinction between low-end disruptions, ogies succeed, his exclusive selection of those that did
which address the low end of an existing value net- presents an analytical problem.
work, and new-market disruptions, which create a Retrospective analysis is subject to bias. Hindsight
new value network (Christensen and Raynor, 2003). is always 20/20. Therefore, the historical case studies
A new-market disruption is an innovation that ena- in The Innovators Dilemma are considered best as
bles a larger population of people who previously wonderfully rich empirical data used for theory-build-
lacked the money or skill now to begin buying and ing purposes. The real challenge to any theory, espe-
using a product (Christensen and Raynor, 2003, cially if it is to be useful managerially, is how it
p. 102). performs predictively. In other words, can the theory
Some of the characteristics of disruptive technolo- be used not only to analyze cases post hoc but also to
gy may be essential, whereas other characteristics may predict the outcome of cases ex ante? Barney (1997)
be industry-specific. In his review of studies of the argued that luck may be an alternative explanation
impact of technological changes on rms, Chesbrough for why some rms survive technological shifts, stat-
(2001) noted that this stream of research has tended to ing that it may simply be the case that some rms are
focus on issues of internal validity, to the relative ne- lucky in their technology choices and others are un-
glect of external validity. Most empirical work has lucky (p. 15). Those rms with lucky choices are
been in the form of very well-documented and thor- subsequently scrutinized, and a retrospective rationale
ough case studies of particular industries, but the for their success is formed. Barney (1997) recom-
extent to which ndings from these case studies gen- mends predictive tests to rule out luck as an alterna-
eralize across industries has not been addressed. tive explanation. I encourage scholars to use the
Christensen and his colleagues have done studies of foundation provided by Christensen for theory-test-
many industries, ranging from hard disk-drive manu- ing purposes.
facturers to makers of excavators. In fact, in the book How can we know if a technology will be disrup-
by Christensen and Raynor (2003) the term disruptive tive, ex ante? As Doering and Parayre (2000) noted,
technology is replaced by disruptive innovation, appar- Significant emerging technologies are easily seen af-
ently to broaden the theorys applicability. However, ter the fact, and companies are then congratulated or
as the limits of the theory of disruptive innovation castigated for their decisions to pursue them or ignore
continue to be pushed to include such areas as retail them. But rarely are the winners clear at the outset.
formats, online banking, and digital imaging, it seems Yet, this is the challenge managers face (p. 75). For
that the concepts and mechanisms outlined in earlier managerial purposes, Christensens framework would
work become increasingly stretched. It is therefore be most useful if it allowed a manager to recognize
necessary for scholars to develop very careful deni- which technology will succeed and will become dis-
tions and classications of types of technological ruptive. Christensen (2000) suggested to y graph
change and to develop clear conceptual depictions the trajectories of performance improvement demand-
of their effects and the processes by which they exert ed in the market versus the performance improvement
these effects. supplied by the technologyy Such charts are the best
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method I know for identifying disruptive technolo- Why Do Some Incumbents Succeed?
gies (p. 206). For ex post case studies, using trajec-
tory charts is fairly straightforward, given that the One of Christensens most interesting ndings,
relevant performance dimensions have been identied based on many case studies across widely varying
and that data on performance demanded and supplied industries, is that incumbents tend to falter when
are available. faced with disruptive technologies. For instance, he
However, ex ante predictions involve predicting found that only 4 out of 30 cable excavators embraced
what performance the market will demand along var- the switch to hydraulic technology from cable-
ious dimensions and what performance levels tech- actuated technology. Similarly, much prior research
nologies will be able to supply. It is not clear entirely has found that innovations that ultimately trans-
what methods exist for such prediction. One simple form an industry often do not originate from the in-
approach of course would be to extrapolate the his- dustrys leaders (e.g., Cooper and Schendel, 1976;
torical performance trends toward the future. This Foster, 1986; Henderson and Clark, 1990; Utterback,
may be very difcult in the case of very young tech- 1994).
