Bu5iness

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 five key issues concerning the effect of techno-

logical change on firms 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

attention as Harvard Business School professor

Clayton Christensen’s work on disruptive tech-

nology. His book The Innovator’s Dilemma (1997) has

sold over 200,000 copies since its release in May 1997

and has received extensive coverage in business pub-

lications. Christensen was elevated by the business

press to the status of ‘‘guru’’ (Scherreik, 2000). His

work also has been cited extensively by scholars work-

ing in diverse disciplines and topic areas, including

new product development (NPD), marketing, strate-

gy, management, technology management, and so

forth.

However, despite how widespread Christensen’s

work on disruptive technology has become in busi-

ness circles, there seems to be a lack of constructive

criticism of the core concept of his theory, namely

‘‘disruptive technology,’’ as well as its mecha-

nisms and effects on firms and industries. Although

Christensen’s work has contributed to our under-

standing of the impact of technological innovations

on the fates of firms and the dynamics of industries, a

close reading of his book and the articles he has co-

authored with his colleagues has left many questions

unanswered. To promote further systematic inquiry

into this field this article carefully reexamines the no-

tion of disruptive technological change, its mecha-

nisms, and its consequences for firms and industries.

The contribution of this article is twofold. First, it will

link the work on disruptive technology to a wide

range of related literature streams, thus revealing new

connections to be explored. Second, this article devel-

ops a research agenda that may inspire further theo-

retical and empirical work on the nature and effects of

disruptive technological change in particular and

technological change in general. Hopefully, inspired

by the linkages to related literatures, a programmatic

stream of research in this domain may be developed.

The discussion is organized around the following

themes: (1) the definition of disruptive technology;

Address correspondence to Erwin Danneels, Department of Man- agement, Worcester Polytechnic Institute, 100 Institute Road, Worces- ter, MA 01609. Tel: (508) 831-5181. Email: [email protected]. � I am indebted to students at Emory University and the Worcester

Polytechnic Institute for their insightful discussions. Special thanks to Hank Chesbrough, Andy King, and Chris Tucci for their feedback on my interpretation of their findings.

J PROD INNOV MANAG 2004;21:246–258 r 2004 Product Development & Management Association

(2) the predictive use of the theory; (3) explaining the

success of incumbents; (4) the implications of the the-

ory for the merits of being customer-oriented; and (5)

the merits of creating a spin-off to commercialize the

disruptive technology. Table 1 presents an overview of

the research questions that could inspire program-

matic research in each of these themes.

What Is a Disruptive Technology?

Before starting the reexamination of the notion of

disruptive technology, it is useful to summarize briefly

Christensen’s notion of disruptive technology. Even

though disruptive technologies initially underperform

established ones in serving the mainstream market,

they eventually displace the established technologies.

In the process, entrant firms that supported the

disruptive technology displace incumbent firms that

supported the prior technology. The process is

understood best by the joint consideration of the

trajectories of performance offered by technological

alternatives and the trajectories of performance

demanded in various market segments. Initially, dis-

ruptive technologies do not satisfy the minimum re-

quirement along the performance metric most valued

by customers in the mainstream segment and thus are

considered inappropriate by incumbents in the main-

stream market for satisfying the needs of their cus-

tomers. The products based on the disruptive

technology initially only satisfy a niche market seg-

ment, which values dimensions of performance on

which the disruptive technology does excel. Over time,

as research and development (R&D) investments are

made and the technology matures, the performance

supplied by the disruptive technology improves to the

point where it also can satisfy the requirements of the

mainstream market. Incumbent firms, who focused

R&D attention on improvements to existing technol-

ogies (i.e., sustaining technologies), have a hard time

catching up with the lead of the entrants that emerged

based on the disruptive technologies. Therefore, dis-

ruptive technologies tend be associated with the re-

placement of incumbents by entrants.

From the previous summary, it seems that a dis-

ruptive technology is a specific type of technological

change, which operates through a specific mechanism,

and has specific consequences. However, these in-

sights need to be refined further. Therefore, my first

and most essential question concerns what a disrup-

tive technology actually is. If disruptive technologies

pose a threat to industry incumbents and an oppor-

tunity to entrants, managers and scholars need to be

able to distinguish disruptive from sustaining technol-

ogy. What makes a technology disruptive? What are

the exact criteria for identifying a disruptive technol-

ogy? Christensen does not establish clear-cut criteria

to determine whether or not a given technology is

considered a ‘‘disruptive technology.’’ In his review of

16 empirical studies of the impact of technological

shifts on incumbent firms, Chesbrough (2001) noted

the studies used inconsistent terminology; in other

words, they lacked common criteria to classify differ-

ent types of technologies.

A question that remains is whether a technology is

inherently disruptive or if ‘‘disruptiveness’’ is a func-

tion of the perspective of the companies subject to it.

Christensen has argued (e.g., Christensen et al., 2000;

Christensen and Raynor, 2003) that the Internet is

disruptive to some but sustaining to other firms, de-

pending on whether it is consistent with their business

model. For instance, the Internet is sustaining to cata-

log retailers and discount brokers, but it is disruptive

to department stores and full-service brokers.

Another important question is at what point in

time a technology becomes disruptive. Does it become

disruptive once it invades an existing market and dis-

places another technology? For instance, at what

point does digital imaging become a disruptive tech-

nology? Also, is ‘‘disruptiveness’’ a function of the

market in which products are sold? Several markets

could be subject to disruption by digital imaging,

such as photo-processing labs, film manufacturers,

and camera manufacturers. Does the technology be-

come disruptive when photographers substitute film-

based cameras for digital ones or when chemical

photo processing labs go out of business because

their services no longer are needed? In other words,

is a technology disruptive only once it displaces

incumbents that built their business on the prior

technology?

