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Disruptive Technology

Case Aims: To illustrate how a new technology can render obsolete existing competences among incumbent firms Technological entrepreneurship often relies upon the exploitation of a totally new or emerging scientific or technological development which results in a technical discontinuity within an industrial sector. Tushman and Anderson (1986, p. 441) defined technological discontinuity as a 'technical


advance so significant that no increase in scale, efficiency, or design can make older technologies competitive with the new technology'. This type of discontinuity creates the potential problem for long-established incumbent firms of whether they have the necessary technological competences to respond to this form of competitive threat.

In their research on the impact of technical discontinuity, Rothaermel and Hill (2005) presented the following case materials of events in the computer industry, the steel industry and the pharmaceutical industry.

The Computer Industry

Before 1981, the computer industry was dominated by vertically integrated enterprises. These firms manufactured most of the important components in computer hardware systems, bundled the hardware components with proprietary operating system software and applications software, and sold them through their own sales forces. By virtue of its design, the PC signalled a transition from closed-system to open-system architecture and desktop computing. In the turbulence that followed, large numbers of new enterprises entered at every stage of the value chain as the industry de-integrated (Grove 1996). The centre of gravity in the industry shifted rapidly away from incumbent enterprises such as DEC, Wang, Unisys and IBM towards new entrants such as Compaq, Intel and Microsoft. The arrival of networking based on client server architecture in the late 1980s and the Internet in the 1990s further accelerated this shift. The emergence of these new technologies devalued the upstream R&D and production assets of incumbent enterprises which had little relevance to emerging PC firms such as Apple, Compaq and Dell. Following the lead set by pioneers such as Altari and MITS, the new entrants were able to build computers using off-the-shelf modular components and simple manufacturing processes. The closed-system design philosophy and technical competences of the incumbents were contrary to the mindset required to produce low-cost, open-system personal computers.

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