Disruptive Innovation - Essay Example

? Disruptive Innovation Introduction Disruptive innovation is the term given by Clayton Christensen, which describes a process by which a product or service takes it root in the bottom of the market by providing some simple application but after that it continuously moves up dislodging the established competitors (Disruptive Innovation, n.d.). This concept emerged when Christensen was researching in the Hard disk industry. It illustrated that very time innovations were made to produce better hard disk that would satisfy the customers need and will win the market place. Christensen coined the name of sustaining innovations because it developed sustained recognized performance enhancement trajectories, by presenting demanding customer’s better performance. The new entrants come up with new innovative hard disks that could not be used by the customers because of little raw performance. The innovations that leads to something unique and move out of the traditional market, making it a nontraditional one, despite of various limitations that make it unattractive to the mainstream is termed as Disruptive innovation. In short, present players in the market wins the battle by sustaining innovation but new entrants win the battle by disruptive innovations (Anthony, 2008, p. 4). Straining strategy leads to influence or shape the market in which one competes whereas disruptive strategy “redefine the market, create a new one and defend against attacks from below” (Anthony, 2008, p. 5). Historically companies have succeeded in using sustained innovations at a market with higher tier by charging the uppermost price from sophisticated and demanding customers. In this way, the company achieves profit. This in turn opens the door for Disruptive innovations. A disruptive innovation helps the consumers at the bottom of the market to access such products that were previously accessible to only those customers who had lots of money and skill. The characteristics of disruptive innovation include “lower gross margins, smaller target markets, and simpler products and services” (Disruptive Innovation, n.d.), which may appear not so attractive to the existing solutions when compared with the traditional ones. These innovations offers the market with a lower gross margin making it less attractive for the firms moving upward and making space for the new competitors. Thus having a brief idea about the disruptive innovation as exhibited by Christen, some further elaborations about the model of disruptive innovation is required. This study deals in selecting a sector where any type of disruptive innovations has taken place. Assessing the response of the companies and finding the factors responsible for such response and the correlation with the model developed by Clayton Christensen. The sector which is taken in this paper for analysis is cloud computing technology. But before moving into the detailed explanations, a brief knowledge about cloud computing procedure needs to be discussed in a clear manner and the model developed by Christensen can be explained. 2. Christensen model of disruptive innovation The model of disruptive innovation by Clayton Christensen is basically a hypothesis which can be generally exploited for the purpose of explaining the impact of new technologies on the existence of a firm. The term disruptive innovation was first coined by Clayton Christensen in the year 1997 in his book named, “The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail". It has been seen that time and again associated with the failure or displacement of the organizations from their respective industries the organizations “could see the break coming, merely did nothing until it was excessively late”. Through doing well, the companies are alleged to do and they actually provide to their most profitable customers and highly concentrate on the investments in areas where the profit margins are majorly attractive. This situation generates due to the resourcefulness allocation processes of the constituted companies that internalize the procedures of maximizing profits and basically affect designing better mousetraps for the existent customers in the market. The emergence of disruptive innovations basically paralyzes the constituted companies in the market. The companies are guided by the principles of going up the market instead of developing the generated low end markets which leads eventually the development of riotous inventions taking away a larger fraction of the market share and substitutes the authoritative product. The model also directs that as the performance demanded past the customers of an existent market enlarges dynamically, the performance provided also increases within the technical paradigm. Often the betterment in performance possess unlike flight to flight of the betterment in the performance demanded past the customer. The process of disruption as well as commoditization is a process that occurs in a simultaneous manner. The company that overshoots possesses the least chance in winning and there will generate a break which will steal its markets or it may happen that commoditization will be stealing its profits (Disruptive Innovation (Christensen), 2012). The fundamental idea underlying disruptive innovation is that risk of the companies “decease with decisions to disregard technologies that do not look to address their customers' needs, as they become fateful when two paradigmatic trajectories of progress interact” (Disruptive Innovation (Christensen), 2012). 3. Cloud Computing Cloud computing is defined as “a new style of computing in which dynamically scalable and often virtualized resources are provided as a services over the internet”. Cloud computing is regarded to a major technological advancement and experts expect that it will reshape the future of information technology and its market. The users of cloud computing technology uses devices like Personal Computers, laptops, smart phones etc to access program, storage and development platform via the services provided by the cloud computing providers. Cloud computing is cost saving with high availability and easy scalability (Handbook of Cloud Computing, 2010, p. 3). Cloud Computing triggers a significant change on how information are stored and run in an application. Instead of running programs and storing in individual computers one can use cloud computing which assembles all computers and servers accessed through internet. Cloud computing frees one to from getting confined to the desktop and enables to access any application