nologies, or new markets, for which very little histor- Regarding Christensens focal industry, the hard-
ical data exist and for which future evolution is disk-drive industry, McKendrick, Doner, and
uncertain. It seems very difcult to predict ex ante Haggard (2000) disputed some of his factual claims
which technology will be disruptive. For instance, an regarding whether the leaders of every technological
article in the magazine Scientific American reviews transition (from 14-inch to 8-inch, 8-inch to 5.25-inch,
many emerging information storage technologies that 5.25-inch to 3.5-inch) were entrants or incumbents.
eventually could replace hard-disk memory (Toigo, McKendrick, Doner, and Haggard (2000) claimed
2000). that only the transition to 5.25-inch evidenced a clear
Further research should develop analytical tools disruptive technology pattern in which entrants pre-
for identifying (potentially) disruptive technologies. vailed and incumbents failed. Regarding the transi-
One potentially fruitful avenue is for researchers to tion to 3.5-inch drives, McKendrick, Doner, and
examine how extant methods for technology forecast- Haggard (2000) stated that the real paradox is that
ing could be applied to assess disruptive technologies. a whole class of great rms did not fail despite often
Doering and Parayre (2000) presented a technology trailing the market in the introduction of disruptive
assessment procedure that iterates among searching, technologies (p. 286, italics in original). In their
scoping, evaluating, and committing. They argued study of incumbent entry into new market niches in
that this process allows for projecting the future com- the hard-disk-drive industry, King and Tuccis (1999,
mercial value of scientific and engineering discoveries. 2002) ndings contradicted Christensens nding that
The Delphi technique (Rowe and Wright, 1999) pre- incumbents exposed to disruptive technology mostly
sents another avenue to obtain and to integrate expert fail or exit. They actually found that rms with expe-
estimates of technological and market trajectories. rience in serving prior market segments (i.e., incum-
These technology-forecasting procedures could be tai- bents of prior formats of disk drives) were more likely
lored specifically to disruptive technologies. to enter new market niches. Similarly, Chesbrough
As aforementioned, Christensen has been accused (2003a) found that rms with greater prior disk drive
of sampling on the dependent variable, or of high- revenues were more likely to enter new market niches,
lighting only technologies that eventually turned out albeit later in time, than rms with less prior revenues.
to be disruptive. To avoid this criticism, it would be In other words, these studies found the opposite
necessary to obtain an uncensored sample of emergent central tendency from that proposed by Christensen
technologies, of which the technical performance, and his colleagues. King and Tucci (1999) and
market applications, customer benets, and effects Chesbrough (2003a) also found that incumbents
on companies and industries could be tracked over were more likely to survive in the long term (i.e.,
time. Because the observed length of time would be had a lower rate of exit). However, these studies did
extremely long, perhaps several decades, this would be not examine the shifts in industry leadership across
of necessity a historical study. Perhaps a comprehen- the different transitions and therefore did not test
sive list of technologies drawing from a major scien- Christensens claim that incumbents lose their market
tific development, such as nuclear physics or genetics, leadership (i.e., dominant market share) when faced
could be developed for such empirical work. with disruptive technological change.
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Therefore it seems that many, but not all, incum- Christensen has basically two explanations for in-
bents fail in the face of disruptive technology. There- cumbent failure, which conversely could be used to
fore the following question yet is unanswered: What explain incumbent success: the resource allocation
determines whether incumbents fail or succeed in the process; and organizational resources, processes, and
face of disruptive technology? Future research needs values (the RPV framework). For instance, when
to address what the characteristics are of incumbents he points to resource-allocation mechanisms as a
that do not fail. cause of incumbent lack of proactiveness in harness-
There are many examples of successful incumbents. ing disruptions, then superior resource allocation sys-
For instance, Charles Schwab, an established nancial tems could characterize successful incumbents. I call
industry incumbent, successfully embraced online for research to observe directly the processes within
trading. Charles Schwab is currently the leading on- rms, particularly using eld methods. Such research
line brokerage in terms of Internet trading revenues, could track resource allocation to sustaining and dis-
which account for more than half of the companys ruptive technologies over time and could detail deci-
trades (Cohan, 2000). It overtook E TRADE, the sion-making processes. However, the most promising
entrant and rst mover. What led to Schwabs suc- area for research would be to provide data specifying
cess? Its nancial and management resources? Its resources, processes, and values (called RPV by
superior brand? Perhaps it was its memory of its Christensen in a chapter added in the new edition of
previous disruptive success when it disrupted Merrill the book). A possible research question might be how
Lynchs full-service brokerage by offering discount the resources, processes, and values of incumbents
brokerage (Cohan, 2000). Similarly, Kodak and Fuji that succeed versus fail compare. Studies in this area
were among the rst to embrace digital imaging tech- can draw on a rich research tradition that has exam-
nology and currently dominate the digital camera in- ined the role of rm resources or competences for the
dustry. Polaroid, on the other hand, faltered in the rms ability to deal with technological change. The
introduction of a digital camera (Tripsas and Gavetti, remainder of this section will explore linkages to this
2000). Currently, incumbent car manufacturers are research tradition.
