kv patri, mgmt of tech inn., disk drives case study 1 case study on disk drive industry adapted from...

KV Patri, Mgmt of Tech Inn., Disk Drives Case Study

1

Case Study on

Disk Drive IndustryAdapted from

Clayton, M. Christensen,

The Innovator’s Dilemma:

When New technologies Cause Great Firms to Fail,

Harper Business,

2000.


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Primary Components of a Typical Disk Drive


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Brief History

• 1952-56: IBM’s San Jose research laboratories developed RAMAC (random Access Method for Accounting and Control) which was the size of a large refrigerator incorporating 50 disks of 24 in. size. Total storage 5 MB.


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RAMAC: The first disk drive


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• 1961: IBM introduced removable packs of rigid disks

• 1971: IBM introduced the floppy disk drive • 1973: IBM introduced the Winchester architecture• In the 1960s: A few firms developed the plug-

compatible-market (PCM) selling copies of IBM drives directly to IBM customers at discount prices. At the same time, IBM competitors (Control Data, Burroughs, and Univac) were integrated vertically into the manufacture of their own disk drives.


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• In the 1970s: Smaller non-integrated computer makers such as Nixdorf, Wang and Prime developed OEM for disk drives.

• In 1976: US$1 billion worth of disk drives were produced (50% PCM and 25% OEM). There were about 17 firms. All were relatively large and diversified corporations such as Diablo, Ampex, Memorex, EMM, and Control Data.

• By 1995: Production rose rose to $ 18 billion, PCM almost vanished, and OEM became 75%. Almost all the 17 corporations except IBM failed or were acquired by IBM. Meanwhile, additional 129 firms entered, of which 109 failed (Fujitsu, Hitachi, and NEC survived).


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• During 1978 to 1993, the smallest available 20 MB drive shrank from 800 cubic inches to 1.4 cubic inches -- 35% annual rate of reduction.

• During 1977 to 1994, the price per megabyte in 1982 dollars from $900 to 0.2

-- a reduction rate of 53% pa (although other microelectronic devices fell only at the rate of 70%).


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Which technological developments contributed to this spectacular

improvement in performance of disk drives?

• Materials: Ferrite-oxide heads Thin-film heads Magneto-resistive heads

• Architecture: Removable disc-pack drives Winchester Drives

• Embedded servo systems

• RLL and PRML recording codes

• Higher RPM motors

• Embedded interfaces


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1. Innovations in Read-Write Head Materials

In the period 1975 to 1992, mainly ferrite-oxide heads were used. Incremental innovations within this technology such as

- grinding the ferrite head to finer and more precise dimensions, and

- more finely dispersed oxide particleshelped improve areal recording density from 1 to 30 terabyte per sq. in. This growth was approximately following the S-curve pattern(an initial accelerating growth followed by steady growth followed by saturation).


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• Around 1985, a new thin-film head technology was developed.

- Super-thin films of magnetic metal on aluminum was achieved by sputtering thin films of metal on recording head and then using photolithography to etch much finer electromagnets than could be achieved by ferrite technology. The technology was adapted from integrated-circuit industry. Burroughs and IBM led in this development.

- Meanwhile entrant firms such as Maxtor andConnor Peripherals continued to rely on refining ferrite technology.

- Established firms such as IBM, Control Data, Digital Equipment, Storage Technology, and Ampex -- each spent some $50 million in 8 years. Most new entrants perished.


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• In the 1990s magneto-resistive heads were developed which accelerated the performance improvement.

IBM, Seagate, and Quantum led the race.

Established firms beat out entrants.

• Moving up an S-curve is made possible through incremental innovations. Jumping from one S-curve to another is the result of radical innovations.


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11975 1980 1985 1990 1995

10

100

1000

Terabits/sq.in

Ferrite-oxideheads

Thin-filmheads

Magneto-resistive

heads


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• Between 1976 and 1988: The number of established firms offering drives with thin-film heads increased from 0 to 22. Likewise, the corresponding number of entrant firms increased from 0 to 22.

• Between 1984 and 1988: The number of established firms offering drives with thin-film disks increased from 0 to 12. Likewise, the corresponding number of entrant firms increased from 0 to 27.


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2. Innovations in architecture

• In the period, 1965 to 1978, removable disk pack drives dominated. This trend followed an S-curve with regard to areal density.

• Around 1978, 14-inch Winchester drive was substituted for the removable disk packs. This was a radical innovation (not incremental).


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0.1

1965 1970 1975 1980 1985

1.0

10

Terabits/sq.in

RemovableDisk-pack

drives

Winchesterdrives


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• Between 1974 and 1979: The number of established firms offering drives with with Winchester architecture increased from 2 to 9. Likewise, the corresponding number of entrant firms increased from 0 to 19.