BIOGRAPHICAL SKETCH

Erwin Danneels is assistant professor of marketing at Worcester

Polytechnic Institute in Massachusetts. He obtained his Ph.D. in

marketing from Pennsylvania State University. His research area of

interest includes the growth and renewal of corporations through

product innovation, the nature and consequences of product inno-

vativeness, the characteristics of corporations with innovative new

product programs, and the performance effects of innovative new

product programs. He has published in journals such as the Journal

of Product Innovation Management and the Strategic Management

Journal.

DISRUPTIVE TECHNOLOGY RECONSIDERED J PROD INNOV MANAG 2004;21:246–258

247

Another way to conceive of disruption is relative to

the resources or competences of the innovating firms

(Charitou and Markides, 2003). This notion of dis-

ruption is consistent with the distinction drawn by

Tushman and Anderson (1986) between competence-

enhancing and competence-destroying technological

shifts. Disruptive technologies then would be those

technologies that render established technologies

obsolete and therefore destroy the value of the

investments that incumbents have made in those

technologies.

It is important to emphasize that Christensen

explicitly notes that the classifications of disruptive

versus sustaining and of competence-destroying versus

competence-enhancing are distinct. He notes that

many of the incumbents he studied had no difficulty

surviving competence-destroying technological shifts,

as long as the competence-destroying technologies ad-

dressed the needs of the incumbents’ mainstream cus-

tomers. A footnote in Christensen and Bower (1996)

reads, ‘‘We contest the conclusions of scholars such as

Tushman and Anderson (1986), who have argued that

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 firms 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 firms and industries? � What are the mechanisms by which technological change impacts firms 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 firms 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 firms 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 firms? � 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 firm 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?

248 J PROD INNOV MANAG 2004;21:246–258

E. DANNEELS

incumbent firms are most threatened by attacking en-

trants when the innovation in question destroys, or

does not build upon, the competence of the firm. We

observe that established firms, though often at great

cost, have led their industries in developing critical

competence-destroying technologies, when the new

technology was needed to meet existing customers’

demands’’ (p. 199).

In my opinion, the core of the definition of a dis-

ruptive technology is this: A disruptive technology is a

technology that changes the bases of competition by

changing the performance metrics along which firms

compete. Customer needs drive customers to seek cer-

tain benefits in the products they use and form the

basis for customer choices between competing prod-

ucts. Benefits sought by customers determine which

product attributes they value, and different customer

groups (i.e., market segments) may value different at-

tributes (MacMillan and McGrath, 2000). Competing

products (or more broadly offerings, which are con-

stituted by physical goods and/or services) offer dif-

fering levels of performance on varying dimensions.

These performance levels of the product, or attribute

sets (MacMillan and McGrath, 2000), are possible

because of the technology embedded in the product.

Customer needs determine which performance dimen-

sions form relevant bases of competition—i.e., differ-

entiate meaningfully between competing offerings. At

any given time, a particular technology has perform-

ance constraints, which limit the current product at-

tribute set. New products based on a disruptive

technology have different attribute sets than existing

products. These new products initially have lower

performance on dimensions relevant to the main-

stream market segment but have higher performance

on dimensions valued by remote or emerging market

segments. However, the performance that a technol-

ogy enables increases over time, and eventually the

performance levels offered by a disruptive technology

meet or exceed the minimum levels demanded by the

mainstream market. Disruptive technologies change

the bases of competition because they introduce a di-

mension of performance along which products did not

compete previously. For instance, in disk drives, once

drive capacity exceeded the requirement of a certain

market segment, size of the drive became a basis of

competition.

The most powerful analytical tool provided by

Christensen is a diagram that jointly portrays trajec-

tories over time of (1) performance demanded by

different market segments; and of (2) performance

provided by alternative technologies. In his frame-

work, disruption occurs when the trajectory of per-

formance provided by the disruptive technology

intersects with the trajectory of performance demand-

ed in the mainstream market. In Christensen’s cases

often only one or two performance dimensions dom-

inate the customer’s choice. For instance, in his focal

example of disk drives, size and capacity are the dom-

inant choice criteria. However, in many cases the

number of performance dimensions is much higher,

and customers trade them off against each other,

making for a complex and recursive set of variables.

For instance, for cars, key performance dimensions

include speed, range, acceleration, styling, conven-

ience of fueling, fuel efficiency, weight, towing capac-

ity, crash safety, reliability, maintenance, durability,

noise, vibration, theft risk, pollution, purchase and

operating costs, and so forth. The multitude of rele-

vant performance dimensions and their complex in-

terrelationships may make the use of trajectory

diagrams challenging.

In this vein, Adner (2002) focused attention on the

demand side of this interplay between markets and

technologies. He argued for the need to understand

the structure of demand in order to clarify the nature

and effects of disruptive technology. Building on

Christensen, he developed a formal modeling ap-

proach to characterize the nature and evolution of

demand in various market segments and identified

which kind of market structures are susceptible to

disruption. His approach potentially could be extend-

ed to include various interrelated dimensions of

performance, as viewed from both market and tech-

nological perspectives.

One question that has been left unanswered is this:

what are the essential characteristics of a disruptive

technology, and what are ancillary characteristics?

