Information Technology Industry Dynamics: Impact of Disruptive Innovation Strategy

Information Technology Industry Dynamics: Impact of Disruptive Innovation Strategy

Nicholas C. Georgantzas (Fordham University Business Schools, USA)
DOI: 10.4018/978-1-60566-128-5.ch013
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This chapter combines disruptive innovation strategy (DIS) theory with the system dynamics (SD) modeling method. It presents a simulation model of the hard-disk (HD) maker population overshoot and collapse dynamics, showing that DIS can crucially affect the dynamics of the IT industry. Data from the HD maker industry help calibrate the parameters of the SD model and replicate the HD makers’ overshoot and collapse dynamics, which DIS allegedly caused from 1973 through 1993. SD model analysis entails articulating exactly how the structure of feedback relations among variables in a system determines its performance through time. The HD maker population model analysis shows that, over five distinct time phases, four different feedback loops might have been most prominent in generating the HD maker population dynamics. The chapter shows the benefits of using SD modeling software, such as iThink®, and SD model analysis software, such as Digest®. The latter helps detect exactly how changes in loop polarity and prominence determine system performance through time. Strategic scenarios computed with the model also show the relevance of using SD for information system management and research in areas where dynamic complexity rules.
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In challenging business environments, where even the best thought-of and executed strategies can fail dramatically (Raynor, 2007), disruptive innovation is emerging as a mainstream strategy that firms use first to create and subsequently to sustain growth in many industries (Bower & Christensen, 1995; Christensen, 1997; Christensen, et al 2002; Christensen & Raynor, 2003). Honda’s small off-road motorcycles of the 60s, for example, personal computers and Intuit’s accounting software initially under-performed established product offers. But such innovations bring new value propositions to new users, who do not need all the performance incumbent firms offer. After establishing themselves in a simple application or user niche, potentially disruptive products (goods or services) improve until they “change the game” (Gharajedaghi, 1999), driving incumbent firms to the sidelines.

Christensen and Raynor (2003) see disruptive innovation strategy (DIS) not as the product of random events, but as a repeatable process that managers can design and replicate with sufficient regularity and success, once they understand the circumstances associated with the genesis and distinct dynamics a DIS entails. Similarly, Christensen et al (2002, p. 42) urge technology managers, adept in developing new business processes, to design robust, replicable DIS for creating and nurturing new growth business areas. In so doing, they must (a) seek to balance resources that sustain short-term profit and investments in high-growth opportunities and (b) use both separate screening processes and separate criteria for judging sustaining and disruptive innovation projects.

DIS can crucially affect the dynamics of IT, causing turbulence and industry shake-outs. Anthony and Christensen (2004) and Christensen et al. (2002) argue that is extremely important for technology managers to understand DIS. To help them make it so, this chapter shows a system dynamics (SD) model that replicates Christensen’s (1992) data on hard-disk (HD) maker population dynamics. The model draws on archetypal SD overshoot and collapse work (Alfeld & Graham, 1974; Mojtahedzadeh, Andersen & Richardson 2004), which covers SD models in many areas with similarities in the structure of causal processes.

Cast as a methodological IS industry case, the chapter also shows the use and benefits of model analysis with Mojtahedzadeh’s (1996) pathway participation metric (PPM), implemented in his Digest® software (Mojtahedzadeh et al, 2004). Shown here is a small part of a modeling project that combined DIS theory with SD to answer specific client concerns about the dynamic consequences of implementing disruptive innovation strategies in established high-technology markets, which contain over- and under-served (current and potential) users.

By definition, DIS is a dynamic process. Any model that purports to explain the evolution of a dynamic process also defines a dynamic system either explicitly or implicitly (Repenning, 2002). A crucial aspect of model building in any domain is that any claim a model makes about the nature and structure of relations among variables in a system must follow as a logical consequence of its assumptions about the system. And attaining logical consistency requires checking if the dynamic system the model defines can generate the real-life performance of the dynamic process the model tries to explain.

But most existing DIS models are merely textual and diagrammatic in nature. Given a particular disruptive innovation situation, in order to determine if a prescribed DIS idea can generate superior performance, which only ‘systemic leverage’ endows (Georgantzas & Ritchie-Dunham, 2003), managers must mentally solve a complex system of differential or difference equations. Alas, relying on intuition for testing logical consistency in dynamic business processes might contrast sharply with the long-certified human cognitive limits (Morecroft, 1985; Paich & Sterman 1993; Sterman 1989; Sastry 1997).

