May 1
Kitty Hawk and Disruptive
Technology
Kittyhawk
How a company can anticipate a disruptive
technology, do their marketing homework,
form an appropriate partnership, follow the
rules of product development and still not
produce a successful product.
• 1. What would you rate as the strengths and
weaknesses of the way HP structured and
supported the Kittyhawk Development team
Strengths & Weaknesses
• Strengths:
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Split from the rest of the company
Focus, different style
Brightest, flexible employees
Great top-level support
All the resources they need
Empowerment (less bureaucracy)
Very cross-functional
• Weaknesses
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Bad market timing (tight market window)
Biased view of the market (field of dreams)
Biased consultants
Relied on success of customers’ products (OEM
dilemma)
– Expectations too high
– Bad technology projection
– “Ready, fire, aim” – goals set up before market research.
2. What do you think of the way the team set out to
find a market for the Kittyhawk? What correct
turns and wrong turns did they make?
• Went to a conference to learn about the
market
• Got customer feedback
• Independent researchers
• Nintendo (but couldn’t get cost down)
• BUT:
• Made assumptions that customers’ products
will be successful
• There is a difference between “I like it” and “I
will buy it”
• Got greedy and went after many markets
• Cultural issue with “cheap, dumb…”
“Independent” researchers
• Learn about the market from within the
company itself.
• Everyone in the company is positive
biased.
• “Philosophy”: if there was a market, would
you…
3. What are the root causes of failure
of the Kittyhawk program. Show by
an Ishikawa diagram.
4. What should HP of done in hindsight?
• Be realistic
• Finish what you start (core competencies)
• Stick to the goal: dumb goal
• Look for markets that are already there
• Hedge their bets
• Highest cost is opportunity cost (have to
take risks and pour it on)
What if you were the innovator
5 years from now working in
HP. What would you do?
•Look at what is in the market
•Build what customers really want
•Not as secretive about product
•Improve marketing
•Look at what your customer’s customer want
Issue of “adjusting” revenue
projections
Program Drivers Dilemma
• To get attention in a noisy, high expectation
environment, innovator needs to project a rapidly
growing big hit, else the program is stillborn
• Drives an exaggerated market growth rate and an
exaggerated production ramp
• Ugly Result: Reality doesn’t support projections
Questions
• What would you do if you were the Innovator?
• What would you do if you were part of the
leadership of the company?
Case notes and additional
questions
• Big constant loss of share and decreasing part
of HP sales despite .5B revenue
• Concentrated on upper end of the market
• Conflict between supporting present market
and entering new market
• How scientific was the decision made by
Hackborn
• What was the quality of the managers who
joined? What was the cost of having them
join?
Case notes and additional
questions
• Did they have a common vision?
• Was an expanding market for mobile computing
reasonable?
• Was 3 new technologies reasonable?
– Glass substrate
– higher level of integration
– piezoelectric accelerometer (at $10)
• Japanese manufacturer-a watch company- a good
idea?
• Why was the engineering so much better than the
marketing?
• Why didn’t they make the $50 price point?
Kittyhawk Update
• No heads rolled!
• Summer of 1996: HP announced it was
closing DMD and exiting the disk drive
business
• Many employees thought that Kittyhawk
destroyed the business
– Preempted best employees
– Lost step in the high end market which
generated profits
– Lost market share
– Felt company would never catch up to leaders
Disruptive Technologies
Why do some good companies fail?
• Companies that
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are well-managed and progressive
listen to their customers
study and act on market trends
invest significant resource in R&D
allocate capital to provide the best return
• in short do all the “right things” and are
held as paragons for their success
. . . .and then collapse
Death Spiral
Not
Growing
4. Resources spent
on growth are
wasted making
the need to
grow more urgent
3. Massive investments
of resources
are required
to get big fast
1. Values Change
demanding that growth
ventures become
very big very fast
2. An aggressive strategy
is the only way
to get the numbers
to work
Disruptive Vs Sustaining
Technology
Sustaining Technology
• can be incremental or radical
• improve the performance of
established products along the
trajectory that mainstream
customers have historically
valued
Disruptive Vs Sustaining
Technology
Disruptive Technology
• Result in worse product performance
• Underperform existing products in
mainstream markets
• have features that a few fringe customers
value
• typically smaller, cheaper, simpler,
convenient to use
Examples of Sustaining
Technologies
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Semiconductor process technologies
Automotive technologies e.g. IC engines
DRAM, CISC microprocessor
Jet Engines
Construction
Factory automation
Examples of
Disruptive
Technologies?