Christensen (2000) stated that ‘‘disruptive technolo-

gies are typically simpler, cheaper, and more reliable

and convenient than established technologies’’ (p. 192).

These characteristics may be typical, but not neces-

sary, characteristics of disruptive technology. For in-

stance, do mainstream customers never initially value

disruptive technology? Does disruptive technology al-

ways mature in a low-end segment? Does disruptive

technology always start with lower performance?

Mini-mills started in the lower-end rebar segment,

but Amazon.com started in the mainstream market.

Digital cameras are more expensive than traditional

film cameras to purchase but less expensive to use.

Digital video discs (DVDs) always have had higher

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249

image quality than videocassettes. If a technology

does not fit these ancillary characteristics, is it then

not a disruptive technology?

Perhaps some of the ancillary characteristics are

essential for a technology to be disruptive, i.e., for the

mechanism of disruption of industry leaders to oper-

ate. Christensen argues that because a disruptive tech-

nology initially only serves a small, low-margin

market, it is ignored by incumbents that are serving

more attractive segments. It seems key to the mech-

anism of disruption that the technology matures in the

marginal market and eventually increases its perform-

ance so as to satisfy the needs of higher-end segments.

This is when the disruption to incumbents takes place.

In contrast, the most recent version of the frame-

work makes a distinction between low-end disruptions,

which address the low end of an existing value net-

work, and new-market disruptions, which create a

new value network (Christensen and Raynor, 2003).

A new-market disruption is ‘‘an innovation that ena-

bles a larger population of people who previously

lacked the money or skill now to begin buying and

using a product’’ (Christensen and Raynor, 2003,

p. 102).

Some of the characteristics of disruptive technolo-

gy may be essential, whereas other characteristics may

be industry-specific. In his review of studies of the

impact of technological changes on firms, Chesbrough

(2001) noted that this stream of research has tended to

focus on issues of internal validity, to the relative ne-

glect of external validity. Most empirical work has

been in the form of very well-documented and thor-

ough case studies of particular industries, but the

extent to which findings from these case studies gen-

eralize across industries has not been addressed.

Christensen and his colleagues have done studies of

many industries, ranging from hard disk-drive manu-

facturers to makers of excavators. In fact, in the book

by Christensen and Raynor (2003) the term disruptive

technology is replaced by disruptive innovation, appar-

ently to broaden the theory’s applicability. However,

as the limits of the theory of disruptive innovation

continue to be pushed to include such areas as retail

formats, online banking, and digital imaging, it seems

that the concepts and mechanisms outlined in earlier

work become increasingly stretched. It is therefore

necessary for scholars to develop very careful defini-

tions and classifications of types of technological

change and to develop clear conceptual depictions

of their effects and the processes by which they exert

these effects.

Can the Disruptive Technology Framework Make Ex Ante Predictions?

Christensen has been accused of cherry-picking

examples to support his framework (Cohan, 2000).

All of Christensen’s case studies are of disruptive

technologies that did succeed. However, there are

many potentially disruptive technologies that fail

(e.g., the Iridium global satellite phone system;

see Finkelstein and Sanford, 2000). Perhaps that is

why established companies tend to be skeptical of

disruptive technologies. Entrants have less to lose,

and for them a disruptive technology may be the only

chance to gain a foothold. Even though Christensen

never claims that all (potentially) disruptive technol-

ogies succeed, his exclusive selection of those that did

presents an analytical problem.

Retrospective analysis is subject to bias. Hindsight

is always 20/20. Therefore, the historical case studies

in ‘‘The Innovator’s Dilemma’’ are considered best as

wonderfully rich empirical data used for theory-build-

ing purposes. The real challenge to any theory, espe-

cially if it is to be useful managerially, is how it

performs predictively. In other words, can the theory

be used not only to analyze cases post hoc but also to

predict the outcome of cases ex ante? Barney (1997)

argued that luck may be an alternative explanation

for why some firms survive technological shifts, stat-

ing that ‘‘it may simply be the case that some firms are

lucky in their technology choices and others are un-

lucky’’ (p. 15). Those firms with lucky choices are

subsequently scrutinized, and a retrospective rationale

for their success is formed. Barney (1997) recom-

mends predictive tests to rule out luck as an alterna-

tive explanation. I encourage scholars to use the

foundation provided by Christensen for theory-test-

ing purposes.

How can we know if a technology will be disrup-

tive, ex ante? As Doering and Parayre (2000) noted,

‘‘Significant emerging technologies are easily seen af-

ter the fact, and companies are then congratulated or

castigated for their decisions to pursue them or ignore

them. But rarely are the winners clear at the outset.

Yet, this is the challenge managers face’’ (p. 75). For

managerial purposes, Christensen’s framework would

be most useful if it allowed a manager to recognize

which technology will succeed and will become dis-

ruptive. Christensen (2000) suggested to ‘‘y graph the trajectories of performance improvement demand-

ed in the market versus the performance improvement

supplied by the technologyy Such charts are the best

250 J PROD INNOV MANAG 2004;21:246–258

E. DANNEELS

method I know for identifying disruptive technolo-

gies’’ (p. 206). For ex post case studies, using trajec-

tory charts is fairly straightforward, given that the

relevant performance dimensions have been identified

and that data on performance demanded and supplied

are available.

