Disruptive Innovation

1 Introduction This assignment provides the study on Disruptive Innovation using Clayton Christensen’s framework. Apart from this, this assignment also tells how the companies should react to the upcoming technologies and what should be the course of action for the same. 1. 1 Innovation There is no specific definition for innovation as such. But, according to me, innovation is creating something new or changing the old to achieve the competitive advantage and meet the increasing customer demands.

This is achieved either by introducing new products, new ideas, and processes or just by changing the design of the product or the processes as per the customer demands. Innovating and creating new products and services has become very important topic of concern for all the organizations in today’s rapidly changing world. If you are not innovative, you may never know when your products become obsolete. 1. 2 Types of Innovation There are three main types of Innovations: Sustaining innovation: This type of innovation needs to be developed to ensure that the customers are satisfied with the products and services and to stay in the game.

For example upgrading the processor from dual core to Intel core i3 to i5 and enhancing the performance of computers. Breakthrough Innovations: These innovations upgrade the level of existing category of products or services. For example I phone was a breakthrough innovation in the world of mobile market. It changed the perspective of the customers and eventually other companies started following the trend. Disruptive Innovation: In this type of innovation a new product or a sevice is introduced that creates a new market or massively alters an old one so that old players cannot compete.

They are called disruptive because they disrupt the current behavior of the market. For example Introduction of computers was a disruptive innovation for companies who manufactured typewriters. According to Clayton Christensen Disruptive innovation offers lower performance initially as per the current market demand. But, at the same time it provides some new attributes which prosper in some different market. After conquering different markets, it eventually displaces the former market. Here we will talk about the hydrogen fuel Cell vehicle a disruptive innovation.

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How the introduction of hydrogen fuel cell vehicle will disrupt the market for oil industry, current internal combustion engine manufacturers and many others. At the same time we shall talk about how the companies are responding to this upcoming technology and how are they coping up with the new technology. Before going into the statistic part let us know in brief how the hydrogen fuel cell works, how it is different from internal combustion engine and what the benefits of hydrogen fuel cell are. 2 Hydrogen Fuel Cell a disruptive Innovation

A fuel cell is an electrochemical device which converts chemical energy into electrical energy. It uses hydrogen and oxygen from air to produce electricity. Since no combustion is involved, it does not emit harmful gases and the efficiency of such device is much higher than an internal combustion engine. Apart from this it does not involve any moving part hence making it more silent and reliable source of energy. 2. 1 Working Hydrogen fuel cell consists of two catalysts anode and cathode, and an electrolyte. Hydrogen is fed to anode and oxygen from air is fed to cathode.

At anode, catalyst causes hydrogen to split into positively charged ions protons and negatively charged ions electrons. The electrolyte, that is polymer electrolyte membrane allows only positive ion to flow through it. So the protons pass through membrane towards cathode and electrons pass through the external circuit towards the cathode. The flow of electron from the external circuit causes the current and eventually it goes to cathode and combines with positive ion and oxygen to emit water or water vapor. Hydrogen is is a fuel of great potential.

Thought it is not an energy source, but it is an energy carrier. Hydrogen can be manufactured using renewable energy resources such as wind, solar etc. the research is still on on how to produce hydrogen on a larger scale. Following Figure show the working of a hydrogen Fuel Cell. Figure 1: Working of a Hydrogen Fuel Cell 2. 2 Benefits of a Hydrogen Fuel Cell Following are the benefits of a hydrogen fuel cell Zero green house gas Emissions: As water is the byproduct of the fuel cell, the emissions of harmful gases such as carbon dioxide, sulphur monoxide, etc is not there.

Hence, it is a zero emission product. Though some amount of carbon dioxide is produced during manufacturing hydrogen, but research is on to manufacture hydrogen using renewable energy resources. Reduced Air Pollution: As there are no harmful gases emission involved in fuel cell, air pollution will be reduced considerably. Improved efficiency: Fuel cells are more efficient than internal combustion engine. A conventional combustion egine generates efficiency up to 40% whereas a fuel cell generates efficiency more than 50% and has the potential to reach 85%.