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Internet
MEMS
Disk Drive
Genetic Engineered foods
Genetic Engineered drugs
Wal-Mart, Dell inventory
management
• Hybrid Vehicles
• Small Turbines
• Fuel Cells
What companies
are Vulnerable?
Disruptive Technologies and Exploitative Companies
Company
Technology
Cisco
Dell Computer
Packet switching
Direct to customer
retailing and high asset turns
Digital animation
Internet auctions
Internet
Fiber optics
Flat Panel Displays
Assembly Line
Simple point and shoot
minicomputers
plastics
solid state
MRI, CT
Xerography
Pixar
eBay
E-mail (ISPs)
Endoscopic surgery (Many)
Sharp
Ford (Model T)
Kodak
DEC, Prime, Data General
GE Plastics, Dupont, Dow
Sony
GE medical
Xerox
Disruptive technologies
Why do good companies miss
the revolution?
1. Companies depend on investors and
customers for resources
• requires high profits
• requires following the lead of customers who
may themselves be blindsided
– mainframe industry
– minicomputer industry
2. Markets that don’t exist can’t be analyzed
3. Technology Supply may not meet market
demand
Additional Reasons
• Wrong Value Network
– Context of corporation’s business environment leads to
missing competition arising from outside
• Organizational Structure
– Companies organized by a products substructure fail
when fundamental architecture changes
• Core Competencies
– Firms fail when a technological change destroyed the
value of competencies previously cultivated and
succeeded when new technologies enhanced them
• Technology S-curves
– Firms fail when they miss inflection points along their
main product thrust and specifically when they miss
technologies advancing in related fields
• Wishful thinking
Are these companies clueless?
• Not every technology that looks disruptive is
feasible.
• You cannot chase every possible disruptive
technology to cover all your bets
• Even technologies which are well-researched and
appear to be potentially disruptive can be very
difficult to bring to market
• Companies are unable to allocate sufficient resource
to test marketing them because they will always fail
any rational allocation process (e.g. portfolio
management to be discussed in the future)
– Their normal customers aren’t interested
– The markets seem small and uncertain
– Resource for main line technologies will receive the
dominant share to maintain sales growth and profits
Does this mean that you must drop what you
are doing and pursue these future threats?
• You can’t abandon your present customers
• You could be wrong about identifying the
inflection point of your present technologies
and the reality of the threat
• Examples
– Semiconductor lithography transition from optical
to x-ray, e-beam
– Electric Car transition from IC engine
– Supersonic transport transition from subsonic
– Nuclear energy transition from steam turbine
– Others?
Is all lost?
If you are an established, successful company,
how do you counter?
• Choose 1 or 2 disruptive technologies that
concern you the most and participate
• Set up separate organization in separate
location with constrained funding
• Alternatively, invest in start-ups
• Manage expectations as markets are
found for disruptive technologies by trial
and error
Shaping ideas to become
disruptive: litmus tests
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Is there a population of people who historically have not
had the money, equipment or skill to do this thing
themselves and as a result have gone without or have
had to pay someone with more expertise to do it for
them.
To use the product or service, do customers need to go
to an inconvenient centralized location?
Are there customers at the low end of the market who
would be willing to purchase the product at a low price
with less (but good enough) performance?
Can we earn money at this low price?
Is the innovation disruptive to all the significant
incumbents?
Some Lessons Learned
Two choices To commercialize a disruptive technology,
• Push the technology to its limits to serve an established
market or
• Accept the current capabilities and seek a market which
values the inherent attributes of that technology
Customer input can be extremely misleading
• need a less risky, less expensive way of learning market
needs
For new technology, need to assess probability of success of
collateral technologies
• The total probability equals the product of the individual
probabilities
New markets need time to develop
• Incubation period needed
• Inconsistent with meeting high corporate expectations
• Great opportunity for start-ups
This leads to the question. . .
What Products will customers buy?
• Of 100 new product development projects
launched
– 60% are abandoned in the R&D Stage
– 16% are withdrawn from the market
– Rest “succeed” commercially
Big reason for failure- poor segmentation of
market