"In the computer world, these victims can be plotted in succession," Christensen said. "Silicon Graphics (SGI) is the first. In the 1990's, they were just the darling of Silicon Valley. They have improved to such a point there just weren't any more complicated problems out there for them to solve.
Hewlett-Packard (HP) is next. HP has a US$14 billion enterprise server business and this has about hit the ceiling with no growth above them. This is followed by Sun Microsystems. Sun's machines at any given point in time aren't as good as SGI's and HP's. There's no volume for them any more. Dell is coming up underneath Sun but they have a bit of headroom left."
Christensen's predictions aren't revelatory. With the slumped economy, most technology providers have been scraping the bottom of the barrel for growth. Industry analysts have duly noted HP's post-merger challenges in growing its enterprise business, outside of services. Sun is regularly portrayed as a company on the ropes, despite US$5 billion in cash reserves. The company prides itself on its research and development efforts, but hasn't yet found the magic potion. In the last few years, SGI failed in its attempt to compete in the mainstream server market, and now has returned to its high-end graphics workstation roots.
But the economic conditions and fierce competition in an increasingly standards-based technology environment won't be the root cause of their problems in the future. Christensen's viewpoint is that those companies typically focus on technologies that are sustaining, rather than disruptive, in nature. They provide products and services for their customers in the traditional ways that the market expects and values.
For example, most of the top tier IT technology providers are offering more comprehensive, integrated, standards-based software stacks and hardware. It's hardly a revolutionary innovation, but clearly responds to customer requests for lower cost and less complexity.
But, as Christensen points out, those innovations are usually the next generation of an existing technology, rather than "disruptive" innovations that shake the foundations of the established order. It's difficult for companies with an existing and revenue-generating platform to think out of the box. Christensen points to the fate of the minicomputer manufacturers, like Digital Equipment Corp. (DEC), that failed to see how the PC would disrupt their livelihoods. Today, Linux is disrupting the Microsoft camp, and Amazon is demonstrating the disruptive and innovative power of e-tailing.
The current PeopleSoft/J.D. Edwards/Oracle clash is not disruptive except to the group of affected customers. Whatever the outcome, market dynamics will change through consolidation, but don't expect any innovation that significantly simplifies or lowers the cost of enterprise software. From Oracle's point of view, simplification is centralising databases and using the company's applications with minimal customisation.
Following Christensen's theory, those companies are not well suited to developing innovations, especially innovations that could destroy the value of their current products and businesses. With growth slowing in the upper tiers, the major ERP vendors are looking to consolidation and swimming downstream to capture the mid-sized and small business. However, their approach to the lower market tiers is to offer a suite of prepackaged applications that are slimmed down from their high-end products. For many companies, this type of solution is acceptable. It's more a replication of the past, a kind of status quo that evolves when a technology base is established. More dramatic innovation is more the province of smaller solution providers.
Salesforce.com, for example, has been able to grow consistently with a formula of hosted applications and low cost of entry for CRM software, while larger competitors have been struggling for new business. Given Christensen's description of products based on disruptive technology as typically cheaper, simpler, smaller, more convenient to use, and often representing a new product architecture, salesforce.com could be considered disruptive. Certainly, technologies like peer-to-peer and wireless networks have more far reaching and profound impact, but innovation can be applied to any part of your technical infrastructure.
The challenge for IT executives as well as product manufacturers is to identify disruptive technologies and exploit them appropriately. According to Christensen, "Disruptive technologies, at first, do not meet the mainstream customers' performance needs and initially do not satisfy the growth needs of large companies. Sound management decisions such as focusing on market share, growth, and meeting leading customer needs will lead you to abandon potential disruptive technologies--this is the heart of the innovator's dilemma."
Dan Farber is Editor-in-Chief of ZDNet.
