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Identifying Revolutionary MegaTrends
. . Clayton Christensen (of Harvard University), did years of research in various industries to find out that ONE thing, or indication that later turns into a revolution in any industry. Clayton studied the Disk Drive/ Storage industry (as he believed this industry to be the Fire-Fly industry to study innovation), and closely monitored all the 116 variants of the disk drives from its inception till that date. After studying this industry, some very interesting and important insights were revealed, which were applied in all other industries of all times for validation, and were found successful in all of them. In his book, “The Innovator’s Dilemma”, Clayton Christen has described, such innovation which has the potential of driving away the Industry Leader out of business, and changing the landscape of the entire Industry as a “Disruptive Innovation” (as it disrupts the industry, and its present leader), and the technology that this innovation brings with it as the “Disruptive Technology”. He says that there are basically two types of innovation, and any new technology in any industry can be classified as either “Low Market”, or “New Market”. It is the identification of the type of innovation that gives us the power to predict the future changes in ANY INDUSTRY, and make our moves accordingly. Some of the salient points to identify WHEN a disruptive innovation is due is: . .When does a disruptive innovation hits any market?
Whenever the market leader in any industry, through constant innovation, and research, reaches a point that his products/ services are no longer targeted towards the mass market, but only a selected niche high tech/ knowledgeable/ expert users in the industry then the market is ripe for a disruptive innovation that invents a technology to make the some of the existing features of the existing products, cheaper, and easier to operate and understand for the mass market..
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Let us take the example of the health care Industry:
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Today we see that we need an expert radiologist to read our X-Rays and diagnose fracture/ defects in our bones. This is because the X Rays are too fade to be read by any patient/ a non expert Doctor. The primary reason for this is that when the X Rays reflects from our bones, it scatters away thus fading the film.
Now, someone has made a special type of X ray machine, and film arrangement, that has small 15microon holes in it, in such positions that the light does not scatter, and the prints are as clear as photograph from a digital camera. So the patient himself can hold it in his hand to take an INSTANT photograph of his effected leg, see the print then and there in his home (its a portable hand-held machine, which produces instant digital prints), and then decide whether he needs to go the orthopedics, or physiotherapist.
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Thus the major points to look out in an industry are:.
a. Which are the highest paying jobs in any Industry, and hence which are those areas in the industry where you require an expert to do the job, and hence is expensive.b. The industry leader is bust developing and researching high tech product for the highest order of problems in the industry (as he logically should, as he is the only one who can do so, and also earns good margin with them).
c. if the existing technology can be made SIMPLER, and INEXPENSIVE enough that it can be used by NON EXPERT practitioners/ mass people of the industry. d. and the above moves brings IMPROVEMENT in the life of all. .
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But what should the Market Leader do when he sees a small firm coming up with such disruptive innovative?
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One way or the other, if such an innovation has been made, then it remains only a matter of time before it brings about the demise of the market leader, and such an occurance cannot be prevented.
If the market leader resist such a technology, then although he can delay its propagation, but sooner or later it will reach its destined status. On the other hand, if the market leader himself adopts, and assists the development of such a technology, then it only bring about its end sooner than later. This is because such innovations typically very low margins in the beginning (for a long time). These not only dissolves the high margin atypical to the type of new innovation that the market leader is use to, but also its rate of returns are less that the invested cost of the capital in the firm, thus leading to destruction of the share holder’s wealth, and crash in its share prices, thus finally bringing it to the death bed, sooner than expected. Also in this case the leader will deprive itself of hugs margins that are still due at the higher end where it alone has the capabilities to devolve/ introduce advanced products, and absorb any remaining market value at the high end.
So the ONLY WAY out for the industry leader is to make an entirely ISOLATED firm, and let it assist and adopt this new technology. This new firm will certainly has lower costs, and flexible structure, lower return expectations, and hence it can survive the initial bad times. Later on this company will become as big as, or bigger than the present leader (parent company), then either the two should merge, or the leader be allowed to die its natural death, and the daughter company be allowed to become the NEW INDUSTRY LEADER.
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