However, ex ante predictions involve predicting

what performance the market will demand along var-

ious dimensions and what performance levels tech-

nologies will be able to supply. It is not clear entirely

what methods exist for such prediction. One simple

approach of course would be to extrapolate the his-

torical performance trends toward the future. This

may be very difficult in the case of very young tech-

nologies, or new markets, for which very little histor-

ical data exist and for which future evolution is

uncertain. It seems very difficult to predict ex ante

which technology will be disruptive. For instance, an

article in the magazine Scientific American reviews

many emerging information storage technologies that

eventually could replace hard-disk memory (Toigo,

2000).

Further research should develop analytical tools

for identifying (potentially) disruptive technologies.

One potentially fruitful avenue is for researchers to

examine how extant methods for technology forecast-

ing could be applied to assess disruptive technologies.

Doering and Parayre (2000) presented a technology

assessment procedure that iterates among searching,

scoping, evaluating, and committing. They argued

that this process allows for projecting the future com-

mercial value of scientific and engineering discoveries.

The Delphi technique (Rowe and Wright, 1999) pre-

sents another avenue to obtain and to integrate expert

estimates of technological and market trajectories.

These technology-forecasting procedures could be tai-

lored specifically to disruptive technologies.

As aforementioned, Christensen has been accused

of ‘‘sampling on the dependent variable,’’ or of high-

lighting only technologies that eventually turned out

to be disruptive. To avoid this criticism, it would be

necessary to obtain an uncensored sample of emergent

technologies, of which the technical performance,

market applications, customer benefits, and effects

on companies and industries could be tracked over

time. Because the observed length of time would be

extremely long, perhaps several decades, this would be

of necessity a historical study. Perhaps a comprehen-

sive list of technologies drawing from a major scien-

tific development, such as nuclear physics or genetics,

could be developed for such empirical work.

Why Do Some Incumbents Succeed?

One of Christensen’s most interesting findings,

based on many case studies across widely varying

industries, is that incumbents tend to falter when

faced with disruptive technologies. For instance, he

found that only 4 out of 30 cable excavators embraced

the switch to hydraulic technology from cable-

actuated technology. Similarly, much prior research

has found that innovations that ultimately trans-

form an industry often do not originate from the in-

dustry’s leaders (e.g., Cooper and Schendel, 1976;

Foster, 1986; Henderson and Clark, 1990; Utterback,

1994).

Regarding Christensen’s focal industry, the hard-

disk-drive industry, McKendrick, Doner, and

Haggard (2000) disputed some of his factual claims

regarding whether the leaders of every technological

transition (from 14-inch to 8-inch, 8-inch to 5.25-inch,

5.25-inch to 3.5-inch) were entrants or incumbents.

McKendrick, Doner, and Haggard (2000) claimed

that only the transition to 5.25-inch evidenced a clear

disruptive technology pattern in which entrants pre-

vailed and incumbents failed. Regarding the transi-

tion to 3.5-inch drives, McKendrick, Doner, and

Haggard (2000) stated that ‘‘the real paradox is that

a whole class of great firms did not fail despite often

trailing the market in the introduction of disruptive

technologies’’ (p. 286, italics in original). In their

study of incumbent entry into new market niches in

the hard-disk-drive industry, King and Tucci’s (1999,

2002) findings contradicted Christensen’s finding that

incumbents exposed to disruptive technology mostly

fail or exit. They actually found that firms with expe-

rience in serving prior market segments (i.e., incum-

bents of prior formats of disk drives) were more likely

to enter new market niches. Similarly, Chesbrough

(2003a) found that firms with greater prior disk drive

revenues were more likely to enter new market niches,

albeit later in time, than firms with less prior revenues.

In other words, these studies found the opposite

central tendency from that proposed by Christensen

and his colleagues. King and Tucci (1999) and

Chesbrough (2003a) also found that incumbents

were more likely to survive in the long term (i.e.,

had a lower rate of exit). However, these studies did

not examine the shifts in industry leadership across

the different transitions and therefore did not test

Christensen’s claim that incumbents lose their market

leadership (i.e., dominant market share) when faced

with disruptive technological change.

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251

Therefore it seems that many, but not all, incum-

bents fail in the face of disruptive technology. There-

fore the following question yet is unanswered: What

determines whether incumbents fail or succeed in the

face of disruptive technology? Future research needs

to address what the characteristics are of incumbents

that do not fail.

There are many examples of successful incumbents.

For instance, Charles Schwab, an established financial

industry incumbent, successfully embraced online

trading. Charles Schwab is currently the leading on-

line brokerage in terms of Internet trading revenues,

which account for more than half of the company’s

trades (Cohan, 2000). It overtook E�TRADE, the entrant and first mover. What led to Schwab’s suc-

cess? Its financial and management resources? Its

superior brand? Perhaps it was its memory of its

previous disruptive success when it disrupted Merrill

Lynch’s full-service brokerage by offering discount

brokerage (Cohan, 2000). Similarly, Kodak and Fuji

were among the first to embrace digital imaging tech-

nology and currently dominate the digital camera in-

dustry. Polaroid, on the other hand, faltered in the

introduction of a digital camera (Tripsas and Gavetti,

2000). Currently, incumbent car manufacturers are

leading the creation of nonfossil-fuel-powered auto-

mobiles and have introduced many products to

market.

Recent empirical research has found that the inno-

vative inertia of incumbent firms may have been over-

stated. Methé et al. (1997) found that industry

incumbents and diversifying entrants could be credit-

ed with many major innovations in the telecommuni-

cations and medical device industries. Klepper and

Simons (2000) found that nearly all dominant U.S.

manufacturers of television sets previously were dom-

inant producers of radios and that they took the lead

in television product and process innovations.