leading the creation of nonfossil-fuel-powered auto- A crucial consideration is how the resources re-
mobiles and have introduced many products to quired to harness the disruptive technology relate to
market. the resources of incumbents (Charitou and Markides,
Recent empirical research has found that the inno- 2003). Tushman and Anderson (1986) found that
vative inertia of incumbent rms may have been over- competence-destroying technological discontinuities
stated. Methe et al. (1997) found that industry were initiated by new rms, while competence-en-
incumbents and diversifying entrants could be credit- hancing technological discontinuities were initiated
ed with many major innovations in the telecommuni- by existing rms. Tushman and Anderson (1986) ar-
cations and medical device industries. Klepper and gued that the former kind of innovations favor new
Simons (2000) found that nearly all dominant U.S. entrants at the expense of entrenched incumbents,
manufacturers of television sets previously were dom- who are burdened with the legacy (i.e., skills, abili-
inant producers of radios and that they took the lead ties, and expertise) of prior technologies and ways of
in television product and process innovations. operating (p. 446). Tushman and Anderson (1986)
Chandy and Tellis (2000) also found that the incum- argued that new rms, on the other hand, y un-
bents curse has been overstated. They studied the constrained by prior competence and history, take
origins of a broad range of radical product innova- advantage of technological opportunities (p. 461).
tions in ofce products and consumer durables across It often has been assumed that prior experience,
150 years. Radical product innovations are dened as and the routines and competences built from it, re-
new products that are based on substantially new duce the adaptability of organizations faced with
technology and deliver substantially better customer technological shifts. Henderson (1993) (see also
benets relative to previous products, and incumbents Henderson and Clark, 1990) found in the photo-
are dened as those rms that also sold the previous lithographic alignment equipment industry that
generation of products. They nd that after World established rms invested more in incremental inno-
War II, incumbents actually introduced the majority vation, while entrants were more likely to dominate
(75 percent) of radical product innovations within the radical innovation. Henderson (1993) suggested that
two product classes they studied. y in some circumstances extensive experience with
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a technology may be a substantial disadvantage y studies [including the study of photolithographic

Large established rms have an advantage over alignment equipment industry by Henderson and
entrants in the pursuit of incremental innovation be- Clark (1990)] that it sometimes has been overlooked
cause incremental innovation builds upon their exist- that y the winning rms often are diversifying en-
ing knowledge and capabilities, but these assets can trants from another industry that bring resources and
simultaneously reduce substantially the effectiveness capabilities relevant to the new product generation.
of their attempts to exploit radical innovation (p. 251). Successful entrants in new generations of photolitho-
In contrast, King and Tucci (2002) argued that ex- graphic alignment equipment included Canon and
perience, such as that accumulated by incumbents of Nikon, which used their experience in optoelectron-
prior technological regimes, does not lead to inertia. ics as a basis for diversication (p. 752). Much of the
As mentioned earlier, in their study of the history of literature has focused on startup (i.e., de novo) en-
the worldwide hard-disk-drive industry, they found trants, while innovations introduced by diversifying
that rms with greater cumulative production and entrants (established rms that enter an industry new
sales experience were more likely to enter new market to them) often are overlooked (Methe et al., 1997).
segments and were less likely to exit. King and Tucci Mitchell (1992) found that rms able to draw on re-
(2002) thus called into question the incumbency (ex- lated technical and market resources to enter a new
perience in prior markets and technologies) inertia technical eld were more likely to prosper.
