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Applying Clayton Christensen's Work to Speed the Diffusion of Energy

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Applying Clayton Christensen's Work to Speed the Diffusion of Energy The Advocate’s Dilemma: Applying Clayton Christensen’s Work to Speed the Diffusion of Energy Efficiency Technologies Jay Stein, E SOURCE ABSTRACT When theories about “disruptive” technologies became popular in the late 1990s, advocates were quick to apply the term to energy efficiency technologies. Based on such theories, efficiency advocates hailed the ultimate dominance of their favored technologies over current conventional energy technologies. These disruptive technology theories were largely popularized by Clayton M. Christensen, a professor at Harvard Business School, and the author of the best-selling business book The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail. This book, which was released in 1997, defined disruptive technologies as those that upset existing business value networks, and in many instances, led to the downfall of large and powerful organizations. Christensen’s ideas about disruptive technologies, however, were widely misunderstood by efficiency advocates. Successful energy efficiency technologies are almost never disruptive. Furthermore, Christensen’s work predicts that the techniques favored by efficiency advocates, such as paying incentives and augmenting codes and standards, are inappropriate for disruptive technologies. Advocates can enhance their likelihood of success by limiting their advocacy work to technologies that are not disruptive. Advocates who choose to focus on disruptive technologies anyway will find their best opportunities by seeking out disdained customer classes who can use the disruptive technology to obtain an amenity they desire, but previously could not obtain access to. Introduction to Clayton Christensen’s Work Clayton M. Christensen is a professor at Harvard Business School. His best known publication is undoubtedly the book The Innovator’s Dilemma, When New Technologies Cause Great Firms to Fail, which won the 1997 Financial Times/Booz-Allen & Hamilton Global Business Book Award. This book detailed Christensen’s theories about how large organizations manage technological change and how new technologies find markets. His theories were subsequently elaborated on in numerous other publications including magazine articles and two more books, many of which Christensen coauthored with others (Christensen 1997). In The Innovator’s Dilemma, Christensen explained the observation that led to the development of his theories. A friend of his noted that geneticists study fruit flies, because these diminutive animals “are conceived, born, and die within a single day.” According to Christensen, this same friend suggested that for those who would study the business world, disk drive companies are analogous to fruit flies (Christensen 1997). Inspired by this observation, Christensen assembled a database that contained the specifications of every model of disk drive released during the time period 1975 to 1994. Christensen then analyzed this database to make observations about which firms led product introductions, and to reveal how new technologies diffused through the disk drive industry over time. By analyzing the history of each technological innovation, Christensen drew conclusions © 2006 ACEEE Summer Study on Energy Efficiency in Buildings 8-289 about which innovations were associated with success for the organizations that released them, and which led to the failures of established market leaders. Key to understanding this work is to understand the two principal distinctions Christensen used to describe new technologies: sustaining and disruptive (Christensen 1997). Sustaining Technologies Christensen defined sustaining technologies as those that sustain their industry’s rate of improvement in product performance. In his lexicon, these technologies are designed to provide demanding, high-end customers with better performance than what those customers could previously obtain. Furthermore, such better performance often comes at the expense of higher first cost. Lastly, Christensen found that the development and commercialization of these technologies was almost always led by established market leaders. Indeed, he concluded that in literally 100 percent of the cases he studied, the adoption of sustaining technologies was led by such companies (Christensen 2002). The T-8 lamp is an exemplary sustaining technology. Although initially more expensive then the dominant (at the time) T-12 lamp, when combined with a high-frequency electronic ballast, the T-8 lamp enabled commercial building owners to enjoy better quality light with lower operating costs. Furthermore, the manufacture of such lamps was ultimately dominated by market incumbents such as General Electric, Osram Sylvania, and Panasonic. Disruptive Technologies Technologies labeled “disruptive” were so distinguished because, according to Christensen, they disrupted value networks. He defined such networks as being “the context within which a firm establishes a cost structure and operating processes and works with suppliers and channel partners in order to respond profitably to the common needs of a class of customers.” Successful disruptive technologies differ from their sustaining counterparts in two important ways: they are more accessible (i.e. they are typically simpler, more convenient, and less expensive), and they are also designed to appeal to new or less-demanding customers. In general, disruptive technologies that succeed are those that enable less skilled or less wealthy customers to do for themselves things that only the wealthy or skilled customers could previously do (Christensen & Raynor 2003). Christensen concluded that disruptive technologies were virtually the exclusive domain of new market entrants. Indeed, Christensen concluded that by focusing on disruptive technologies, new market entrants could greatly improve the odds of their success. He found that of the products contained in his database, new market entrants succeeded only 6% of the time when they offered sustaining technologies, but succeeded 33% of the time when they offered disruptive technologies. This may seem counterintuitive, given the extremely risky nature of disruptive technologies, but because new market entrants are also extremely risky ventures, there seems to be a synergy between the two concepts. Not only did offering disruptive technologies improve the likelihood of success for new market entrants, but as a corollary to that success, disruptive technologies enabled these companies to dethrone the incumbent market leaders (Christensen 2002). Christensen described the process by which disruptive technologies led to the downfall of dominant firms as starting when a disruptive technology gained a foothold in new or low-end © 2006 ACEEE Summer Study on Energy Efficiency in Buildings 8-290 markets. He wrote: “… the (disruptive) technology eventually improves enough to intersect with the needs of more demanding customers. When that happens, the disruptors are on a path that will ultimately crush the incumbents (Christensen & Raynor 2003).” One example of a disruptive technology is the Sony transistor radio. In the early 1950s, radios contained vacuum tubes and were sold by appliance stores that made most of their profit replacing burned-out tubes. The major radio manufacturers of the time, including RCA, investigated the new solid state transistors, but decided that their quality wasn’t good enough for contemporary radio consumers. Sony didn’t try to pursue those customers with its product. Instead, Sony found a new market for radios: teenagers, most of whom couldn’t afford expensive vacuum-tube radios. The transistor radio offered teenagers the opportunity to listen to rock-and- roll music in locations their parents didn’t control. This new customer class was delighted, despite the poor sound quality of early transistor radios, because its alternative was no rock and roll music at all (Christensen & Raynor 2003). Sony also had to find a new distribution channel. The existing radio retailers weren’t interested in a product that didn’t contain tubes. Instead, Sony marketed its product through a new distribution channel: the discount retailer. These new stores, such as Korvette’s and Kmart, lacked the sophisticated staff required to replace tubes, but they did know how to sell to teenagers (Christensen & Raynor 2003). From such undistinguished beginnings, transistor radio technology improved to the point that it became good enough to compete with vacuum tube products. At that time, the incumbent radio manufacturers, which included RCA, tuned-out. Today, virtually all consumer radios contain transistors (Christensen & Raynor 2003). The Sony transistor radio enjoyed many of the attributes that distinguish successful disruptive technologies: it was less expensive than the incumbent technology; it was marketed to a customer group that was ignored by the incumbent’s distribution channel; it enabled that customer group to accomplish something that it yearned to do but previously couldn’t because it couldn’t afford the incumbent technology; it was manufactured and distributed by new market entrants; it took root without the incumbent technology’s value network taking notice of it; and ultimately, it displaced the incumbent technology, putting much of the incumbent’s value network out of business. How Christensen’s Work Was Interpreted by Efficiency Advocates The conclusions the energy-efficiency advocacy community generally drew from Christensen’s work are typified by Lovins et al (2005). In this study, the authors identify
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