Chandy and Tellis (2000) also found that the ‘‘incum-

bent’s curse’’ has been overstated. They studied the

origins of a broad range of radical product innova-

tions in office products and consumer durables across

150 years. Radical product innovations are defined as

new products that are based on substantially new

technology and deliver substantially better customer

benefits relative to previous products, and incumbents

are defined as those firms that also sold the previous

generation of products. They find that after World

War II, incumbents actually introduced the majority

(75 percent) of radical product innovations within the

two product classes they studied.

Christensen has basically two explanations for in-

cumbent failure, which conversely could be used to

explain incumbent success: the resource allocation

process; and organizational resources, processes, and

values (the ‘‘RPV’’ framework). For instance, when

he points to resource-allocation mechanisms as a

cause of incumbent lack of proactiveness in harness-

ing disruptions, then superior resource allocation sys-

tems could characterize successful incumbents. I call

for research to observe directly the processes within

firms, particularly using field methods. Such research

could track resource allocation to sustaining and dis-

ruptive technologies over time and could detail deci-

sion-making processes. However, the most promising

area for research would be to provide data specifying

resources, processes, and values (called RPV by

Christensen in a chapter added in the new edition of

the book). A possible research question might be how

the resources, processes, and values of incumbents

that succeed versus fail compare. Studies in this area

can draw on a rich research tradition that has exam-

ined the role of firm resources or competences for the

firm’s ability to deal with technological change. The

remainder of this section will explore linkages to this

research tradition.

A crucial consideration is how the resources re-

quired to harness the disruptive technology relate to

the resources of incumbents (Charitou and Markides,

2003). Tushman and Anderson (1986) found that

competence-destroying technological discontinuities

were initiated by new firms, while competence-en-

hancing technological discontinuities were initiated

by existing firms. Tushman and Anderson (1986) ar-

gued that the former kind of innovations favor new

entrants at the expense of entrenched incumbents,

who are ‘‘burdened with the legacy (i.e., skills, abili-

ties, and expertise) of prior technologies and ways of

operating’’ (p. 446). Tushman and Anderson (1986)

argued that new firms, on the other hand, ‘‘y un- constrained by prior competence and history, take

advantage of technological opportunities’’ (p. 461).

It often has been assumed that prior experience,

and the routines and competences built from it, re-

duce the adaptability of organizations faced with

technological shifts. Henderson (1993) (see also

Henderson and Clark, 1990) found in the photo-

lithographic alignment equipment industry that

established firms invested more in incremental inno-

vation, while entrants were more likely to dominate

radical innovation. Henderson (1993) suggested that

‘‘y in some circumstances extensive experience with

252 J PROD INNOV MANAG 2004;21:246–258

E. DANNEELS

a technology may be a substantial disadvantage y Large established firms have an advantage over

entrants in the pursuit of incremental innovation be-

cause incremental innovation builds upon their exist-

ing knowledge and capabilities, but these assets can

simultaneously reduce substantially the effectiveness

of their attempts to exploit radical innovation’’ (p. 251).

In contrast, King and Tucci (2002) argued that ex-

perience, such as that accumulated by incumbents of

prior technological regimes, does not lead to inertia.

As mentioned earlier, in their study of the history of

the worldwide hard-disk-drive industry, they found

that firms with greater cumulative production and

sales experience were more likely to enter new market

segments and were less likely to exit. King and Tucci

(2002) thus called into question the incumbency (ex-

perience in prior markets and technologies) – inertia

(lack of entry and longevity in subsequent markets

and technologies) link.

Tripsas (1997) conducted another study that relat-

ed preexisting firm resources to firm survival. She

found that typesetter manufacturer Mergenthaler

Linotype remained an industry leader for over a cen-

tury, despite three waves of technological shifts. Mer-

genthaler’s proprietary control over its fonts, a

complementary asset in the typesetting industry, buff-

ered it from the technological shifts in its industry.

The technological shifts were not competence-de-

stroying in relation to the font libraries; i.e., this re-

source retained its value despite shifts in technology.

Tripsas and Gavetti (2000) studied the role of cog-

nition in the development of competences. They

showed how two prevalent beliefs among Polaroid

senior managers hindered the company’s entry into

digital cameras, in spite of its leading-edge digital-im-

aging capabilities. On the one hand, the belief in the

primacy of technology led the company to invest ag-

gressively in R&D on digital imaging. On the other

hand, the belief of Polaroid managers that their com-

pany could not make money on hardware (cameras)

but only on consumables (film), severely impeded the

commercialization of its digital technologies.

Helfat and Lieberman (2002) synthesized prior

work regarding the role of preexisting resources in

explaining whether and how successfully entrants and

incumbents will enter into a new field. They suggested

comparing the ‘‘resource profile’’ of firms to the re-

sources required by the new field. This comparison

will yield ‘‘resource gaps’’ a firm has to overcome (i.e.,

when the firm lacks key resources required for entry).

They concluded from their review of several empirical

studies [including the study of photolithographic

alignment equipment industry by Henderson and

Clark (1990)] that it sometimes has been overlooked

that ‘‘y the winning firms often are diversifying en- trants from another industry that bring resources and

capabilities relevant to the new product generation.

Successful entrants in new generations of photolitho-

graphic alignment equipment included Canon and

Nikon, which used their experience in optoelectron-

ics as a basis for diversification’’ (p. 752). Much of the

literature has focused on startup (i.e., de novo) en-

trants, while innovations introduced by diversifying

entrants (established firms that enter an industry new

to them) often are overlooked (Methé et al., 1997).