(lack of entry and longevity in subsequent markets When addressing the challenges and opportunities
and technologies) link. generated by technological change, incumbents may
Tripsas (1997) conducted another study that relat- not have the necessary resources. Helfat and Lieber-
ed preexisting rm resources to rm survival. She man (2002) reviewed several means by which resource
found that typesetter manufacturer Mergenthaler gaps can be lled, such as alliances, joint ventures,
Linotype remained an industry leader for over a cen- acquisitions, and licensing. Rothaermel (2001)
tury, despite three waves of technological shifts. Mer- showed that accessing resources through alliances is
genthalers proprietary control over its fonts, a one way incumbents can be successful in the face of
complementary asset in the typesetting industry, buff- disruptive technology. For instance, in the pharma-
ered it from the technological shifts in its industry. ceutical industry, leading rms have been able to
The technological shifts were not competence-de- maintain their position in spite of the emergence of
stroying in relation to the font libraries; i.e., this re- biotechnology. Rothaermel (2001) showed how in-
source retained its value despite shifts in technology. cumbents in the pharmaceutical industry access bio-
Tripsas and Gavetti (2000) studied the role of cog- technological competences for new drug development
nition in the development of competences. They by engaging in strategic alliances with startup biotech
showed how two prevalent beliefs among Polaroid rms. In turn, the incumbent pharmaceutical rms
senior managers hindered the companys entry into provide such resources as sales and distribution net-
digital cameras, in spite of its leading-edge digital-im- works, advertising and promotion skills, and brand
aging capabilities. On the one hand, the belief in the names. Future research could build on Rothaermel
primacy of technology led the company to invest ag- (2001) to evaluate the alternative routes for incum-
gressively in R&D on digital imaging. On the other bents to get access to disruptive technologies, such as
hand, the belief of Polaroid managers that their com- alliances, acquisitions, and internal development.
pany could not make money on hardware (cameras) Afuah (2000) (see also Afuah and Bahram, 1995)
but only on consumables (lm), severely impeded the also broadened the perspective beyond resources of
commercialization of its digital technologies. the focal rm. He argued that to understand techno-
Helfat and Lieberman (2002) synthesized prior logical change researchers need to examine not only
work regarding the role of preexisting resources in whether change renders obsolete the resources of the
explaining whether and how successfully entrants and focal rm but also those of its network of customers,
incumbents will enter into a new eld. They suggested suppliers, alliance partners, and complementors. For
comparing the resource prole of rms to the re- instance, transition to the Dvorak keyboard would
sources required by the new eld. This comparison render obsolete the typing skills of customers adept at
will yield resource gaps a rm has to overcome (i.e., Qwerty. Rosenbloom and Christensen (1994) drew
when the rm lacks key resources required for entry). attention to the value network in which a rm is em-
They concluded from their review of several empirical bedded, which plays a critical role in how rms deal
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with disruptive technologies. In other words, to ex- that none of the disk-drive manufacturers was able to
plain the success of incumbents, researchers need to gain a significant share of the new market, and they
look at not only the destruction or enhancement of discuss two example rms in particular. Seagate, tra-
resources of the focal rm but also at the impact of the ditional maker of 5.25-inch drives for the desktop PC
technological change on the resources of all players in market, for several years did not succeed in selling its
the value chain. 3.5-inch drives to the new laptop market. Instead,
Emerging work in the resource-based theory of the they sold most of their 3.5-inch drives to their existing
rm offers additional avenues for research. The focus customer base, the desktop PC makers. Similarly,
of this research is not so much on the extent to which Control Data, incumbent maker of 14-inch drives
a technological transition destroys the value of exist- for mainframes, did not succeed in marketing its 8-
ing resources but rather on what resources the rm inch drives to minicomputer manufacturers. Control
needs to add to its repertoire to take advantage of the Data sold nearly all of its 8-inch drives to the main-
new technological eld. It is important to emphasize frame market. As emphasized by MacMillan and
that Christensen argues that incumbents tend to fail McGrath (2000), one of the key challenges for com-
