How Can Great Firms Fail?

1. Insights from the Hard Disk Drive Industry by Clay Christensen How Can Great Firms Fail? Presentation by Helge Döring

2. How Can Great Firms Fail? How disk drives work: Presentation by Helge Döring • A hard disk contains of platters, spindle, engine, actuator arm with a read and write head -The components above work like a „record player“. Read and write head on the actuator arm functions like the phonographic arm and needle of a record player -Today's engines spin the platters with an average of 10000 rpm (rounds per minute) in 0.05 µm height over the medium -Binary Data is transferred into positive and negative magnetic force

3. How Can Great Firms Fail? Price Development in the Hard Drive Industry: Average Computer 80286 20 MB HD Price 4000$ 1977 Average Computer 80486 200 MB HD Price 2500$ Average Computer 8086 10 MB HD Price 6000$ 1980 1985 Average Computer Pentium 1 GB HD Price 3500$ Average Computer 80386 40 MB HD Price 3000$ 1990 1994 Presentation by Helge Döring 1.000,00 100,00 Price per Megabyte (Constant 1982 Dollars) 10,00 1,00 0,10 10 100 1000 10.000 100.000 Cumulative Terabytes Produced

4. How Can Great Firms Fail? Price Development in the Hard Drive Industry: Presentation by Helge Döring • The number of megabits (Mb) put in a square inch has increased by 35% per year. From 50 Kilobytes (Kb) in 1967 to more than 1 Gigabyte (Gb) in 1995 -Today “seagate” manages to put 100 Gb on one single platter -My own 160 Gb Samsung hard disk costs 0,0005$ per Mb ≈ 80$ -With each doubling of cumulative terabytes sold in the market the cost per megabyte fell by 53%. That`s an outstanding performance no where else to be found. -Dimensions: The average 3.5” Floppy Disk has a capacity of 1.44 Mb or 1.509.949 bytes/ 100 Gb equal 107.374.182.400 bytes or 71111 of the above mentioned 3.5” Floppy Disks

5. How Can Great Firms Fail? Improvements in Recording Density: Ferrite-oxide heads Magneto-resistive heads Thin-film heads Presentation by Helge Döring 1000 100 Arial Recording Density (Millions of Megabits per Square Inch) 10 1975 1980 1985 1990 1995 Year

6. How Can Great Firms Fail? Innovations in the recording industry: Presentation by Helge Döring • In 1973 IBM develops the first hard disk of modern kind; the winchester 14” model based on “ferrite oxide heads” • (incremental improvements are made by increasing the density) -There is no other technique until 1985 when “thin film heads” emerge (this can be named a radical new technology) -The performance data of “ferrite oxide heads” then is much higher, than the new “thin film heads”, but the last named has much more potential (incremental improvements vs. radical improvements) -By 1993 “magneto-resistive heads” emerge and outperform both other techniques after a short while (next radical step up the ladder) -Today's tests base on glass fiber as the material of the future (a radical innovation again)

7. How Can Great Firms Fail? Market LeadingCompany Market development direction The technology mudslide hypothesis: Presentation by Helge Döring

8. How Can Great Firms Fail? Behind the mudslide hypothesis: Presentation by Helge Döring • Which companies lead, which stay behind? -What have the leading companies got that enables them to lead the market? -Which innovations lead to a revolution in the market (make the established firms fall behind and catapult the entrant firms in front)? -Is market pace or a company’s ability responsible for success? -Are passiveness, arrogance or a risk-averse strategy the reasons for failure in this economy?

9. How Can Great Firms Fail? clockwise: the evolution of the computer Presentation by Helge Döring Portfolio of the computer and disk drive evolution: Mainframe Computer Minicomputer - uses 14“ drive - uses 8“ drive - later 8“ and smaller - uses 3.5“ drive - uses 5.25“ drive - later 2.5“ - later 3.5“ Portable / Notebook Desktop Computer

10. How Can Great Firms Fail? clockwise: the evolution of the computer Presentation by Helge Döring Portfolio of the computer and leading disk drive manufacturers: Mainframe Computer Minicomputer IBM / Diablo / Ampex / Memorex / EMM/ Wang / Western Digital / Read Rite / Control Data / Burroughs / Univac / Micropolis… IBM / Western Digital / Micropolis / Seagate / Fujitsu / Hitachi / NEC At first 129 companies later Excelstore / IBM-Hitachi / Fujitsu / Maxtor / Samsung / Seagate / Toshiba / Western Digital Quantum / Connor / Maxtor / Samsung / Toshiba / Kalog / Mitsumi / IBM / Western Digital / Seagate / Micropolis/ Fujitsu / Hitachi / NEC only 20 left Portable / Notebook Desktop Computer 90 ´s 80 ´s

11. How Can Great Firms Fail? Boston Consulting Group Portfolio: Presentation by Helge Döring

12. How Can Great Firms Fail? Disruptive Innovations vs. Sustaining Innovations: Presentation by Helge Döring -Sustaining technologies foster improved product performance (be it a incremental, discontinuous or radical one) -The disk in focus has a higher density, is faster, but still 5.25” in size -An established product is being improved by sustaining technology -Disruptive technologies are sometimes worse than the established product and under perform them in the near term -Disruptive technologies are typically cheaper, simpler, smaller and sometimes more convenient to use -The disk in focus here is smaller (2.5”), slower, needs less power and is used in a completely different market (portable computers)

13. How Can Great Firms Fail? Evil Customers: Presentation by Helge Döring -Disruptive Technologies are not wanted by today’s customers, but by tomorrows customers -The market is usually ahead of customers needs -Customers want the product they already know -Markets that don’t exist today can’t be analyzed -In 1980 a portable Computer wasn’t even in sight, in 2004 it’s a common good -If you stick to your customers you might miss the chance to enter tomorrows markets

14. How Can Great Firms Fail? Established firms vs. entrant firms: Presentation by Helge Döring Established firms: -are responsible for their customers -use mostly incremental / sustaining innovations (to keep customers happy) -depend on their customers -have only a biased inside view of the market Entrant firms: -are independent -use mostly radical / disruptive innovations (to access new markets) -have an unbiased outside view of the market “If you can’t beat your competitor on his own ground take the battle to another level!”

15. How Can Great Firms Fail? Critical inquiry: Presentation by Helge Döring • 129 companies in the past reduced to 20 at present; a familiar process • of evolution that can be found in many other industries e.g. Software, • Automobile, Brewery Business etc. -The companies didn’t fade away but merged like Seagate/Connor or IBM/Hitachi (joint venture) or concentrated on different subjects and later returned to the same market again like IBM, Wang and Mitsumi -p.21 Quantum is still a significant manufacturer of hard disks and didn’t perish

16. How Can Great Firms Fail? Discussion: Presentation by Helge Döring • Is it so easy to differentiate between disruptive and sustaining techs? -Isn’t it poor management if you do the same mistakes your competitor did when you overtook him?