Mitchell (1992) found that firms able to draw on re-

lated technical and market resources to enter a new

technical field were more likely to prosper.

When addressing the challenges and opportunities

generated by technological change, incumbents may

not have the necessary resources. Helfat and Lieber-

man (2002) reviewed several means by which resource

gaps can be filled, such as alliances, joint ventures,

acquisitions, and licensing. Rothaermel (2001)

showed that accessing resources through alliances is

one way incumbents can be successful in the face of

disruptive technology. For instance, in the pharma-

ceutical industry, leading firms have been able to

maintain their position in spite of the emergence of

biotechnology. Rothaermel (2001) showed how in-

cumbents in the pharmaceutical industry access bio-

technological competences for new drug development

by engaging in strategic alliances with startup biotech

firms. In turn, the incumbent pharmaceutical firms

provide such resources as sales and distribution net-

works, advertising and promotion skills, and brand

names. Future research could build on Rothaermel

(2001) to evaluate the alternative routes for incum-

bents to get access to disruptive technologies, such as

alliances, acquisitions, and internal development.

Afuah (2000) (see also Afuah and Bahram, 1995)

also broadened the perspective beyond resources of

the focal firm. He argued that to understand techno-

logical change researchers need to examine not only

whether change renders obsolete the resources of the

focal firm but also those of its network of customers,

suppliers, alliance partners, and complementors. For

instance, transition to the Dvorak keyboard would

render obsolete the typing skills of customers adept at

Qwerty. Rosenbloom and Christensen (1994) drew

attention to the value network in which a firm is em-

bedded, which plays a critical role in how firms deal

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253

with disruptive technologies. In other words, to ex-

plain the success of incumbents, researchers need to

look at not only the destruction or enhancement of

resources of the focal firm but also at the impact of the

technological change on the resources of all players in

the value chain.

Emerging work in the resource-based theory of the

firm offers additional avenues for research. The focus

of this research is not so much on the extent to which

a technological transition destroys the value of exist-

ing resources but rather on what resources the firm

needs to add to its repertoire to take advantage of the

new technological field. It is important to emphasize

that Christensen argues that incumbents tend to fail

only when the disruptive technology does not initially

fulfill the needs of their mainstream customers. This is

when firms lack the ‘‘customer competence’’ to ad-

dress the market for which the technology initially can

be used. A customer competence consists of resources

required to serve certain customers: understanding of

customer’s needs and buying process, access to sales

and distribution channels, brand and firm reputation

within the targeted market, and communication chan-

nels with the customers (Danneels, 2002). In an

intriguing footnote, Christensen (2000) notes that

‘‘Professor Rebecca Henderson pointed out to me

that this tendency always to take new technologies to

mainstream customers reflects a rather narrow mar-

keting competence—that although many scholars

tend to frame the issue as one of technological com-

petence, such inability to find new markets for new

technologies may be a firm’s most serious handicap in

innovation’’ (p. 58, italics in original) (see also Chris-

tensen and Bower, 1996, p. 207). Indeed, many in-

cumbents were able to develop working prototypes of

products using the disruptive technology, demonstrat-

ing that they had the R&D competence necessary to

acquire a new technology. However, they faltered

when they tried to market the disruptive technology

to their current customers. What they were missing

was a ‘‘marketing competence,’’ the ability of a firm to

build new customer competences, i.e., to identify and

build relationships with customers it has not served

yet (Danneels, 2002). The failing incumbents de-

scribed by Christensen lacked the marketing compe-

tence to establish the resources needed to address the

market that initially was served by the disruptive tech-

nology. They lacked the skills to conduct research on

a new market, to set up a new distribution and sales

channel, to build a reputation in a different market,

and so forth. Christensen and Bower (1996) claimed

that none of the disk-drive manufacturers was able to

gain a significant share of the new market, and they

discuss two example firms in particular. Seagate, tra-

ditional maker of 5.25-inch drives for the desktop PC

market, for several years did not succeed in selling its

3.5-inch drives to the new laptop market. Instead,

they sold most of their 3.5-inch drives to their existing

customer base, the desktop PC makers. Similarly,

Control Data, incumbent maker of 14-inch drives

for mainframes, did not succeed in marketing its 8-

inch drives to minicomputer manufacturers. Control

Data sold nearly all of its 8-inch drives to the main-

frame market. As emphasized by MacMillan and

McGrath (2000), one of the key challenges for com-

mercializing emerging technologies is to identify the

killer applications as early as possible. This involves

determining which product attributes are made pos-

sible by the new technology and then to identify which

market has needs that can be satisfied by those at-

tributes. In other words, the marketer should find cus-

tomers who value the unique product attributes made

possible by the technology. In the case of a disruptive

technology these are not customers of the incumbent

firms. Next, the firm needs to acquire access to this

market. Therefore, paradoxically, the capacity to sur-

vive a technological shift may be a function of the

firm’s marketing competence, in particular how adept

it is at identifying and accessing customers it has not

served previously. Future research could develop this

notion of a marketing competence further and could

explore whether incumbents with stronger marketing

capabilities are in fact more adept at taking advantage

of the opportunities offered by disruptive technologies.

This discussion of organizational level competence

begs the question of individual level competence.

What is the role of the competence of individual

middle- or top-level managers of incumbent firms?

Christensen and his colleagues are too kind to man-

agers of incumbent firms, insisting on describing them

as competent and at the helm of great firms. Their

analysis suggests a rather passive role of managers, as

having their hands tied behind their backs, being the

captive of current powerful customers, at the mercy of

investors, powerless peons in the process of resource

allocation. I believe that individual managerial com-

petence does play a significant role and should be an

explicit focus of research into the determinants of in-

cumbent success. Some managers do seem able to lead

their firms across technological transitions.