or document from any part of the world, thus encouraging the group members to work collectively. Cloud computing has brought about a revolution in which one is not confined within the desktop instead it promises universal access, reliability and collaboration to its users (Micheal, 2011, pp. 7-9). In the model of cloud computing there includes compilation of data center possessed and maintained by a third party and data and computation are operated somewhere else. In case of cloud computing hardware system software and applications are executed via internet. There are three types of cloud computing namely Public cloud, Private cloud and Hybrid cloud. When the cloud is available in a manner of “as-you-go” (Antonopoulos & Gillam, 2010, p. 3), to the public, it is referred to as Public Cloud. In case of private cloud, it is made available to the business firm or any organization. The combination of both these computing is referred to as “Hybrid Cloud” (Antonopoulos & Gillam, 2010, p. 3). Traditional desktops allow the user to create, store and access the documents only on that PC where it has been created. The copies of software program can run only on each computer. Although documents can be accessed by other computer but that is by networking only. It is more or less PC centric. But in case of Cloud computing the software programs are neither stored in stored in PC nor they are run instead they are stored in servers that are accessed via internet. It’s not only restricted to software but also the documents, which are also stored in the servers only. The documents can be retrieved, edited and collaborated on those documents in real time. Cloud computing is document centric. Cloud computing ids not like network computing. In network computing the documents and other important applications are held by single company’s server and can be accessed by that network only. But cloud computing covers multiple companies, servers and networks. These data and application can be accessed from any part of the world. Thus it does not restrict one to a particular network. Only internet connection is required. It is not like outsourcing to the subcontractors who will provide services to the outside firms. Instead it is that the outsourcing firm hosts the data and application, which includes documents and programs that only accessible to the employees of that firm and not to anyone else (Micheal, 2011, pp. 7-9). In case of Disruptive innovation I will consider “Use of Cloud computing in Health Care Sector”. Healthcare industry is in a mood of acceleration, which requires continuous innovations. The cost has been escalated due to disease epidemics, ever changing demography and advancement in technology. The investors always look for optimum return from their investment. Managing the care of the patient is playing a major role in the health care sector. Emerging care and business models based on personal value and well being of the patients are indicating towards a major shift in the healthcare sector to operate profitably in the coming years. A current study has revealed that about 34% of the healthcare provider’s focuses on simplification of their operations in order to manage complexity more effectively. While about 55% of the service providers thinks that they are competent enough to face the challenges. Cloud computing in healthcare not only provides economic benefits but also deployment of services and business goals with alignment to the Information Technology. The healthcare institutions are now looking towards delivering high quality service and care to their patients for few dollars. The hospitals and physicians are looking for plans to increase flexibility and demonstrate health care values at the same time. A radical change from institution centered system to information centered system is required. To support the organization with business approach and better patient experience, flexible and scalable approach to application and infrastructure should be done. This will lead to an increase in the transaction volume. At the same time since this cloud computing runs on “pay on use” principle so it is cost reliable too (Cloud Computing: Building a New Foundation for Healthcare, n.d., pp. 2-3). So though many of the healthcare providers feel that there is no requirement of any changes in the existing system still some has taken steps to implement Cloud Computing in their organization. This cloud computing is moving away from the traditional use of networking to something new, which might not be welcomed by the mainstream. But the fast pace in which the health care organizations are moving towards the information centric model, a significant boom is expected. Moreover the same utility is provided to low skilled and low wealthy individuals as it was provided to the high skilled and wealthy individuals. Therefore cloud computing can be looked as a Disruptive innovation. 4. The Responses of the Companies Trading in that Market to the Arrival of the Innovation The health care sector always faces challenges from patients, providers and regulators. They are always under pressure. The other sectors who are under such type of pressure has already adopted this run their business on the “on demand access to shared computing resources”. From the cloud computing, the health care organization can match their demand of the health care IT department. By using the cloud based platforms provided by “Force.com, Google, Workday and Amazon”, the IT departments of the health care institutions can get rid of their burden of providing support to the on principle application and concentrate more on the patient care applications. Columbia Memorial Hospital The Columbia Memorial Hospital is located in Hudson at New York. Their philosophy is “Patients First”, which drives their facility development, hiring and decision making in accepting the new technology. The hospital recently upgraded their desktop environment that supported their hospital. The chief information officer of the hospital, Cathy Crowley says “We have approximately 25 different sites spread out among three counties here in upstate New York. The more efficiently we’re able to provide desktops and critical health care applications to the providers at those locations, the better they’ll be able to serve our patients. That’s why we started looking at desktop virtualization”. They gave this responsibility to a third party who provided the hospital with virtual desktop that provided the physicians with the access to a wide variety of health care applications. The network administrator, Michael