• Between 1984 and 1988: The number of established firms offering drives with RLL recording codes increased from 4 to 20. Likewise, the corresponding number of entrant firms increased from 5 to 31.


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All the disk-drive innovations described thus far were of the sustaining type irrespective of whether they were incremental or radical, expensive or cheap, software or hardware, component or architecture, or competence-enhancing or competence-destroying.

A major characteristic of a sustaining innovation is that leading practitioners of prior technology continue to dominate. The business is not disrupted. Progress happens along historically anticipated lines.


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Further architectural improvements aimed at shrinking the drive size

(from 14-inch to 8-inch to 5.25-inch to 3.5-inch to 2.5-inch to 1.8-inch)

turned out to be disruptive, i.e., they displaced the industry leaders

(irrespective of they were well-managed or not)


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14-inch Winchester Drives• Until the mid-70s, 14-inch removable disk packs

accounted for all disk drives.

• Then 14-inch Winchester drive emerged to sustain performance.

• Most were used for mainframes.

• In 1974, typical median-priced mainframe had a drive of 130 MB. This increased for 15 years at 15% per year. At the same time, the capacity of average drive increased at 22%. Capacity was outstripping demand and reaching beyond mainframe into scientific and super computers.


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The advent of 8-inch drives

• Between 1978 and 1980, Shigart Associates, Micropolis, Priam, and Quantum developed 8-inch drives with 10, 20, 30, 1nd 40 MB capacity.

• These were of no interest to mainframes which, at that time, asked for around 40MB.

• These disruptive innovations were however suited for minis used/produced by DEC, Data General, Prime, and HP.


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• Partly because of the availability of suitable disk drives, minis gained over mainframes. A median-priced mini shipment grew at 25% per year.

• Meanwhile 8-inch saw further innovations that resulted in capacity growth at the rate of 40% year although the computer requirements themselves grew at about 20%. Again, capacity outstripped demand.

• Cost per MB of 8-inch became lower than that of 14-inch and other advantages became apparent, e.g. less vibration sensitive.

• Hence, established 14-inch manufacturers began to fail. 2/3 never introduced 8-inch. The 1/3 were 2 years behind new entrants.


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Why did 8-inch disrupt the dominance of the established 14-inch suppliers?

• 14-inchers were not toppled by technology because the 8-inch drives mainly used off-the-shelf components.

• The reason for failure was delay in making the strategic commitment to switch to 8-inch. This was because mainframes did not need 8-inch drives as told by their established (mainframe) customers. It appears listening to current customers is not always good.


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A similar story was repeated when 5.25 gave way to 3.5 to 2.5

to 1.5. All were disruptive.

• As the size reduced minis gave way to desktops which in turn partly gave way to portables and then Palms.

• Newer versions were not superior in the established market whereas they were attractive to fringe customers interested in an emerging technology.


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A disruptive innovation: The 5.25 inch drive (1981)

Attribute8-inch drive

(Mini-computermarket)

5.25-inch drive(desktop computer

market)Capacity (MB) 60 10

Volume (cubic inches) 566 150

Weight (pounds) 21 6

Acess time (ms) 30 160

US$ per MB 50 200

US$ per unit 3000 2000


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Prod

uct P

erfo

rman

ce

Time

Performance demanded at the high end of the market

Performance demandedat the low end of the market

DisruptiveTechnological

Innovation

Progress due to

sustaining technologies

Progress d

ue to

sustaining tec

hnologies

The Impact of Sustaining and Disruptive Technological Change


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What are the typical characteristics of disruptive innovations?

• Worse product performance at least in the near term• Other attractive features that a few fringe (often new)

customers value• Simpler and cheaper.• Architectural: New functionality achieved through a clever

arrangement of ‘off-the shelf’ components or technologies.• Promise lower margins• First commercialized in emerging insignificant markets• Generally not wanted by leading firms’ most profitable

customers (hence listening exclusively to one’s best customers may not always be good)


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D A

C B

Poor fit(disruptive)

Strong fit(sustaining)

AutonomousOrganizationis required

Mainstreamorganizationis responsible

Fit with Organization’s values

Who should be responsible

New

Customary

Heavyweightteams

Lightweightteams

Functionalteams

Fit

wit

h o

rgan

izat

ion

al p

roce

sses

Str

uc t

ur e

of

dev

elop

me n

t te

a m

Fitting Innovation’s Requirements with Organizational Capabilities


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Characteristic Cost Structures of Different Value Networks