Other Benefits: the transportation will be oil independent, since there are no moving part, it is more reliable. 2. 3 Applications Fuel cells have wide range of applications. Following are the applications of a fuel cell: Transportation system: currently oil industry and internal combustion engine dominates the transportation system. But keeping environment and diminishing resources of fuel in mind it is predicted that by 2025 – 2030, hydrogen fuel cell will dominate the transportation sector. Power Generation: Fuel cell can also be used to generate power.

It can be stationary power or a portable power. 2. 4 Challenges Following are the challenges that a fuel cell faces today: Cost: Cost of a fuel cell is a major concern right now. Due to expensive materials like platinum is used as a catalyst, the cost of fuel cell shoots up. but the research is on and it is most likely that the cost of a fuel cell will come down to $30 – $50/KW for transportation and $1500/KW for stationery power. Storage: Storage of hydrogen is again another concern especially for the transportation system since it has very low density in terms of volume.

Research in this area is also going on to store the hydrogen fuel at high pressure. Infrastructure: Again to develop infrastructure for hydrogen is a big challenge cost wise. To develop infrastructure a collaboration will be required between automotive and energy companies. Other challenges include the safety issues to carry hydrogen, Durability of the fuel cell and public acceptance. But research I going on in all the areas and there will definitely be a solution to all the challenges. 3 Clayton Christensen’s Theory of disruptive technology

Christensen developed a framework that could be applied to any market at any point of time so long as the attributes to be measured qualify for the characteristics presented in his framework. According to Christensen, companies fail because of the following reasons: Companies depend on customers and investors for resources: if the company doesn’t satisfy the customers or the shareholders, it will be difficult for the company to survive Small market cannot provide the growth needed by large companies: Large companies concentrate their efforts where the returns are high and often concentrate where the cost of sales is high.

Technology supply exceeds the demand: Rapidly developing technology may often outpace the customer’s needs. When such thing happens opportunity for new entrants develop to enter into the market and come with a new product. Companies with best technology tend to improve the existing product often incrementally. And while focusing on the top end customers, a lower end market remains unserved until a new entrant comes with a potentially disruptive technology. And eventually new market begins to grow. And once this new market starts gaining the footage, it causes the existing technology to become obsolete.

Following graph will help us understand Christensens framework more clearly. Figure 2: Clayton Christensen’s Framework of Disruptive Technology The market is always divided into tiers the higher end market that represents the main customers who buy the product and the lower end market represents the customers who are least to buy the products. And performance is the main criteria by which customers buy the product. Sustaining innovation: As explained earlier, it could be incremental or radical that improves product performance for the main customers.

The focus is mainly on improving the performance of the existing products and satisfying the main customers. Disruptive Innovation: It enters in the lower tier of the market with lower cost and attractive value for the lower market customers. Following are the charecteristics of a disruptive technology. * Offers low performance * Targets small market * It is tied with uncertainties * It introduces a new performance criteria in a new dimension * Generally non market leaders introduce such new products in a lower tier market with attributes to benefit lower end market.

Moving back to the graph on Christensen’s framework for disruptive innovation, disruptive technology with an innovation enters at point ‘a’ with a lower rate for lower end market. At the same time market leaders are improvising their product using sustaining technologies and satisfying the mainline customers. And when the sustaining technology reaches point ‘b’, it is the peak time for the sustaining technology and after that the market gets saturated. This is the time when the market leaders need to innovate something new and create the new market. After point ‘b’, supply crosses demand.

On the other hand, disruptive innovation enters at point ‘a’ satisfies the lower end customers and after improvising it reaches point ‘c’ the main stream customers. At point ‘c’ now, it is very late for sustaining technology to develop a new product for the main stream customers. Here it is very important to distinguish between different types of innovation. Incremental innovation occurs when small improvements are made to products/services. These, basically strengthens the market position of the firm and entrenches the industry. Radical Innovation occurs when major improvements are made to the products/services.

These changes require new marketing channels and often put other firms out of competition and at the same time make old technologies obsolete. Transformational innovation occurs when the innovation is of such a nature that it destroys whole industry and changes the nature of the market. So if we have to summarize Christensen’s framework it would be, as the sustaining technology improves along the mainstream customer, disruptive technology enters at the lower end market, improvises along the existing dimensions and enters the main stream market.

