May 1

Kitty Hawk and Disruptive Technology

Kittyhawk

How a company can anticipate a disruptive technology, do their marketing homework, form an appropriate partnership, follow the rules of product development and still not produce a successful product.

• 1. What would you rate as the strengths and weaknesses of the way HP structured and supported the Kittyhawk Development team

Strengths & Weaknesses• Strengths:

– Split from the rest of the company– Focus, different style– Brightest, flexible employees– Great top-level support– All the resources they need– Empowerment (less bureaucracy)– Very cross-functional

• Weaknesses– Bad market timing (tight market window)– Biased view of the market (field of dreams)– Biased consultants– Relied on success of customers’ products (OEM

dilemma)– Expectations too high– Bad technology projection– “Ready, fire, aim” – goals set up before market research.

2. What do you think of the way the team set out to find a market for the Kittyhawk? What correct turns and wrong turns did they make?

• Went to a conference to learn about the market

• Got customer feedback• Independent researchers• Nintendo (but couldn’t get cost down)• BUT:• Made assumptions that customers’ products

will be successful• There is a difference between “I like it” and “I

will buy it”• Got greedy and went after many markets• Cultural issue with “cheap, dumb…”

“Independent” researchers

• Learn about the market from within the company itself.

• Everyone in the company is positive biased.

• “Philosophy”: if there was a market, would you…

3. What are the root causes of failure of the Kittyhawk program. Show by an Ishikawa diagram.

4. What should HP of done in hindsight?

• Be realistic

• Finish what you start (core competencies)

• Stick to the goal: dumb goal

• Look for markets that are already there

• Hedge their bets

• Highest cost is opportunity cost (have to take risks and pour it on)

What if you were the innovator 5 years from now working in

HP. What would you do?

•Look at what is in the market•Build what customers really want•Not as secretive about product•Improve marketing•Look at what your customer’s customer want

Issue of “adjusting” revenue projections

Program Drivers Dilemma• To get attention in a noisy, high expectation environment,

innovator needs to project a rapidly growing big hit, else the program is stillborn

• Drives an exaggerated market growth rate and an exaggerated production ramp

• Ugly Result: Reality doesn’t support projections

Questions• What would you do if you were the Innovator?• What would you do if you were part of the leadership of the

company?

Case notes and additional questions

• Big constant loss of share and decreasing part of HP sales despite .5B revenue

• Concentrated on upper end of the market• Conflict between supporting present market

and entering new market• How scientific was the decision made by

Hackborn• What was the quality of the managers who

joined? What was the cost of having them join?

Case notes and additional questions

• Did they have a common vision?• Was an expanding market for mobile computing

reasonable?• Was 3 new technologies reasonable?

– Glass substrate– higher level of integration– piezoelectric accelerometer (at $10)

• Japanese manufacturer-a watch company- a good idea?

• Why was the engineering so much better than the marketing?

• Why didn’t they make the $50 price point?

Kittyhawk Update

• No heads rolled!• Summer of 1996: HP announced it was closing

DMD and exiting the disk drive business• Many employees thought that Kittyhawk

destroyed the business– Preempted best employees

– Lost step in the high end market which generated profits

– Lost market share

– Felt company would never catch up to leaders

Disruptive TechnologiesWhy do some good companies fail?• Companies that

– are well-managed and progressive– listen to their customers– study and act on market trends– invest significant resource in R&D– allocate capital to provide the best return

• in short do all the “right things” and are held as paragons for their success

. . . .and then collapse

Death Spiral

NotGrowing

4. Resources spent on growth are

wasted making the need to

grow more urgent

3. Massive investments of resources are required

to get big fast

1. Values Change demanding that growth

ventures become very big very fast

2. An aggressive strategy is the only way

to get the numbers to work

Disruptive Vs Sustaining Technology

Sustaining Technology

• can be incremental or radical

• improve the performance of established products along the trajectory that mainstream customers have historically valued

Disruptive Technology

• Result in worse product performance

• Underperform existing products in mainstream markets

• have features that a few fringe customers value

• typically smaller, cheaper, simpler, convenient to use

Disruptive Vs Sustaining Technology

Examples of Sustaining Technologies

• Semiconductor process technologies

• Automotive technologies e.g. IC engines

• DRAM, CISC microprocessor

• Jet Engines

• Construction

• Factory automation

Examples of Disruptive

Technologies?

