Assignment # 1

CourseChange Management

TopicDisruptive Change in Computer Hardware Industry

Submitted by:Shabir Naqvi

Muhammad MohsinRaphay Faheem Ali Raza Anjum

Immad Azim

Dated13 October 2015

National University of Sciences & Technology (NUST)NUST Business School

EMBA 2K14

Question #1:Do you agree with the opinion expressed in the article? Is disruptive change beneficial for an industry? Give justification.

Answer:The article talks about how the disruption is necessary for industries and businesses to

evolve and to explore new markets. Taking into perspective of history, past cases of

industries that were disrupted and sketching an impeccable diagram in the minds of the

readers, the article revolves around the theory presented by the Harvard professor and

businessman Clayton Christensen and his book ‘The innovators dilemma’.

“If an established company doesn’t disrupt it will fail, and if it fails it must be because it

didn’t disrupt”. (The New Yorker Thinks Disruptive Innovation Is a Myth, 2014)

A disruptive innovation is an innovation that helps create a new market and new values,

and eventually disrupts an existing market and shifting an earlier technology. We agree to

the opinion expressed in the article as a sustaining innovation does not create new

markets or networks but rather only evolves existing ones with better value, allowing the

firms within to compete against each other. There are multiple reasons to failure of the

firm and Christensen mainly focused on why companies fail. Despite of multiple reasons

of failure such as external environment, delays in switching technology, labor unions

(Such as in the case of US Steel), wrong hiring or basic question on the wrong strategy

like in the case of Morrison-Knudsen.

Many people believe that the simplistic idea that an established firm fails because it does

not "keep up technologically" with other firms. However, author has shown that this

simplistic hypothesis is wrong. Christensen argues that disruptive innovations can hurt

successful, well-managed companies that are responsive to their customers and have

excellent research and development. Small start-ups firms invade into the market with

their new networks and completely change the dynamics of the industry. In the end

established players regain their position.

In order to support the disruptive innovation we can see that the author also discussed

about the case studies starting from hard disk, which was first made by IBM in 1955,

however in the war of making 5.25 inch floppy disks, Micropolis had a disruptive leap

along with other companies but Segate took the major chunk as they made it to 3.25

inches disk. The hard drive industry appeared to be gone to the manufactures that were

good at incremental improvements of disruptive new formats.

Moreover, hydraulic excavators also wiped out the mechanical shovel manufactures back

in early nineteen as this disruptive innovation came into the market. Similarly, innovation

of discount stores as a new organizational model of departmental stores, pushed the big

departmental stores to open new independent organizations of discount stores and those

who ran the these models parallel were failed. Comparably, minimilling technology in the

Steel Industry as disruptive as it cut down the cost radically but challenging the disruptive

dilemma gave US Steel an honor of being the largest producer of steel.

Disruptive innovation theory cannot be more correct on the introduction of asset backed

securities innovated in the financial market that led to the financial crisis and busting of

the dotcom bubble. Their mortgage backed securities, CDOs and subprime mortgages are

considered as a disruptive technology. This time disruption created panic in the society

and it led to failure.

The article distinguishes between service industries and professions such as doctors,

teacher’s vs the industries that produce tangibles and highlights how the service industry

has obligations towards their customers which “lie outside the realm of earnings”

compared to businesses, solely for the purpose of its earnings. This leads to the reason

why disruptive innovation is not applicable to these professions as he perceives these

professions to be hard to put up for experimentation. But he still recommended business

schools to have ‘heavy weight innovation’ teams to logic his disruptive innovation.

The articles also points out towards the fact that “Companies that were quick to release a

new product but not skilled at tinkering have tended to flame out”. If we look around the

different industries today the theory of disruptive innovations seems real. We see many

firms getting out of the business or failing because they didn’t disrupt and if they don’t

disrupt they will fail. Taking an example of computers, Minicomputers were originally

presented as an inexpensive alternative to mainframes and mainframe manufacturers did

not consider them a serious threat in their market. Eventually, the market for

minicomputers became much larger than the market for mainframes.

Lastly, the disruption theory was meant to be predictive in many cases but it did not work

out in case of Apple Inc.’s iPhone, however it doesn’t make it a fail theory. We still

believe in this theory Christenson’s research has established some ground breaking rules

that can define why firms fail.