It eventually changes the basis of the competition from functionality to reliability and from reliability to convenience and eventually to price. Now, let’s apply this Christensen’s framework to today’s automotive world that is internal combustion engine as the sustaining technology and the hydrogen fuel cell as the disruptive technology. 3. 1 Comparison of Hydrogen Fuel Cell technology with the Christensen’s Framework of Disruptive Technology Let us compare the performance of fuel economy and green house gas emissions of internal combustion engine and hydrogen fuel cell vehicles.

From the graph, we can agree that internal combustion engine is a sustaining technology incrementally improving its performance. Initially let’s say in 1980’s the fuel economy of a vehicle was around 4-6 km/l of gasoline and now it is around 12-15 km/l. green house gas emissions have also reduced by introducing hybrid option. But it is predicted that internal combustion engine will reach the point ‘b’ somewhere by 2015. That is it will reach the saturation level of innovation. Further development in internal combustion engine will result in more of supply than demand.

This is the time when people will anticipate the change, and the change of disruptive technology in our case it is hydrogen fuel cell vehicle. Initially it keeps emerging and improves the performance in new dimension and tries to attract the main market stream. During the time emergence hydrogen fuel cell through experimentation seeks commercialization. And it is predicted by 2020 it will seek commercialization. Meanwhile, the internal combustion engine will steadily grow beyond the customer demand and will start losing its hold in the main market.

In 2020, at point ‘c’, the market is ready to accept high performance vehicle, in terms of fuel economy. And beyond this point, the hydrogen fuel cell vehicle keeps on improving rapidly. This will eventually bring the phase out of an internal combustion engine and forcing it out of the market by 2030 – 2040 completely and hydrogen fuel cell vehicle becoming the base technology. Beyond this it will improve incrementally until the new disruptive comes and phase out the hydrogen fuel cell technology. Green House Gas Emission

Global warming is one of the prime reasons fro shifting the paradigm from internal combustion engine to hydrogen fuel cell vehicle. Following graph shows the global warming potential of gasoline, flex fuels and hydrogen fuel cell in various stages from manufacturing to the end of life of a vehicle. Figure 3: Global Warming potential comparison of 3 different types of Engine. It is clear from the graph global warming potential that is emission of harmful gases from a fuel cell vehicle is less than a gasoline and the flex fuel vehicle.

From the graph, it is seen that only while production for the fuel of hydrogen fuel cell vehicle, the emission of harmful gases is high, but it is very less compared to the gasoline and flex fuels. Apart from that, research is also going on for producing hydrogen using renewably resources such as wind, solar and nuclear. 3. 2 Conclusion It is evident that hydrogen fuel cell vehicle is a disruptive technology and will cause a phase out for the internal combustion engine. But when we compare it to the Christensen’s framework, it slightly contradicts.

Hydrogen fuel cell vehicles in literal sense are not targeting the lower market initially. The cost of the product is not low. But all other parameters remain the same. It is focusing on the new dimension and at the same time it is threat to the internal combustion engine world. Apart from this slight difference, hydrogen fuel cell vehicle is definitely a disruptive innovation, and will definitely lead to transformation of technologies and will change the basis of competition from fuel economy to green house gas reductions with the environmental pressure. 4 Current Scenario

If we talk about hydrogen fuel cell in today’s world, it is still an emerging technology which looks solid and promising in terms of fuel economy and reduction in green house gas emission. Research in this particular area is going on all around the world since the global warming level is increasing and the environmental pressure is acting on all the governments. In this scenario, the companies who are already into research in this area will survive and the companies that are still not doing any kind of research or innovation and still trying to improve the sustaining technology might just phase out of the competition.

Further we will see cases and findings of various companies in this area including oil industry, automotive industry and the industries related to this huge sector of industries. 4. 1 Oil Industry: Today, the energy sector is run majorly by oil industry. And majorly oil after refining is consumed by transportation industry. Around 90%of the oil is consumed by the transportation industry, and out of that around 50% of the industry consumes gasoline and the rest is diesel, LPG, Naphtha etc. Major players in this oil industry today are Saudi aramco, shell, BP, Exxon Mobil and chevron.

Saudi Aramco (Saudi Arabia)is the major producer of the oil today and has the maximum exports all over the world, then it is followed by other companies. Apart from green house gas emissions and environmental pressure, the increasing rate of oil so frequently gives us an idea that even the oil reserves are diminishing day by day. Now increasing research and development in this area poses threat on oil industry as well. Even the oil industries have started doing research in this area. Basically these companies are doing research on how to produce hydrogen using the existing technologies in large scale.

