1999 From: Institute for Operations Research and the Management Sciences
Surviving In Fast-Changing Industries: Learn Lessons From Disk Drive Industry, Say Researchers From Harvard & MITLINTHICUM, MD, March 10 - Survival in fast-changing industries strongly correlates with mastery of two tricky abilities, according to a paper in a journal published by the Institute for Operations Research and the Management Sciences (INFORMS®). The abilities are the judgment to adopt an industry's emerging dominant design during a critical window of opportunity and marketing to new, rather than existing markets. The study, "Strategies for Survival in Fast-Changing Industries" is by Clayton M. Christensen, Harvard Business School, Fernando F. Su�rez, Universidad Adolfo Ib��ez, Chile, and James M. Utterback, Massachusetts Institute of Technology. It appears in the current issue of Management Science, an INFORMS publication. Professor Christensen is the author of "The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail," published by Harvard Business School Press. He was featured on the Jan. 25, 1999 cover of Forbes. The authors used math modeling and the principles of operations research/management science to reach their conclusions. Critical Factors The study draws lessons from the volatile computer disk drive industry: - Dominant product design: A watershed in the competitive nature of an industry is the emergence of a dominant product design. For companies making disk drives, firms that incorporated the key elements of what became the dominant product design in their product line had a probability of survival that was over twice that of firms that ignored the design's emergence. For disk drive companies, the window of opportunity opened just prior to the emergence of the dominant product design. Surprisingly, pioneer firms that emerged years before that window opened had a higher chance of failure; for that matter, so did latecomers.
- Market risk: Entry strategies that entail market risk - that is, entering an emerging market with proven technology - may be less perilous than strategies that entail technological risk - entering an established market with new, higher-performance technology.
- Technology/Market Strategy: Firms that combine these two lessons and target new market segments with an architectural, or design, innovation tend to be more successful than those that target existing markets or innovate in component technology.
Volatile Disk Drive IndustryExamining the development of the disk drive industry between 1976 and 1990, the authors say that the dominant design for disk drives was defined by certain "architectural" concepts, which came to be used by all surviving manufacturers. These concepts included IBM's 1973 introduction of Winchester design architecture, which dramatically enlarged the capacity of disk drives; and Quantum Corporation's 1983 introduction of intelligent interface electronics onto a single silicon chip, which permitted an array of performance enhancements. Within these design architecture frameworks, innovation in components continued, often at a furious pace, but did not significantly affect the probability of a firms' survival. The rigid disk drive industry's history is characterized by rapid growth, market turbulence, and a technology driven "creative destruction." Of the 17 firms that populated the industry in 1976, say the authors, all had failed and exited or been acquired by 1990. An additional 124 firms entered the industry, and 100 of those also failed. Some 60% of the producers remaining by 1989 had entered the industry as start-ups since 1976. The nature of competition in the disk drive industry changed dramatically after the dominant design began to coalesce in the mid-1980's, say the authors. Prior to its emergence in 1984, industry volumes were less than 2 million units. By 1990 annual volumes over 25 million units had become typical. Product design cycles that averaged about 30 months prior to the advent of the dominant design got compressed to 12 months. Average cost per megabyte fell from about $22 in 1984 to $3.30 in 1990. Most significantly, prior to appearance of the dominant design, a host of competitors with very different manufacturing cost capabilities were able to coexist. After the dominant design coalesced, price- and time-based competition became severe and there was an industry shake-out. Data The authors applied operations research modeling to data for the years 1975 - 1990. The data was gathered from Disk/Trend Report, a comprehensive market research publication. The Institute for Operations Research and the Management Sciences (INFORMS®) is an international scientific society with 12,000 members, including Nobel Prize laureates, dedicated to applying scientific methods to help improve decision-making, management, and operations. Members of INFORMS work in business, government, and academia. They are represented in fields as diverse as airlines, health care, law enforcement, the military, the stock market, and telecommunications.
| |