Is Disruptive change beneficial for an industry?

Yes, but not an unconditional one. We consider disruptive change beneficial for

industries as it allows companies and even the overall industry to tap into the markets and

segments which they might have completely neglected or overlooked. Driven by the

thirst to grow and the outlook of the new segment, these disruptive innovation forces

companies to study and understand the needs of those untapped segments for future

business growth e.g. of main frame computers and PC’s.In his book Rifkin traces a new

type of economic system resulting from an abundance of goods and services that are

increasingly cheap: “This is the first new economic system to emerge since the advent of

capitalism and socialism in the early nineteenth century. It is going to dramatically

impact our lives. The precipitating agent, the trigger is something called: zero marginal

cost.” While economists have always welcomed a reduction in marginal cost, they never

anticipated the possibility of a technological revolution that might bring marginal costs to

near zero, making goods and services priceless, nearly free, and abundant, and no longer

subject to market forcesi.

Some of the main benefits of disruptive innovation could be clubbed in the belowii:

1. It can help companies to expand their market through innovation with new and

existing products and services.

2. Companies can identify the areas of process and structural improvements.

3. Companies can identify their leaders for present and future.

4. Future opportunities become clearer.

5. Culture of the companies evolves as a learning community that welcomes change

instead of fearing it.

Question # 2:

To assess the industrial evolution and landscape, strategies and actions of main organizations, antecedents and consequences of the adoption of the disruptive change with respect to the Computer Hardware industry.

Answer:

The computer hardware industry provides a broad range of products. These include

everyday items used in homes, businesses, and schools, such as desktop computers,

monitors and keyboards: laptop computers; and peripherals like printers and scanners; as

well as specialized or industrial items such as webcams, ATM machines, or data storage

devices used by corporations, large and small. A rapidly growing segment of the

computer hardware industry is in multipurpose handheld communication devices, such as

smartphones and tablet computers which allow consumers to have phone conversations,

send electronic text messages and e-mail, surf the Internet, or access media.

Evolution and Landscape:

The computer hardware industry has evolved in an intense fashion over the decades, as

market players are forced to swing strategies and product lines in order to center where

the market demand is most focused. This can be easily seen from the transition of

mainframe supercomputers in the 70’s, to smartphones, progressively fast personal

computers, mp3 players with gigabytes of storage, and PDA cell phones today. This is an

industry whose players have had to adapt quickly in order to match the constantly

changing market demand.

Strategies and Actions of Main Organizations

Marketing Strategieso Price leadership: All corporations in this industry seek to offer very low-

cost computing models, in order to pronounce the affordability of a new

PC to customers. This includes special discounts and instant or mail-in

rebates. Other options such as leasing or financing are used to increase

product affordability. Further, vendors often advertise discount PCs, when

they are purchased with a signed year-long or multi year PC-related

service contract.

o Establishing strong relationships with suppliers: Often this includes

signing exclusive long-term agreements with suppliers of PC components

or peripherals. Vendors who employ this strategy can see a drop in

bottom-line cost for the most expensive of PC components from

purchasing in bulk quantities. This savings is then used to drop product

prices and gain market share.

o Diversification: Diversification into PC-related technologies and

becoming a “one stop shop” for all customers PC needs. The offering of

PDA’s, printers, copiers, faxes, high speed internet access, and other home

or small-business technologies has allowed many PC vendors to drop

prices in main models, and recover this revenue through these related

peripheral sales.

o Alliances and joint ventures: Vendors often Sign deals with software

vendors in order to bundle their products with PC systems. This software

can be installed as a free or free-trial product, which increases the

perceived value of the PC vendor’s product.

o Outsourcing: Various product construction and customer support

processes are shipped to developing countries where lower employee

wage requirements allow companies to reduce overhead.1

o Deals and trade-ins: Older model product trade-in programs allow

vendors to refurbish and resell PCs, while offering discounts on newer

models. As a bonus, the company is able to promote its environmental

responsibility leadership.