LaForge says “We can roll out any application we want to the virtual desktops just by updating the master desktop image. That’s a far cry from having to physically visit the remote locations to install the application”. With this desktop management the physicians don’t have to just see the lab reports. Desktop management has provided the hospital with more tool to help the health care providers. Cathy Crowley says “They can see actual X-ray images, access emergency department records and even monitor biofeedback if a patient’s in a critical care situation. All the applications they need are right there at their fingertips, giving them a more global picture of their patients than ever before” (Columbia Memorial Hospital, n.d.). Stratus Technologies reported in early 2010 that Columbia Memorial Hospital started its first “Electronic Health Record System (EHR)”, provided in 26 locations, which provides access to the patient’s information that enhances the quality of care. The hospital held a “private cloud” hosted at Stratus Technologies Server system. “The hospital was a Laureate Medal Winner in Healthcare, one of eleven categories with winners honored by Computerworld at a ceremony held in Washington, D.C” (Columbia Memorial Hospital's Electronic Health Records Program Hosted on Stratus Server Gets IT Industry Award, 2011). Palo Alto Medical Foundation Palo Alto Medical Foundation (PAMF) is a “California not-for-profit healthcare organization that pioneered multispecialty group medical practice and new technologies for cardiac care, care for women and children, and patient safety”. There are about 900 physicians who are treating more than 600,000 patients throughout the “southern San Francisco Bay Area”. For more than 10 years the IT department of the organization maintained the Electronic Medical Record aggregating “all patient information into a single, up-to-date, secure record, raising the standard of patient care, and avoiding dangerous miscommunications”. In the mid of 2007 the two datacenters of PAMF showed a crisis situation with power, UPS, cabinets all out of capacity and at the same time the cooling was also not properly. The team pointed the immediate requirement of coolers to control temperature. This crisis was due to the electronic medical record that requires every system to be clustered to maintain high availability of information and processes. Moreover this clustering also cost them high amount. Then they thought of going for cloud computing. The organization who was going to provide them with cloud computing assess their infrastructure to identify the targets for virtualization. The financial processing and reporting of the month end was determined by monitoring and gathering information of the performance. The team reached to the conclusion that “50 percent of the servers as quick targets, including those running infrastructure applications and several underutilized clinical applications” (Palo Alto Medical Foundation, n.d.). The application of the technology fetched a return on investment of around 3 million over the period of 3 years. There was stable datacenter headcount for around more than 2 years and despite a significant growth in the capacity management and offering in services. The costs of power and cooling stopped increasing and then there was again drop in the costs with the removal of physical servers. There was also recovery in the failover. There was also reduction in the scheduled maintenance time with the application of virtual machines from the hosts which requires development in the firmware or other maintenance. In the randomized control trial the Palo Alto Medical Foundation in California the researchers explored that the patients benefited from an online management program that was being conducted with the help of wireless blood glucose equipment as well as a smart phone application. There was a execution of a trial with the involvement of 415 patients among whom 193 of them receive a wireless home glucometer which uploaded readings with the help of a smartphone through which the patients would be able to receive the readings and also view their information in an online basis and will be also able to explore information about effective management of diabetes, management of insulin as well as controlling of weight. There was also effective communication between the nurses and managers who communicated through the test groups with the help of secure managing with regular feedback of the participants regarding their projects. After the end of six months it was encountered that the test subjects possessed a better control over their glycosylated haemoglobin (AC1) as in the comparison with the control group with an overall decline in the AC1 levels after a period of 1 year. Results from the information week Healthcare stated that in comparison a majority of the patients in the test group attained a lower average marks in the test program. Findings of the study also revealed that the patients within the wireless monitoring group had their adjusted medications in a more frequent manner as compared to the persons who received a standard care. One of the problems for the patients with levels of uncontrolled diabetes was the inadequacy in the proper adjustments in medications. The patients might not be using the correct medicines or take the right dose as because there is standard scheduling of appointments on a basis of two to four year in a year. Through constant monitoring as well as direct involvement of the nurse through the wireless care program the patients encountered more frequent contact with the providers along with the facilities of changes when required. It was also concluded that the patients were able to reduce safely the necessary appointment numbers as long they continued operating with online monitoring system. The patients who came to visit by the doctor it were thoroughly supervised over by the nurse with the provision of advice. If the patient is out of direction and turning worse the nurse would be able to intensify the medication. Management of the people can be also done in a proper manner with the improvement on the outcomes with the application of the online tools. The nurses would again be able to call the patients as well as supervise them physically and majority of the interactions were executed on an online basis (Bresnick, 2012). 