0

20

40

60

80

100

34%

25to30%

41%

40%

56%

60%

Des

ktop

OE

Ms

5.25

-inc

h di

skdr

ive

mak

ers

Min

icom

pute

rO

EM

s6-

inch

dis

kdr

ive

mak

ers

Mai

nfra

me

OE

Ms

14-i

nch

disk

driv

e m

aker

s

Desktop PCValue Network

MinicomputerValue Network

MainframeComputing

Value Network


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Difference in Valuation of Attributes Across Different Networks (1988)

Value networkShadow price (US$) ofan incremental MB of

capacity

Shadow price (US$) ofincremental reduction of 1

cubic inch in sizeMainframe 1.66 -0.1

Minicomputer 1.5 -0.14

Desktop PC 1.45 0.17

PortableComputer

1.17 0.24


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Market

needEstablish

ed

Disruptive

Time

Cap

acit

y

Market

needEstablish

ed

Disruptive

Time

Ph

ysic

al S

ize

Market

need Established

Disruptive

Time

Rel

iab

ilit

yTime

Pri

ce Sustaining technologies

Market need

The basis of competitive success

Phase 1Competition based

upon capacityPhase 2

Competition basedupon physical size

Phase 3Competition based

upon reliabilityPhase 4

Competition basedupon price

Innovations with regard to every

performance variablehave saturated.The product has

become

a Commodity

Changes on the Basis of Competition in disk drive industry


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Need in Tier 1

Need in Tier 2

Need in Tier 3

Performance Relaibility

ConveniencePrice

PerformanceReliability

Convenience

PerformanceReliability

Technology Trajectory

Strategy 1: Push Upmarket Towards Higher-End Customers

Strategy 2: Stay with Customers

Strategy 3:Change Market’s

Demand forFunctionality

Time

Func

tion

alit

y

Managing Changes on the Basis of Competition


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DISCUSSION


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See Slide 12In the period, 1975-1990, terabits/sq. in improved from 1 to

12 owing to improvements in ferrite.oxide technology.

Is this due to

incremental innovation?

radical innovation?

disruptive innovation?

sustaining innovation?

process innovation?

product innovation?

architectural innovation?


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See Slide 12 Around 1990, ferrite oxide technology started being replaced

by thin film technology.

Can this be classified as


radical innovation?



process innovation?

product innovation?



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See Slide 12 Around 1994, thin film technology started being replaced by

thin magneto-resistive technology.



radical innovation?



process innovation?

product innovation?



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See Slide 14 In the period, 1965 to 1978, removable disk pack drives

dominated. Around 1978, 14-inch Winchester drive was substituted for the removable disk packs.



radical innovation?



process innovation?

product innovation?



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See Slide 15 Around 1976, removal disk-pack drives were replaced by

Winchester drives.



radical innovation?



process innovation?

product innovation?



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See Slide 7

During 1977 to 1994, the price per megabyte in 1982 dollars from $900 to 0.2.

Was this due to market pull?

Was this due to technology push?

Was this due to competition?

Name five technologies that contributed to this development.


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See Slide 18 Architectural improvements aimed at shrinking the

drive size (from 14-inch to 8-inch to 5.25-inch to 3.5-inch to 2.5-inch to 1.8-inch) turned out to be disruptive.

• Why are these labeled as ‘disruptive’?• Whose businesses were ‘disrupted’?• Why is the continued development of ferrite oxide

technology not viewed as being ‘disruptive’?• Why should it be viewed as ‘sustaining’?• Whose businesses were sustained?


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Some Broad and Open-ended Questions

• The companies ‘disrupted’ were large and having a good R&D as well as marketing infrastructures and cultures. Yet they were ‘disrupted’ by smaller players. Why?

• Listening to customers is the basic precept in the era of quality. Does this suffice when one transits to the era innovation?

• What are the general characteristics of disruptive innovations?

• What steps could the large and established companies take to avoid being ‘disrupted’?


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Further Questions

• Can small firms hope to engage in incremental innovation? No!! No! Yes! Yes!!

• Can small firms hope to engage in radical innovation? No!! No! Yes! Yes!!

• Can small firms hope to engage in architectural innovation? No!! No! Yes! Yes!!

• Can small firms hope to engage in disruptive innovation? No!! No! Yes! Yes!!


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What type of innovation is best suited for Hong Kong’s manufacturing sector?

Insert a preference rating between 1 to 5 (5 for highest preference and 1 for lowest preference).

incremental innovation

radical innovation

disruptive innovation

sustaining innovation

process innovation

product innovation

architectural innovation

kv patri, mgmt of tech inn., disk drives case study 1 case study on disk drive industry adapted from...

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