1 “Dell Recalls Tech support after complaints” ©2003 EcommerceTimes.comhttp://www.ecommercetimes.com/perl/story/32248.html

o Corporate contracts: While highly lucrative, the signing of exclusive

agreements with enterprise customers to supply and support their IT

computing needs is extremely competitive. These agreements are signed at

discounts for both parties involved, and aims to form a mutually beneficial

financial relationship between firms.

o Aggressive marketing tactics: To increase brand awareness, PC

Companies tend to market hard to end-users via television. This has

become a necessity as prices and product models change quickly.

Business Strategieso Dell developed Dimension PC for home and small business market,

OptiPlex and Precision PCs for small Businesses and PowerEdge model

for enterprise environment users. It also developed Axim PDAs for power

users and printers A9XX for home and small business clients.

o HP produced Pavilion and Presario PCs for home and small business users

whereas it developed ProLiant and Integrity PCs for enterprise. It also

produced DX300 PC as Corporate workstation. Jornada PDA was

developed for power users. InkJet printers were produced for Home /

Small Business and LaserJet printers were developed for Home / Small

Business / Enterprise.

o IBM: it produced following for specific users/ market as mentioned

against each:

PCs ThinkCentre Home / Small Business

IntelliStation Corporate Workstation Servers eServer Enterprise

pServer iServer

Globalization:o Major market players of the PC Hardware industry have already moved to

position themselves into emerging global markets. IBM, H-P and Dell are

already deeply rooted with customers in Europe, Japan, and Indo-China.

As these vendors see market saturation occur in the US, with annual PC

sales beginning to level out, they have been quick to think globally in an

effort to maintain company growth.

o Moreover, as developing countries take aim at narrowing the gap between

themselves and their developed counterparts, their desire to integrate

information systems for efficiency and communication gains becomes

evident. Today, major gains in the governmental sector of many

developing nations are reaping the increased savings and efficiency by

using information systems for communication and collaboration by its

governmental employees. Also, in Chile, Brazil, Peru, and India

innovative uses of networked information technology bring the promise of

a better future for their people.

o As China recently surpassed Japan as the second largest PC market in the

world, American PC vendors were hard at work making a name for them

in this potential goldmine. The pull of emerging markets on the global PC

industry is such that vendors are in a race to develop a presence in these

markets before domestic vendors corner them. China's top PC vendor

Legend captured 9 percent of the market, as it saw its market share grow

by over 100 percent since the year before.

Customer Relationship Managemento CRM Management System represents a huge conglomeration of

Information Technology for the purpose of increasing speed and cutting

costs for any computer producing organization. A state of the art CRM

system was developed and deployed through IT by IBM which hold great

returns for it in the future. Further, it helps IBM form better relationships

with its customers, whether corporate or consumer.

o Free Online Support to Customers is another strategy tool being used by

computer manufacturing organizations for building customer base.

Brand Powero Dell physically manufactures none of its products – it is completely

removed from the fabrication process. Although the company does build

its own computers (including build-to-suit computer systems), it purchases

all of its products’ components directly from manufacturers. The company

is able to leverage its muscle by buying components in large quantities,

while commanding steep discounts. After combining and re-branding

components into new products, Dell markets them to end-users and

corporate clients. Further, through its strong relationships with component

and device manufacturers, Dell is able to reach exclusive agreements with

peripheral manufacturers that allow Dell to market select products to

customers. Such a relationship is productive for both Dell and peripheral

manufacturers because of Dell’s strong brand recognition, which the

company fostered through heavy TV and media marketing investment.

Below is a brief overview of just a few deals currently offered by Dell,

because of the company’s numerous corporate relationships:2

The company now offers deals with Netflix – an online movie-

rental venue, where customers can rent free DVD’s with the

purchase of a Dell system with a DVD player

6 Months of AOL Membership Included with purchase of a Dell

PC.

Over a dozen KODAK products are available directly for purchase

from DELL

The company offers various models of both Canon and Lexmark

printers

An agreement with McAfee, a PC security software vendor,

enables Dell to offer Antivirus tools at 35% off retail price.

Further, Dell is allowed to partially re-brand McAfee’s software

under the Dell company name.

The Direct Model:

o This model is the invention of Dell Inc. Removing retailers and sales

vendors from the value-chain equation enabled Dell’s company to reap 2 Dell Home & Home Office Partners and Programs. http://www1.us.dell.com/content/default.aspx?c=us&cs=19&l=en&s=dhs i http://www.intelligenthq.com/innovation-management/the-disruption-machine/ii http://vertess.com/2014/5-benefits-of-disruptive-innovation/

more financial rewards. IBM, Compaq and others tried to follow this

model in various modified forms to accrue similar results as that of Dell.

