Disruptive innovation can occur even if technology progresses gradually

• ISPIM Connect Fukuoka

• Codes and figures are available on GitHub

• You can run codes on Google Colab

• Presentation slides

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• Proceeding

• Profile

  • Dr. Hirokazu NISHIO is a Doctor of Science. Research Director at Cybozu Labs Inc. Concurrently serves as a Visiting Associate Professor at the Tokyo Institute of Technology, Department of Technology and Innovation Management / Department of Innovation Science, School of Environment and Society.

  • Dr. Shuzo Fujimura is Associate Dean, full professor at Tokyo Institute of Technology, Department of Technology and Innovation Management / Department of Innovation Science, School of Environment and Society, He is focusing his research interest on the generation process of new products and industries as a higher dimensional system. He received a Bachelor in Physics (1978) and Ph.D. in material science (1993) from Chiba University. After research working in Fujitsu Ltd. and Hitotsubashi University, he joined Tokyo Institute of Technology in 2005.

• Speech script

  • Thank you for attending today.

  • I’m going to show you that

  • disruptive innovation can occur even if technology progresses gradually.

  • Disruptive innovation is a phenomenon that customers choose a product with inferior performance.

It happens even if technology progresses gradually, no need of discontinuous change in technology.

We show it with computer simulation. All codes and large figures are available on the internet.

The top left figure is the real data of disruptive innovation. The bottom right figure is the result comes from our model.

We offer a runnable environment on the Internet so you can repeat our experiments without software install, and confirm the result with your eyes.

Slide 2 First of all, I’ll introduce some concept in economics, but I have only 10 minutes. The detailed explanation is available in my proceeding.

The utility is the desirability of goods or characteristics of goods the customer feels. Left figures show utility. The horizontal axis is the strength of characteristics. The vertical axis is the utility.

The law of diminishing marginal utility says the slope of utility curve goes flat. The law is popular but not the absolute rule.

Next, gray lines in the middle figures, not red lines, the gray lines are indifference curves. In this figures, the horizontal axis shows the strength of a characteristic X. And the vertical axis shows the strength of another characteristic Y. I’ll tell about red lines after. They are key points, so I need more slides for them.

Last, the right figures show the trajectory of each characteristic. The horizontal axis shows the technology level. It grows gradually along the time. The vertical axis shows the strength of each characteristic of the product which customer chooses. In other words, the product with the highest utility.

Slide 3

• You might learn the concept of utility and indifference curve.
• In many textbooks, the axis is the amount of goods.
• Lancaster proposed another approach, to use the strength of characteristics.
• From this viewpoint, a good, or a product, corresponds to a point on the figure.
• We adopt this approach because we are interested in new product development.
• The progress of technology make new products available.
• The latter viewpoint fit to think about it.
• On the right bottom figure, the blue triangle shows a set of all available products at the particular technology level.
• It grows gradually.

The red star on the figure shows the product with the highest utility among all available products.

Back to slide 2 Now let me back to the previous slide. Each point on the red lines on middle figures shows the product with the highest utility at each technology level.

Please see the top 3 figures. The utility curves follow the law of diminishing marginal utility. Along with technology progress gradually, the red point moves gradually, characteristics grows gradually. Nothing special.

Now please see the bottom 3 figures. When the utility is S-curved. The red point, that is, the customer choice changes rapidly at a moment. The trajectory of the dominant characteristic disrupts downward at the moment.

Slide 1 That is the disruptive innovation.

Slide 4 Utility with threshold also brings disruptive trajectory. The threshold means, “if a characteristic is too low, the customer doesn’t feel value for it.” That is a natural assumption.

In this case, indifference curves are complicated. To focus on the utility on the constraint line will help our understanding. The bottom right figure shows why disruption occurs in this case.

Slide 5 The experiments give us implications. A1 is the best product at the time. To create a new product, if you compare A3 and B3 with marketing research or test release, the customer will say A3 is better than B3.

However, A3 is not the best product.

Slide 6 It is because the utility of feature blended products grows faster than that of single feature products.

Slide 7 As a theoretical implication, we can show that the disruption is just a rapid decrease. The detailed description is in my proceeding, but today I don’t have enough time and slides.

I’d like to thank you all for coming today.