Lastly, several researchers have found that the ef-

fects of disruptive technologies on incumbents are

254 J PROD INNOV MANAG 2004;21:246–258

E. DANNEELS

contingent on national context. Chesbrough (1999a,

1999b) examined the hard-disk-drive industry in three

regions: the United States, Europe, and Japan. He

found that incumbents lost their leadership position

across technological transitions in the United States,

while in Japan incumbents maintained their domi-

nance. In the United States startup entrants dis-

placed incumbents (i.e., population-level change),

while in Japan the hard-drive industry transitioned

to new technologies by organization-level change.

Chesbrough (1999a) (see also Chesbrough, 1999b)

highlighted four main aspects of the institutional con-

text that impact the fate of incumbents relative to en-

trants when faced with disruptive technological

change. First, the mobility of qualified and experi-

enced personnel affects whether entrants can gain ac-

cess to these critical human resources or whether they

are retained within incumbent firms. Second, national

contexts vary in the extent to which venture capital,

the main source of funding for startups, is available.

Third, the exclusivity, contractual or moral, of sup-

plier–customer relationships also tends to favor in-

cumbents. Fourth, the region’s government industrial

policy, especially in terms of subsidies and preferences

in government procurement, also tends to affect the

fate of incumbents. Darby and Zucker (2001) noted

that the institutional environment in Japan channeled

the shift from chemistry to biotechnology in the phar-

maceutical industry to take place entirely as organi-

zational change within incumbents rather than as the

industry level displacement of incumbents by en-

trants. They focused in particular on the restrictions

imposed on star scientists at Japanese universities,

who were prohibited legally from holding equity in-

terest or founding roles in new firms, an institutional

factor which contributed to the lack of biotech start-

ups in Japan.

What Are the Merits of Being Customer Oriented?

Christensen’s work often has been cited as an argu-

ment against customer orientation (Day, 1999; Slater

and Narver, 1998). Christensen pointed out that es-

tablished firms are ‘‘held captive by their customers’’

and therefore miss the boat on disruptive technolo-

gies. Christensen and Bower (1996) stated, ‘‘Our con-

clusion is that a primary reason why such firms lose

their positions of industry leadership when faced with

certain types of technological change y because they

listen too carefully to their customers’’ (p. 198). I be-

lieve that the implications of Christensen’s findings

for the value of being customer-oriented have been

misstated. Some readers have taken his findings to

imply that companies should not be customer-orient-

ed. This is a misinterpretation, for two reasons. First,

one needs to make a distinction between current and

potential customers. Being customer-oriented does

not imply an exclusive focus on current customers.

In the worst case, a firm may become what Day (1999)

has called ‘‘customer compelled’’—essentially bend-

ing over backward to fulfill every whim of current

customers, even at the expense of the company’s

short-term and long-term performance. Instead, a

customer-oriented firm ‘‘can serve current customers

and remain vigilant for unserved emerging markets’’

(Day, 1999, p. 15). In fact, Chandy and Tellis (1998)

found that companies focusing on future customers,

rather than on current customers, had a greater degree

of radical product innovation. I interpret Christen-

sen’s findings to mean that firms should not be fo-

cused narrowly on serving current customers and

should not allocate all their resources to serving cur-

rent customers.

Second, the firms portrayed by Christensen show a

shallow understanding of their customers’ needs. If

they had a deep understanding of their customers’

needs they would have known that their customers

actually did have a broader range of product selection

criteria than those upon which products competed

before the disruptive technology. A truly customer-

oriented firm understands the latent and unexpressed

needs of its customers (Slater and Narver, 1998).

Market research scholars and practitioners have de-

veloped an extensive toolkit for digging deep into

customers’ needs (for a review, see Aaker, Kumar,

and Day, 2000), and new techniques such as empathic

design (Leonard and Rayport, 1997) are being added

continually. In other words, Christensen’s findings

only reject a very reactive, narrow notion of custom-

er orientation (Danneels, 2003; Slater and Narver,

1998).

I also have observed a misguided critique of the

‘‘lead-user methodology,’’ the famed approach to cre-

ating new products formulated by von Hippel (1986)

and colleagues. Unfortunately, Christensen and

Bower (1996, p. 211) noted in parentheses that the

axiom to ‘‘stay close to your customers’’ is supported

by the research of von Hippel (1986). However, the

detractors of the lead-user method fail to appreciate

that lead users are not necessarily current customers

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255

(In fact, most often they are not customers at all). In

contrast, the lead-user technique may be a great way

to identify promising disruptive technologies (for an

illustration, see von Hippel, Thomke, and Sonnack,

1999). This misunderstanding may be blamed

on a confusion of terminology. Even Christensen

(2000) uses the term lead customers (p. 43) (see also

Christensen and Bower, 1996, p. 207). I urge scholars

and practitioners to be careful to distinguish ‘‘lead

customers’’ and ‘‘lead users’’ and to understand the

latter concept in terms of the research stream started

by von Hippel over two decades ago.

Is Creating an Independent Organization to Pursue the Disruptive Technology Always Best?

