Christensen’s and the Failure of Established Firms) The magnitude

Christensen’s theory of disruptive technologiesAlong the changes in industries, common issue has been why good companies struggle in responding to changing technologies. Before Christensen, the focus has been either on managerial, organizational and cultural responses of companies to the change or the ability of companies to handle the new technology. Christensen proposes an additional theory based upon a concept of a value network.Companies’ organizational structure typically facilitate innovation only on component-level.

This is because companies often focus on innovating along the existing product. The companies acquire knowledge about specific problems connected to the previous projects and thus when facing similar problems, the focus is on the previous solutions and not on reexamining all possible solutions. Such approach works well as long as the fundamental architecture of the product stays unchanged. Moreover, this is a recursive process as organizations’ knowledge and capabilities are shaped by the tasks and competitive environment it encounters.

(Henderson and Clark 1990, The Reconfiguration of Existing Product Technologies and the Failure of Established Firms) The magnitude of the technological change, relative to the companies’ capabilities, determines how companies cope with the emerging technology. Established companies are good improving only the technologies they have long time been good at. Where as newcomers tend to be better in exploiting radically new technologies. The capabilities are connected to the organization structure.

The organizations’ skills and knowledge are shaped by the historical choices on to which technological problems they focus on (Clark 1985, The Interaction of Design Hierarchies and Market Concepts in Technological Evolution).Christensen defines value network as “the context within a firm identifies and responds to customers’ needs, solves problems, procures input, reacts to competitors, and strives for profit”. The value network then determines how valuable the new technology is for a company. This again shapes what kind of rewards different types of companies are expecting to obtain from pursuing sustaining and disruptive technologies. Expected rewards drive allocation of resources in established companies towards sustaining rather than disruptive technologies. <<<< Expand (Christensen, Innovators dilemma)The different processes in companies are used to identify customer's needs, evaluate profitability, allocated resources across competing investment options and to forecast technological trends. In well-managed companies these processes are focused on current customers and markets and thus exclude products and technologies that do not respond to customers' needs.

The drawback of this is, that these companies become blind for new emerging technologies and emerging markets. (Christensen, Bower, 1995, Disruptive Technologies: Catching the Wave)(Christensen’s theory is about how companies fail to stay at the top of their industries when they face certain types of market and technological changes. Importantly, it is about well-managed that still lose market dominance. He defines technology as “the processes by which an organization transforms labor, capital materials and information into products and services of greater value”.)