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Chapter 4: Disruptive Technologies

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The big idea: dominant firms often lose because they focus on what their current customers want, while disruptive technologies start out looking worse, cheaper, or less important — and then improve enough to take over established markets.

Key Vocabulary

Disruptive Technology / Disruptive Innovation: A technology that enters the market with attributes existing customers do not initially value, but improves over time until it can invade established markets.
→ This is different from just being “new” or “better.”

Sustaining Innovation: Improvements that existing customers already want.
→ Example: yearly upgrades to a popular product.

Enabling Technology: A technology that makes a product cheaper, more accessible, or more practical for a wider audience.
→ Many disruptive innovations are enabling technologies.

Innovative Business Model: A new way of delivering or pricing a product that appeals to new or low-end customers.
→ Disruption is often about the business model, not just the technology.

Coherent Value Network: A system where suppliers, distributors, and customers all benefit when the disruptive technology succeeds.
→ If the ecosystem cannot support it, disruption may stall.

McNamara Fallacy: Relying too much on measurable historical data and ignoring what cannot yet be measured well.
→ This can blind firms to disruption.

Technology Option: A startup investment or internal experimental effort that gives a firm the right, but not the obligation, to invest more later.
→ Helps firms manage uncertainty.

Cannibalization: When a new product hurts sales of a firm’s existing products.
→ One reason incumbents resist disruptive innovations.

Long Tail: Demand for many niche products that may be hard to serve in physical retail but easier to serve digitally.
→ Important in Netflix’s shift from DVDs to digital distribution.

Real Examples

Digital Cameras vs Film:
Early digital cameras had terrible photo quality, so traditional customers did not want them. But over time, quality improved enough to invade and destroy the film market.
iPhone 1 vs iPhone 16:
The slides contrast disruptive vs sustaining innovation. The first iPhone changed what a phone could be, while later iPhones mostly improve an already successful product.
Netflix vs Blockbuster:
Netflix correctly saw that streaming was the future, while Blockbuster stayed too focused on the store model. Netflix benefited from early digital delivery and stronger execution.
Intuit Success Story:
Intuit responded well to disruption by acquiring rivals, moving apps to the cloud, and adding AI-driven learning tools. The slide notes that connected services now make up over 65% of revenue.
Why Big Firms Fail:
Incumbents often miss disruption because they do not see it as a threat, do not fund it, and listen too closely to current customers instead of emerging users.
Improve Your Radar:
Managers should talk with frontier researchers, venture capitalists, engineers, and strategists, rotate staff, and pay attention when employees leave for future technologies.

Challenging Practice Questions

1.
A dominant firm ignores a new product because its current customers say the product is low quality and not useful. Five years later, the new product improves enough to attract the dominant firm’s core customers.

Which concept BEST describes what happened?

A. Sustaining innovation
B. Disruptive innovation
C. Switching cost lock-in
D. Network effects

Correct answer: B

Explanation: Disruptive innovation starts with features existing customers do not value, then improves until it invades the mainstream market. A is wrong because sustaining innovation usually serves existing customers directly. C and D may matter in some markets, but they do not define this pattern.

2.
A large company uses past sales data and current customer surveys to guide all product decisions. Because the new technology has weak margins and low early demand, the firm decides it is not worth pursuing.

Which managerial trap is MOST clearly shown here?

A. Value chain optimization
B. McNamara fallacy
C. Economies of scale
D. Backward compatibility

Correct answer: B

Explanation: The McNamara fallacy is relying too heavily on measurable historical data while missing emerging changes that are harder to quantify. That is exactly what the firm is doing. A, C, and D are unrelated to this type of blind spot.

3.
A company sees a potentially disruptive startup but is not sure whether the technology will succeed. Instead of fully committing, it buys a stake in the startup and also funds a small internal experimental team.

Why is this approach strategically attractive?

A. It eliminates all disruption risk
B. It creates technology options without requiring a full commitment
C. It guarantees the firm will dominate the future market
D. It avoids the need to monitor the technology further

Correct answer: B

Explanation: A portfolio of options gives a firm the right, but not the obligation, to invest more later if the technology proves promising. A and C are too absolute. D is wrong because options only work if the firm keeps learning and monitoring.

4.
A startup’s new service is cheaper and initially less polished than the incumbent product, but it serves people who were previously priced out of the market. Over time, the service improves and begins attracting mainstream customers as well.

Which feature MOST strongly explains why this startup may become truly disruptive?

A. It starts as a sustaining innovation for existing premium buyers
B. It appeals to new or low-end customers and improves over time
C. It earns high margins from the very beginning
D. It immediately matches every feature of the incumbent

Correct answer: B

Explanation: Many disruptive innovations begin by serving nonconsumers or low-end users that incumbents ignore, then improve until they can move upmarket. A, C, and D describe the opposite of the classic disruptive path.

5.
A media company knows physical distribution is fading, but its executives keep delaying a shift to streaming because the old business still brings in strong profits. By the time they move, a digital-first rival already dominates the new market.

What is the BEST explanation for why the incumbent lost?

A. It moved too early into a less profitable business
B. It failed to respond while the disruptive technology became good enough
C. It lacked any brand awareness in the original market
D. It focused too much on complementary products

Correct answer: B

Explanation: The chapter and slides emphasize that incumbents often move too slowly because they protect existing margins and listen too closely to current customers. By the time the new technology is “good enough,” startups have already built expertise and scale. A is wrong because the firm actually moved too late, not too early.

Citations

Information Systems: A Manager's Guide to Harnessing Technology – John Gallaugher

University of Texas MIS 301 Slides – Chapter 4 Disruptive Technologies :contentReference[oaicite:1]{index=1}