5. Deviations from the disruptive innovation model It is very difficult to infer that whether the idea fits with the pattern of the successful disruptive innovators is very hard in determining the upfront. For the purpose of assessing whether an idea is disruptive or not for all the companies representing a sustained improvement is difficult in representing a sustained improvement. The process of defending an organization’s core business from a disruptive innovation can be deemed to be an easy application but in reality or in practical application it is indeed very difficult. Empirically it has been tested that majority of the companies are willing to invest a large amount on technologically risky projects at times at times when there was clear idea that the customers require the outcome of the projects. But at times when the customers actually do not require the outcome of the projects then it has been found that the organizations were basically unable in allocating resources for executing much easier projects with disruptive potential. As a consequence these organizations found it very hard in investing an adequate amount of resources in the disruptive technologies which their customers did not actually want. The political power and its distribution also act as another hindrance as it benefits the parties that are benefitted the most from the existing value network. The managers who are associated with the biggest as well as most profitable customers will be able in pulling majority of the political weight and also will be direct towards resource diversification to their own projects. This procedure also makes it highly difficult in allocating the appropriate resources towards potential disruptive technologies. There is also another reason which makes it difficult for the firms to invest in disruptive technology as because they are basically frightened which will exhaust the existing products. Various proponents or critics are skeptical about the model proposed by Christensen as they argue that Christensen has selected on a deliberate basis various case examples for supporting the framework. Majority of the case studies are of the disruptive technologies which developed into a major market force and in reality there are also various disruptive technologies that in reality has failed to materialize in reality as for example the Iridium global satellite phone system (disruptive innovation, n.d.). Iridium which is the global satellite phone company funded by Motorola company was being filed for a case bankruptcy in the year 1999 after a mammoth expenditure of around $5 million for building as well as launching infrastructure of satellites for the provision of global wireless phone service. The bankruptcy falls among one of the 20 largest bankruptcies in the history of USA. For the proper functioning of the system there were 66 satellites required. The development of this huge system pressurized the companies to a default of around $ 1.5 million debt. The service proved to be a failure with only number of subscribers amounting to 10,000. Partial reasons were due to difficulties in technologies with Iridium’s first handsets. From the studies of Dartmouth Tuck Business School case study on based on the history of Iridium in 1998, there were forecasts by the company that by the following year the total number of subscribers would be around 50000. But the customers found it very expensive for the customers and there was development of cellular phone business started taking hold as the infrastructure was developed mainly in most of the developed countries. With a cost of around $ 3,000 and with a talk time of $ 5 a minute was a real failure. There was not wide availability of cellular services but it was less expensive. The difficulties in the technology reduced the popularity of the services. The technology of Iridium is based on a line of sight between antenna of the phone as well as that of the orbiting satellite and there were various constraints in the usage of phone while travelling in cars, inside buildings as well as in urban areas (The 10 Biggest Tech Failures of the Last Decade, 2009). 6. Conclusion The study focused on the concept of disruptive innovation mainly focusing on the notion as given by Clayton Christensen. Christensen proposed that the phenomenon of disruptive innovation occurs in response to the impact of new technologies on the firm’s existence with the dislodging of the competitors within a certain market. From Christensen’s concept, the companies move by the spree of going up in the market and catering a solid customer base instead of developing a low end market leading eventually to the emergence of a market base which takes away a sizeable portion of the market share and substitutes and will again create a break which will be directed towards stealing the market or profits. The development of cloud computing with its wide applications in devices like computers, laptops, smart phones have been able to help in accessing various programs with cloud computing providers delivering a highly cost saving dimension. Health care industry have been widely using cloud computing technology for saving time as well as cost and also to manage various programs in real time. The cloud computing technologies have been successfully implemented in Columbia Memorial hospital and Palo Alto Medical foundation where the application of cloud computing has been successful and can be aligned with the Christensen’s model of disruptive innovation. But deviations from the model have been also encountered where it has been found that defending the central business of an organization from disruptive innovation is not an easy concept in reality. Empirical evidences prove that the companies actually show their interests in investing in risky projects and end up in deviating from the services provided by them and want of the customers. The case study of Iridium global satellite Phone Company is introduced here to show the deviation from the model. References 1. Anthony, S,D, (2008), The Innovator's Guide to Growth: Putting Disruptive Innovation to Work, Harvard Business Press 2. Bresnick, J, (2012). Type 2 diabetics benefit from smartphone disease management. 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Available at < http://www-05.ibm.com/de/healthcare/literature/cloud-new-foundation-for-hv.pdf> (Accessed on January 15, 2013) 10. Columbia Memorial Hospital, (n.d.). Available at < http://www.vmware.com/files/pdf/customers/VMW_10Q3_SS_COLUMBIA_MEMORIAL_USLET_EN.pdf> (Accessed on January 15, 2013) 11. Columbia Memorial Hospital's Electronic Health Records Program Hosted on Stratus Server Gets IT Industry Award, (2011). Available at < http://www.highbeam.com/doc/1G1-262232779.html> (Accessed on January 15, 2013) Read More