only when the disruptive technology does not initially mercializing emerging technologies is to identify the
fulll the needs of their mainstream customers. This is killer applications as early as possible. This involves
when rms lack the customer competence to ad- determining which product attributes are made pos-
dress the market for which the technology initially can sible by the new technology and then to identify which
be used. A customer competence consists of resources market has needs that can be satised by those at-
required to serve certain customers: understanding of tributes. In other words, the marketer should nd cus-
customers needs and buying process, access to sales tomers who value the unique product attributes made
and distribution channels, brand and rm reputation possible by the technology. In the case of a disruptive
within the targeted market, and communication chan- technology these are not customers of the incumbent
nels with the customers (Danneels, 2002). In an rms. Next, the rm needs to acquire access to this
intriguing footnote, Christensen (2000) notes that market. Therefore, paradoxically, the capacity to sur-
Professor Rebecca Henderson pointed out to me vive a technological shift may be a function of the
that this tendency always to take new technologies to rms marketing competence, in particular how adept
mainstream customers reects a rather narrow mar- it is at identifying and accessing customers it has not
keting competencethat although many scholars served previously. Future research could develop this
tend to frame the issue as one of technological com- notion of a marketing competence further and could
petence, such inability to nd new markets for new explore whether incumbents with stronger marketing
technologies may be a rms most serious handicap in capabilities are in fact more adept at taking advantage
innovation (p. 58, italics in original) (see also Chris- of the opportunities offered by disruptive technologies.
tensen and Bower, 1996, p. 207). Indeed, many in- This discussion of organizational level competence
cumbents were able to develop working prototypes of begs the question of individual level competence.
products using the disruptive technology, demonstrat- What is the role of the competence of individual
ing that they had the R&D competence necessary to middle- or top-level managers of incumbent rms?
acquire a new technology. However, they faltered Christensen and his colleagues are too kind to man-
when they tried to market the disruptive technology agers of incumbent rms, insisting on describing them
to their current customers. What they were missing as competent and at the helm of great rms. Their
was a marketing competence, the ability of a rm to analysis suggests a rather passive role of managers, as
build new customer competences, i.e., to identify and having their hands tied behind their backs, being the
build relationships with customers it has not served captive of current powerful customers, at the mercy of
yet (Danneels, 2002). The failing incumbents de- investors, powerless peons in the process of resource
scribed by Christensen lacked the marketing compe- allocation. I believe that individual managerial com-
tence to establish the resources needed to address the petence does play a significant role and should be an
market that initially was served by the disruptive tech- explicit focus of research into the determinants of in-
nology. They lacked the skills to conduct research on cumbent success. Some managers do seem able to lead
a new market, to set up a new distribution and sales their rms across technological transitions.
channel, to build a reputation in a different market, Lastly, several researchers have found that the ef-
and so forth. Christensen and Bower (1996) claimed fects of disruptive technologies on incumbents are
DISRUPTIVE TECHNOLOGY RECONSIDERED J PROD INNOV MANAG 255
2004;21:246258

contingent on national context. Chesbrough (1999a, listen too carefully to their customers (p. 198). I be-
1999b) examined the hard-disk-drive industry in three lieve that the implications of Christensens ndings
regions: the United States, Europe, and Japan. He for the value of being customer-oriented have been
found that incumbents lost their leadership position misstated. Some readers have taken his ndings to
across technological transitions in the United States, imply that companies should not be customer-orient-
while in Japan incumbents maintained their domi- ed. This is a misinterpretation, for two reasons. First,
nance. In the United States startup entrants dis- one needs to make a distinction between current and
placed incumbents (i.e., population-level change), potential customers. Being customer-oriented does
while in Japan the hard-drive industry transitioned not imply an exclusive focus on current customers.
