Creative destruction

September 26, 2017 00:30 AM Ajaya Kusum Adhikari


New technologies can be disruptive. Kodak, long a byword for camera films, went bankrupt as it could not adapt to a world of smartphones. By the time Kodak realized where it was going wrong, it was already too late. According to Harvard Professor Clayton Christensen, who first deconstructed the impact of disruptive innovation on businesses, disruptive technology is a revolutionary discovery that shakes up existing markets and displaces leading firms and products by producing more cost effective, efficient and smart technology. 

Disruptive technology has made business leaders rethink their business models. With rapid technological advancement, disruptive technology is more and more relevant. This is evident from the fact that it took nearly three and half years for Facebook to acquire 50 million customers, but only 15 months for WhatsApp to do so. This shows the importance of being ever-alert to technological improvement. 

This speed of technology explains why Wikipedia, for example, made the encyclopedia extinct, why Google Maps substituted costly navigation maps, WeChat, Viber and Messenger limited telecommunication companies’ business, and Netflix pushed brick-and-mortar movie retail industry into bankruptcy. 

But why do some businesses that think strategically fumble? 
Often, a record of success can blind companies to emerging competitors, and few outsiders can suddenly silently rewrite business rules. The upstarts provide cheaper and simpler alternatives compared to conventional products. Progressively, these scrappy outsiders start nibbling at the market shares of the incumbents. By the time established firms realize what is going on, it is already too late to adapt. 

Big firms can also get complacent and as a result fail to come up with new ideas. But good businesses are not afraid to ‘cannibalize’ their products; for if they don’t, someone else will. 

What would have happened if Apple had limited itself to selling its revolutionary iPod? Someone else, probably Samsung, would have come up with iPhone and then tablets. Apple ‘cannibalized’ iPod by bringing forward the launch of iPhone and then iPad. They knew that if they didn’t constantly innovate, other competitors would come up with better alternatives.   

Some industries are highly susceptible to disruption, for instance the banks. With the growing universal advancement of block chains and the nominal processing fees, many have already switched to digital currencies from their banks. Financial technology (fintech) companies are also providing simpler, cheaper and faster transaction procedures compared to traditional banks. What will the existing banks do when fintech giants like
Adyen, Quadian, Xero and SoFi start lending as well? 

Health care is also on thin ice. It is a costly, highly regulated industry and as such innovations in it are difficult. But with the advancement of digital health via wearable sensors, precision medicine and digital clinic, health care procedures would be cheaper, faster and more reliable. Patients would rely on these technologies to keep track of their body systems and even predict possible illnesses. So the likes of Google, Apple and Amazon that can come up with reliable health care apps, devices and predictive diagnostics systems might one day replace the old pharmaceutical companies.  

New technologies affect many industries. Blogs and online media are replacing print media. Amazon’s online bookstores have sent brick-and-mortar booksellers home. Stockbrokers are losing their business due to digital brokers. Lyft and Uber car sharing apps are driving traditional taxi companies out of business. Electric and self-driving vehicles like Tesla are soon to replace traditional vehicles. In addition, drone technology may revolutionize logistics, just like 3D printing could kill manufacturing and online education could change the way we learn. 

Nepal can benefit from creative disruption in many ways. For instance, new online learning and education apps enable students in villages to get the most up-to-date education in the world. Similarly, digital health will provide real-time health information to patients even in remote areas. This could save many lives in these rural areas that lack good doctors and medical facilities.

The health care apps will make it easier to provide prompt health services to the poor and needy, and at minimum cost. Banking will be redefined, as many will be doing it on their phones. Transactions and lending will then be affordable even to the poor as there would be many players in the market. 

This kind of disruption may not be welcome for many businesses that are on the brink thanks to new technologies. 

You cannot stop disruptive innovation. So the only way businesses can thrive is through constant innovations in their products and services through continuous research and development. 

Jeff Bezos, the CEO of Amazon, was once asked about disruptive technology and direct competition to business goliaths. His answer: “Frankly, I’m concerned about two guys in the garage.”

The author is an MBA student at Asian Institute of Technology (AIT), Thailand

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