Leadership on the Web

o This again is the model used by Dell first to be closer to customers and

others followed.

Hire Ahead of the Curve

o Dell started a policy that when the human resources department considers

employee applicants, that applicant’s future role in the company should be

considered, not simply what the company needs personnel for today.

Further, employees who are moving out of the company should be

prepared to consider and recommend a suitable qualified replacement.

Forming Alliances

o Dell’s strategy for forming business relationships with only a handful of

valued component suppliers have enabled his company to maintain high

inventory velocity and turnover rates.

Redefine/Define

o Dell developed a basic thesis:

“The Internet will fundamentally change the way that

companies do business through its ability to enable people to

conduct low-cost, one-to-one customer interactions with rich

content.”3

Supply Chain Transformation

o The use of Electronic Data Interchange (EDI) allowed Dell to redefine the

relationships it has with its suppliers, and dramatically increase the

velocity of inventory (VOI) inside the company. VOI is described as the

speed at which inventory moves into the company and out to the customer,

and through increasing the company’s VOI, Dell has redesigned the

company’s supply chain structure to cut costs and increase efficiency. Dell

restructured its value chain by using EDI to create a direct link with its

3 Direct From Dell: Strategies that Revolutionized an Industry. 1999. Michael Dell

suppliers, communicating with them up-to-the-minute inventory status and

requirements throughout Dell’s global operation.

Culture

o Dell contributes the majority of its success to the people that work there.

Senior management has worked endlessly to “engender a sense of personal

investment in all employees.”4 This boils down to three major culture

tenets: responsibility, accountability, and shared success.

o Create a Company of Owners: Senior management fosters a feeling

of mutual responsibility amongst employees by creating a company of

owners. This means that every person in the company, at every level,

thinks and acts like an owner.

o Learn Voraciously: Learning is another important cultural value

at Dell. Employees are encouraged to approach their jobs from the

standpoint of asking important questions: “What would make my job

easier, more efficient, successful or meaningful?” Management spends a

considerable amount of time listening to what their employees answer.

o Encourage Smart Experimentation: product groups, along with

research and development teams are encouraged to experiment with new

types of innovation. Instead of telling employees, “Feel free to innovate,

just don’t screw up!” managers create a safe atmosphere for failure,

because important lessons have often been learned at Dell because of past

failures. The company culture at Dell is not focused on what succeeded in

the past, because of the dynamic nature of the market.

Linkage to Suppliers:

o Dell’s close relationship with component vendors is an important key in

considering the overall success of the company. Intimate relations with

suppliers are the key to Dells’ success.

o Dell’s company success can be summarized as under:

Customer Integration

Vendor Reduction and Integration

4 Direct From Dell: Strategies that Revolutionized an Industry, 1999. Michael Dell.

Process Outsourcing

Increased Product Line

Process reengineering

Disruptive Changes

o Personal Computers: PCs were a turning point in computer hardware

industry and as soon as people got awareness about personal computers

the sales across the computer industry grown exponentially. And all the

big giants like IBM, DELL, Compaq, Asus etc. took the advantage and

invested in personal computers and it helped them a lot to not only sustain

their market position but they also increased their revenues significantly. It

was Dell only who took advantage of personal computers most by using

combination of Direct Model and customization across personal

computers era.

o Microprocessors: Disruptive technologies have tendency to rapidly push

aside market leaders or marginalize their market positions. Clayton

Christensen’s 1997 book The Innovator’s Dilemma illustrates that how

Intel’s 8088 microprocessor, the hydraulic excavator and a succession of

computer hard drive technologies revolutionized markets with major

changes in market positions for suppliers. Initially every organization was

using its own or microprocessors and other hardware in computer

hardware industry. But emergence of Intel 8088 microprocessors not only

help Intel to become a industry leader but other computer industry

organizations like Dell, Apple , Compaq and HP also changed their

strategies and instead of investing on their own microprocessor almost all

of them started to collaborate with Intel and now 99% of world personal

computers have Intel’s microprocessors.

o Internet: Internet is one of the most disruptive innovations of last century.