to new technologies by organization-level change. In the worst case, a rm may become what Day (1999)
Chesbrough (1999a) (see also Chesbrough, 1999b) has called customer compelledessentially bend-
highlighted four main aspects of the institutional con- ing over backward to fulll every whim of current
text that impact the fate of incumbents relative to en- customers, even at the expense of the companys
trants when faced with disruptive technological short-term and long-term performance. Instead, a
change. First, the mobility of qualied and experi- customer-oriented rm can serve current customers
enced personnel affects whether entrants can gain ac- and remain vigilant for unserved emerging markets
cess to these critical human resources or whether they (Day, 1999, p. 15). In fact, Chandy and Tellis (1998)
are retained within incumbent rms. Second, national found that companies focusing on future customers,
contexts vary in the extent to which venture capital, rather than on current customers, had a greater degree
the main source of funding for startups, is available. of radical product innovation. I interpret Christen-
Third, the exclusivity, contractual or moral, of sup- sens ndings to mean that rms should not be fo-
pliercustomer relationships also tends to favor in- cused narrowly on serving current customers and
cumbents. Fourth, the regions government industrial should not allocate all their resources to serving cur-
policy, especially in terms of subsidies and preferences rent customers.
in government procurement, also tends to affect the Second, the rms portrayed by Christensen show a
fate of incumbents. Darby and Zucker (2001) noted shallow understanding of their customers needs. If
that the institutional environment in Japan channeled they had a deep understanding of their customers
the shift from chemistry to biotechnology in the phar- needs they would have known that their customers
maceutical industry to take place entirely as organi- actually did have a broader range of product selection
zational change within incumbents rather than as the criteria than those upon which products competed
industry level displacement of incumbents by en- before the disruptive technology. A truly customer-
trants. They focused in particular on the restrictions oriented rm understands the latent and unexpressed
imposed on star scientists at Japanese universities, needs of its customers (Slater and Narver, 1998).
who were prohibited legally from holding equity in- Market research scholars and practitioners have de-
terest or founding roles in new rms, an institutional veloped an extensive toolkit for digging deep into
factor which contributed to the lack of biotech start- customers needs (for a review, see Aaker, Kumar,
ups in Japan. and Day, 2000), and new techniques such as empathic
design (Leonard and Rayport, 1997) are being added
continually. In other words, Christensens ndings
What Are the Merits of Being Customer only reject a very reactive, narrow notion of custom-
Oriented? er orientation (Danneels, 2003; Slater and Narver,
1998).
Christensens work often has been cited as an argu- I also have observed a misguided critique of the
ment against customer orientation (Day, 1999; Slater lead-user methodology, the famed approach to cre-
and Narver, 1998). Christensen pointed out that es- ating new products formulated by von Hippel (1986)
tablished rms are held captive by their customers and colleagues. Unfortunately, Christensen and
and therefore miss the boat on disruptive technolo- Bower (1996, p. 211) noted in parentheses that the
gies. Christensen and Bower (1996) stated, Our con- axiom to stay close to your customers is supported
clusion is that a primary reason why such rms lose by the research of von Hippel (1986). However, the
their positions of industry leadership when faced with detractors of the lead-user method fail to appreciate
certain types of technological change y because they that lead users are not necessarily current customers
256 J PROD INNOV MANAG E. DANNEELS
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(In fact, most often they are not customers at all). In mainstream business. The case of Schwab is also more
contrast, the lead-user technique may be a great way complex than Cohan (2000) suggested. Schwab in fact
to identify promising disruptive technologies (for an did establish rst a separate division (consistent with
illustration, see von Hippel, Thomke, and Sonnack, Christensens recommendation) called e-Schwab but
1999). This misunderstanding may be blamed later integrated this division after experiencing chan-
on a confusion of terminology. Even Christensen nel conict (Useem, 1999). This suggests that creating
(2000) uses the term lead customers (p. 43) (see also a separate division may have both advantages and
Christensen and Bower, 1996, p. 207). I urge scholars disadvantages. Gulati and Garino (2000), in an article
and practitioners to be careful to distinguish lead on clicks-and-mortar strategies by retailers, pointed