• Internet• MEMS• Disk Drive• Genetic Engineered foods• Genetic Engineered drugs• Wal-Mart, Dell inventory

management• Hybrid Vehicles• Small Turbines• Fuel Cells

What companies are Vulnerable?

Disruptive Technologies and Exploitative Companies

Company Technology

Cisco Packet switching Dell Computer Direct to customer retailing and high asset turnsPixar Digital animationeBay Internet auctionsE-mail (ISPs) InternetEndoscopic surgery (Many) Fiber opticsSharp Flat Panel DisplaysFord (Model T) Assembly LineKodak Simple point and shootDEC, Prime, Data General minicomputersGE Plastics, Dupont, Dow plasticsSony solid stateGE medical MRI, CTXerox Xerography

Disruptive technologies

Why do good companies miss the revolution?

1. Companies depend on investors and customers for resources

• requires high profits• requires following the lead of customers who

may themselves be blindsided– mainframe industry

– minicomputer industry

2. Markets that don’t exist can’t be analyzed

3. Technology Supply may not meet market demand

Additional Reasons• Wrong Value Network

– Context of corporation’s business environment leads to missing competition arising from outside

• Organizational Structure– Companies organized by a products substructure fail when fundamental

architecture changes

• Core Competencies– Firms fail when a technological change destroyed the value of

competencies previously cultivated and succeeded when new technologies enhanced them

• Technology S-curves– Firms fail when they miss inflection points along their main product thrust

and specifically when they miss technologies advancing in related fields

• Wishful thinking

Are these companies clueless?• Not every technology that looks disruptive is feasible.

• You cannot chase every possible disruptive technology to cover all your bets

• Even technologies which are well-researched and appear to be potentially disruptive can be very difficult to bring to market

• Companies are unable to allocate sufficient resource to test marketing them because they will always fail any rational allocation process (e.g. portfolio management to be discussed in the future)– Their normal customers aren’t interested– The markets seem small and uncertain– Resource for main line technologies will receive the dominant share to

maintain sales growth and profits

Does this mean that you must drop what you are doing and pursue these future threats?

• You can’t abandon your present customers• You could be wrong about identifying the

inflection point of your present technologies and the reality of the threat

• Examples– Semiconductor lithography transition from optical

to x-ray, e-beam– Electric Car transition from IC engine– Supersonic transport transition from subsonic– Nuclear energy transition from steam turbine– Others?

Is all lost?If you are an established, successful company,

how do you counter?

• Choose 1 or 2 disruptive technologies that concern you the most and participate

• Set up separate organization in separate location with constrained funding

• Alternatively, invest in start-ups• Manage expectations as markets are

found for disruptive technologies by trial and error

Shaping ideas to become disruptive: litmus tests

• Is there a population of people who historically have not had the money, equipment or skill to do this thing themselves and as a result have gone without or have had to pay someone with more expertise to do it for them.

• To use the product or service, do customers need to go to an inconvenient centralized location?

• Are there customers at the low end of the market who would be willing to purchase the product at a low price with less (but good enough) performance?

• Can we earn money at this low price?

• Is the innovation disruptive to all the significant incumbents?

Some Lessons LearnedTwo choices To commercialize a disruptive technology, • Push the technology to its limits to serve an established market or• Accept the current capabilities and seek a market which values the

inherent attributes of that technologyCustomer input can be extremely misleading• need a less risky, less expensive way of learning market needsFor new technology, need to assess probability of success of collateral

technologies• The total probability equals the product of the individual probabilitiesNew markets need time to develop• Incubation period needed • Inconsistent with meeting high corporate expectations• Great opportunity for start-ups

This leads to the question. . .What Products will customers buy?

• Of 100 new product development projects launched – 60% are abandoned in the R&D Stage– 16% are withdrawn from the market– Rest “succeed” commercially

Big reason for failure- poor segmentation of market