One of Christensen’s most influential recommenda-

tions has been that incumbents should set up a sep-

arate organization for venturing into disruptive

technology. His recommendation follows logically

from his explanations for the failure of established

firms, which as pointed out already is twofold. First,

the resource-allocation process tends to pull resources

away from disruptive technology efforts to serve cur-

rent customers, and therefore a spin-off with its own

protected, dedicated resources is required. Second, the

disruptive technology may not fit with the mainstream

organization’s resources, processes, and values. For

instance, he argues that it is necessary to match the

size of the organization to the size of the opportunity,

such that managers can get excited over the initially

small market for disruptive technologies. According

to Christensen and Bower (1996), in the entire history

of the hard-disk-drive industry only three incumbents

achieved commercial success with a disruptive tech-

nology (This conclusion is disputed by McKendrick,

Doner, and Haggard, 2000). Christensen and Bower

(1996) attributed the success of two out of three to

their spinning out an independent organization to

pursue the disruptive technology.

Cohan (2000) questioned whether setting up a sep-

arate organization is always the best solution and ex-

amines two successful incumbents who did not:

Hewlett-Packard (HP) for developing inkjet printers

and Schwab for developing online trading. In fact, HP

did initially set up an independent organization to

address the disruption. However, when the disruptive

business became big and profitable enough to com-

mand adequate resources, it was folded back into the

mainstream business. The case of Schwab is also more

complex than Cohan (2000) suggested. Schwab in fact

did establish first a separate division (consistent with

Christensen’s recommendation) called e-Schwab but

later integrated this division after experiencing chan-

nel conflict (Useem, 1999). This suggests that creating

a separate division may have both advantages and

disadvantages. Gulati and Garino (2000), in an article

on clicks-and-mortar strategies by retailers, pointed

out some disadvantages of setting up an independent

organization. They argued that Barnes & Noble’s

decision to create an entirely separate division

(barnesandnoble.com) to pursue online retailing led

the company to forego synergies in purchasing, infor-

mation sharing, branding, cross-promotion, and cus-

tomer service. Gulati and Garino (2002) concluded

that the integration versus separation decision facing

traditional retailers venturing into online retailing in-

volves a trade-off. Iansiti, McFarlan, and Westerman

(2002) found that retailers that integrated their web

operations with their existing business were more ef-

ficient at generating revenues than those retailers that

kept them as autonomous divisions. On the other

hand, Rice, Leifer, and Colarelli O’Connor (2002)

found in their case studies that discontinuous inno-

vations transitioned into an existing business unit of-

ten suffered from a misfit between the needs of the

discontinuous innovation and the business unit’s ex-

isting capabilities in manufacturing and marketing.

McDermott and Colarelli O’Connor (2002) concluded

that ‘‘isolation may protect the project from the coun-

terproductive forces within the mainstream, but it also

cuts the project off its most important sources of

learning, competences and resources’’ (pp. 431–32).

Christensen (2002) in fact qualified his recommenda-

tion to set up an independent organization: ‘‘When a

threatening disruptive technology requires a different

cost structure in order to be profitable and competi-

tive, or when the current size of the opportunity is

insignificant relative to the growth needs of the main-

stream organization, then—and only then—is a spin-

out organization a required part of the solution’’

(p. 176). [An almost identical statement is made in

Christensen and Overdorf (2000, p. 74)]. Many schol-

ars and practitioners interpreting Christensen’s work

have not attended to this qualification. In any case,

there are solid arguments for and against a spinout

organization, and more refined insights into contin-

gencies are emerging. When resource complementari-

ties between the new venture and the mainstream

business are crucial, and these complementarities

256 J PROD INNOV MANAG 2004;21:246–258

E. DANNEELS

require intracompany coordination, a more integrated

approach may be advised (Iansiti, McFarlan, and

Westerman, 2003).

Future research should examine under what con-

ditions a spin-off is the best way to pursue disruptive

technology and how the relationship between main-

stream organization and spin-off should be struc-

tured, in terms of resources, governance, ownership,

and incentives. For example, Chesbrough (2003b)

studied the relationship between governance and per-

formance of Xerox spin-off companies. He found that

spin-offs with a parent company insider as chief ex-

ecutive officer (CEO) and a board dominated by par-

ent company representatives realized lower market

values and revenue growth than those with an out-

sider at the top and venture capital representatives on

the board. Dominance of the parent company in the

governance of the spin-off imposed the pursuit of

complementarities with parent resources and there-

fore constrained the search for opportunities.

Conclusion

This article started by noting that the work on dis-

ruptive technology by Christensen and his colleagues

has garnered much attention by scholars and practi-

tioners alike. However, with its success also have

come some pitfalls. Christensen offers a really intri-

cate picture of how firms react to technological shifts,

and I believe that readers do not always do justice to

the complexity of his argument. One can see from a

search for disruptive technology on the web how loose-

ly the term has come to be used and how it has be-

come separated from its theoretical basis. Therefore, a

reconsideration of the nature of disruptive technolog-

ical change and its consequences for firms and indus-

tries is in order.

The work on disruptive technology served as a

springboard to formulate several important issues

that remain unresolved from both an academic and

managerial perspective. Scholars should develop a

classification of technologies to enhance understand-

ing of how the emergence of new technologies shapes

the fate of both firms and industries. I believe that

disruptive technologies have a specific and distin-

guishable place within such a classification. To in-

crease both the theoretical and managerial merit of

the theory, predictions need to be developed and to be

tested about which technologies will become disrup-

tive and which firms will succumb versus prosper in

their emergence. Future research also should address

the merits of spin-offs and customer orientation as

ways to harness the power of disruptive technologies.

My hope is that this article will encourage further re-

search along these lines and will spur debate by prac-

titioners and scholars alike.

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