customers and lead users and to understand the out some disadvantages of setting up an independent
latter concept in terms of the research stream started organization. They argued that Barnes & Nobles
by von Hippel over two decades ago. decision to create an entirely separate division
(barnesandnoble.com) to pursue online retailing led
the company to forego synergies in purchasing, infor-
Is Creating an Independent Organization mation sharing, branding, cross-promotion, and cus-
to Pursue the Disruptive Technology tomer service. Gulati and Garino (2002) concluded
Always Best? that the integration versus separation decision facing
traditional retailers venturing into online retailing in-
One of Christensens most inuential recommenda- volves a trade-off. Iansiti, McFarlan, and Westerman
tions has been that incumbents should set up a sep- (2002) found that retailers that integrated their web
arate organization for venturing into disruptive operations with their existing business were more ef-
technology. His recommendation follows logically cient at generating revenues than those retailers that
from his explanations for the failure of established kept them as autonomous divisions. On the other
rms, which as pointed out already is twofold. First, hand, Rice, Leifer, and Colarelli OConnor (2002)
the resource-allocation process tends to pull resources found in their case studies that discontinuous inno-
away from disruptive technology efforts to serve cur- vations transitioned into an existing business unit of-
rent customers, and therefore a spin-off with its own ten suffered from a mist between the needs of the
protected, dedicated resources is required. Second, the discontinuous innovation and the business units ex-
disruptive technology may not t with the mainstream isting capabilities in manufacturing and marketing.
organizations resources, processes, and values. For McDermott and Colarelli OConnor (2002) concluded
instance, he argues that it is necessary to match the that isolation may protect the project from the coun-
size of the organization to the size of the opportunity, terproductive forces within the mainstream, but it also
such that managers can get excited over the initially cuts the project off its most important sources of
small market for disruptive technologies. According learning, competences and resources (pp. 43132).
to Christensen and Bower (1996), in the entire history Christensen (2002) in fact qualied his recommenda-
of the hard-disk-drive industry only three incumbents tion to set up an independent organization: When a
achieved commercial success with a disruptive tech- threatening disruptive technology requires a different
nology (This conclusion is disputed by McKendrick, cost structure in order to be profitable and competi-
Doner, and Haggard, 2000). Christensen and Bower tive, or when the current size of the opportunity is
(1996) attributed the success of two out of three to insignificant relative to the growth needs of the main-
their spinning out an independent organization to stream organization, thenand only thenis a spin-
pursue the disruptive technology. out organization a required part of the solution
Cohan (2000) questioned whether setting up a sep- (p. 176). [An almost identical statement is made in
arate organization is always the best solution and ex- Christensen and Overdorf (2000, p. 74)]. Many schol-
amines two successful incumbents who did not: ars and practitioners interpreting Christensens work
Hewlett-Packard (HP) for developing inkjet printers have not attended to this qualication. In any case,
and Schwab for developing online trading. In fact, HP there are solid arguments for and against a spinout
did initially set up an independent organization to organization, and more rened insights into contin-
address the disruption. However, when the disruptive gencies are emerging. When resource complementari-
business became big and profitable enough to com- ties between the new venture and the mainstream
mand adequate resources, it was folded back into the business are crucial, and these complementarities
DISRUPTIVE TECHNOLOGY RECONSIDERED J PROD INNOV MANAG 257
2004;21:246258

require intracompany coordination, a more integrated their emergence. Future research also should address
approach may be advised (Iansiti, McFarlan, and the merits of spin-offs and customer orientation as
Westerman, 2003). ways to harness the power of disruptive technologies.
Future research should examine under what con- My hope is that this article will encourage further re-
ditions a spin-off is the best way to pursue disruptive search along these lines and will spur debate by prac-
technology and how the relationship between main- titioners and scholars alike.
stream organization and spin-off should be struc-
tured, in terms of resources, governance, ownership,
and incentives. For example, Chesbrough (2003b)
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