Complete Chapter List

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Associate Editors
Table of Contents
Mehdi Khosrow-Pour
Chapter 1
Manuel Mora, Ovsei Gelman, Guisseppi Forgionne, Doncho Petkov, Jeimy Cano
A formal conceptualization of the original concept of system and related concepts—from the original systems approach movement—can facilitate the... Sample PDF
Integrating the Fragmented Pieces of IS Research Paradigms and Frameworks: A Systems Approach
Chapter 2
Steven Alter
The work system method was developed iteratively with the overarching goal of helping business professionals understand IT-reliant systems in... Sample PDF
Could the Work System Method Embrace Systems Concepts More Fully?
Chapter 3
Alfonso Reyes A.
This chapter is concerned with methodological issues. In particular, it addresses the question of how is it possible to align the design of... Sample PDF
The Distribution of a Management Control System in an Organization
Chapter 4
Phillip Dobson
This chapter seeks to address the dearth of practical examples of research in the area by proposing that critical realism be adopted as the... Sample PDF
Making the Case for Critical Realism: Examining the Implementation of Automated Performance Management Systems
Chapter 5
Jo Ann Lane
As organizations strive to expand system capabilities through the development of system-of-systems (SoS) architectures, they want to know “how much... Sample PDF
System-of-Systems Cost Estimation: Analysis of Lead System Integrator Engineering Activities
Chapter 6
Kosheek Sewchurran, Doncho Petkov
The chapter provides an action research account of formulating and applying a new business process modeling framework to a manufacturing processes... Sample PDF
Mixing Soft Systems Methodology and UML in Business Process Modeling
Chapter 7
Aidan Duane, Patrick Finnegan
An email system is a critical business tool and an essential part of organisational communication. Many organisations have experienced negative... Sample PDF
Managing E-Mail Systems: An Exploration of Electronic Monitoring and Control in Practice
Chapter 8
Stephen V. Stephenson, Andrew P. Sage
This chapter provides an overview of perspectives associated with information and knowledge resource management in systems engineering and systems... Sample PDF
Information and Knowledge Perspectives in Systems Engineering and Management for Innovation and Productivity through Enterprise Resource Planning
Chapter 9
Gunilla Widén-Wulff, Reima Suomi
This chapter works out a method on how information resources in organizations can be turned into a knowledge sharing (KS) information culture, which... Sample PDF
The Knowledge Sharing Model: Stressing the Importance of Social Ties and Capital
Chapter 10
Jijie Wang
Escalation is a serious management problem, and sunk costs are believed to be a key factor in promoting escalation behavior. While many laboratory... Sample PDF
A Meta-Analysis Comparing the Sunk Cost Effect for IT and Non-IT Projects
Chapter 11
Georgios N. Angelou
E-learning markets have been expanding very rapidly. As a result, the involved senior managers are increasingly being confronted with the need to... Sample PDF
E-Learning Business Risk Management with Real Options
Chapter 12
C. Ranganathan
Research on online shopping has taken three broad and divergent approaches viz, human-computer interaction, behavioral, and consumerist approaches... Sample PDF
Examining Online Purchase Intentions in B2C E-Commerce: Testing an Integrated Model
Chapter 13
Nicholas C. Georgantzas
This chapter combines disruptive innovation strategy (DIS) theory with the system dynamics (SD) modeling method. It presents a simulation model of... Sample PDF
Information Technology Industry Dynamics: Impact of Disruptive Innovation Strategy
Chapter 14
Shana L. Dardan, Ram L. Kumar, Antonis C. Stylianou
This study develops a diffusion model of customer-related IT (CRIT) based on stock market announcements of investments in those technologies.... Sample PDF
Modeling Customer-Related IT Diffusion
Chapter 15
Bassam Hasan, Jafar M. Ali
The acceptance and use of information technologies by target users remain a key issue in information systems (IS) research and practice. Building on... Sample PDF
The Impact of Computer Self-Efficacy and System Complexity on Acceptance of Information Technologies
Chapter 16
James Jiang, Gary Klein, Eric T.G. Wang
The skills held by information system professionals clearly impact the outcome of a project. However, the perceptions of just what skills are... Sample PDF
Determining User Satisfaction from the Gaps in Skill Expectations Between IS Employees and their Managers
Chapter 17
James Jiang, Gary Klein, Phil Beck, Eric T.G. Wang
To improve the performance of software projects, a number of practices are encouraged that serve to control certain risks in the development... Sample PDF
The Impact of Missing Skills on Learning and Project Performance
Chapter 18
Leigh Jin, Daniel Robey, Marie-Claude Boudreau
Open source software has rapidly become a popular area of study within the information systems research community. Most of the research conducted so... Sample PDF
Beyond Development: A Research Agenda for Investigating Open Source Software User Communities
Chapter 19
Milam Aiken, Linwu Gu, Jianfeng Wang
In the literature of electronic meetings, few studies have investigated the effects of topic-related variables on group processes. This chapter... Sample PDF
Electronic Meeting Topic Effects
Chapter 20
A. Durfee, A. Visa, H. Vanharanta, S. Schneberger, B. Back
Text documents are the most common means for exchanging formal knowledge among people. Text is a rich medium that can contain a vast range of... Sample PDF
Mining Text with the Prototype-Matching Method
Chapter 21
Francis Kofi Andoh-Baidoo, Elizabeth White Baker, Santa R. Susarapu, George M. Kasper
Using March and Smith’s taxonomy of information systems (IS) research activities and outputs and Newman’s method of pro forma abstracting, this... Sample PDF
A Review of IS Research Activities and Outputs Using Pro Forma Abstracts
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