Keeping all the innovations in computer hardware industry aside and

internet on side still internet influence more the entire computer industry.

It was the chain of innovation across communication equipment in

computer industry which eventually gave birth to internet. It was the Dell

first who perceived the value of internet first and emergence of internet

has a significant role in supply and chain model of Dell. Dell leveraged the

importance and utility of internet by enabling different people across the

globe to their customized PCs purchase orders.

o Smart Phones and handheld devices: We have discussed above that how

personalized computers helped the computer industry to grow further but

it also forced companies to change their strategies from only B2B model

to B2C model. But as per Moore’s that the size of computer hardware will

shrink over time i.e. number of transistors on one inch square will be

doubled every year. Due to other innovations like internet and telecom

industry mobility is another factor which is making consumer to go the

product which have same features or specification but smaller in

dimension. The desire of mentioned capabilities across personalized

computer and era of personal computers to laptops to notebooks further

pushed the hardware industry to a new era of smartphone and tablets. On

one side its helping people take leverage of computation devices with

mobility but on other hand it also proved to be a threat for personalized

computer. Most of organizations have observed decline across the sales of

Personal computers and increase in the sales of smartphone and handheld

devices. Due to this paradigm shift almost every big giant have already

invested in to serve their customer with ever changing demands. Apple

and Samsung are the organizations who harvested most out of this new era

but the old organizations like Dell, HP , Microsoft is now investing in

subject field. Furthermore smartphone and tablet industry is being “Many

Screens” where we ll go from here is the multi-screen world. In the age of

the Personal Computers, it was all about one primary computing screen.

Now it’s about many. Consumers will have two or three or four screens in

their lives and they will want to use all of them as a part of their

computing solution. The future is not about one screen; it is about many,

and the sooner the industry will embrace this reality, the sooner companies

will stop worrying about the shrinking growth of one segment and begin

thinking about the growth of another.

Globalization:

o Fundamental changes occurring on the global landscape as a result of the

convergence of IT innovation and public policy shifts reducing barriers to

movement. These changes are forcing us to reexamine some of the most

basic assumptions we have about our institutions, whether we are talking

about corporations, schools, government bodies or social institutions. In

effect, we are seeing the emergence of a new common sense model,

requiring a new, and often quite counter-intuitive, set of assumptions.

Similarly in computer hardware industry almost every organization like

Dell, IBM , Microsoft have changed their basic assumptions like now Dell

don’t have customers only in USA it’s the whole world to whom they

have to offer their services. Now most of the organization have opened

their offices worldwide like Microsoft have their operations in more than

20 countries, where people work across different societies , cultures ,

timings with a single goal of progression of their organization. Further

globalization have forced organization to look after following aspects as

well

Cost reduction by opting for global products (Some organizations

shifted their production facility to China)

Captive Facilities by outsourcing different departments to different

countries (Most of the organizations have outsource their call

centers to India like Dell)

Fragmented strategies for individual markets across globe (Apple

have different products for different regions of the world like

Iphone 5C was particularly focused for sales India)

Accelerated capacity building by utilization different offices across

the globe

Bio Technologies:

o Bio technology is another disruptive innovation of last century and this

innovation is going to impact computer industry as well. Every computer,

gadget, smartphone or tablet consists of alot of different components and

these components are manufactured at industrial level. People have

different views about industrial level production few people appraise this

phenomenon but there are a lot of people who criticize this phenomenon

as well due to its harmful impacts over society. Now people in computer

industry have started to think over these concerns and they have decided to

collaborate with different bio technology firms for betterment of

environment and society.

Nano Technology:

o Size of the gadget has always been remained a concern for customer. And

this concern is even getting more weightage just because of mobility and

innovation in telecom sector. Now people want to carry smaller gadgets

with them either its smartphone its notebook or it’s a tablet, smaller will

be the dimension most preferred product it will be keeping in mind no

compromised was done over performance of the gadget. Applications of

nano technology in computer hardware not vast but Seagate a big name in

hard-disk manufacturing have utilized the nano technology upto some

extent and have reduced the size and speed of hardisk significantly and

they were the first on in computer hardware industry who introduced SSD

hardisks. And introduction of SSD hardisk have helped them to next era of

storage devices.