Following are some of the findings of the oil companies in this area. 4. 1. 1 Saudi Aramco (Source: http://www. keei. re. kr/keei/download/seminar/101117/II101118_b02. pdf, www. saudiaramco. com, www. mbifoundation. com/media/18961/final%20bpr. pdf) Following are some of the conclusion made by research and development department of Saudi Aramco. : * H2 production using existing petroleum infrastructure will be a potential economical option compared to other technologies. * Need to integrate the carbon capture and storage (CCS) technologies along with hydrogen production for efficient carbon management. Alternate hydrogen production technologies, such as electrolysis and renewable sources, have significant technical and economical challenges (energy intensive and high capital). * Significant progress made in the demonstration of liquid hydrocarbons to hydrogen. Apart from this, Saudi Aramco has also filed a patent in US office for the naphtha based fuels which can also be used for vehicular purpose. 4. 1. 2 Shell ( Source: http://www. shell. com/home/content/environment_society/environment/climate_change/biofuels_alternative_energies_transport/hydrogen/, http://articles. atimes. com and http://www. thelivingmoon. com/41pegasus/02files/Alternate_Fuel_Shell_Oil_Hydrogen. html) Shell had started its research on this topic since 1999 and had anticipated the change in the world of automotive industry and power sector long back. Shell has joined hands with the leading car making companies and power companies and working on this project. Shell is already working in collaboration with Siemens, Toyota, Daimler Chrysler and has reached a long way in this area. It has also opened various hydrogen fuel stations in United States of America, Europe and Asia.

And it is offering free fillips at various fueling station just to promote the upcoming technology. Following picture is one of the fueling station in United States of America where hydrogen fueling is provided. Figure 4: Hydrogen fuel Station by Shell 4. 1. 3 BP: (Source: http://www. bp. com) Like Shell, BP is also one of the world’s largest energy enterprises, BP has been extensively involved in hydrogen energy demonstration projects around the world to explore feasible solutions to hydrogen economy.

In China, BP and PRC Ministry of Science ; Technology have been co-working on a hydrogen energy project to set up China’s first hydrogen fueling station in Beijing. As one of the world’s largest energy enterprises, BP has been extensively involved in hydrogen energy demonstration projects around the world to explore feasible solutions to hydrogen economy. In China, BP and PRC Ministry of Science ; Technology have been co-working on a hydrogen energy project to set up China’s first hydrogen fueling station in Beijing.

Apart from this BP has joined hands with the leading companies like Daimler Chrysler, Ford Motor Company, General Motors, Solarex and working on various projects like fuel efficiency, CO2 management, Hydrogen Fuel Cell. Apart from the companies all these companies also join their hands with various Universities who help the in doing their research. 4. 1. 4 Exxon Mobil: (Source: http://www. exxonmobil. com, http://www. dutchdailynews. com/air-products-and-exxonmobil-start-up-new-world-scale-hydrogen-production-plant-in-rotterdam/) Exxon Mobil again is not left ehind in the research of hydrogen fuel cell and the production of hydrogen on a large scale. Following are some of the research that Exxon Mobil is working on * It is conducting breakthrough research on Hydrogen Production Technology * It is also trying to improve its existing technology at the same time by continuously improving the efficiency of internal combustion engine and reducing the emission of harmful gases. * On 10th Feb 2012 Air products and Exxon Mobil started a large scale Hydrogen Production Plant in Rotterdam. Apart from this, ExxonMobil is also developing an innovative on-board hydrogen-powered fuel cell system that converts conventional hydrocarbon fuels such as gasoline or diesel into hydrogen for a fuel cell right under a vehicle’s hood. Apart from this there are various other small industries that are into this hydrogen fuel cell research for example Reliance from India is also doing its bit in this area. 4. 2 Automotive Industry We have seen the response and reaction of oil Industry so far, Now let us see the response of automotive industry worldwide.

We shall go country wise in this case to know the response of various industries and development in various countries in this specific area. 4. 2. 1 United States Of America: United States of America is spending millions of dollars every year in the research of hydrogen fuel Cell. They have demonstrations with many private companies. Daimler Chrysler Company developed its first fuel cell truck in 2000. The main aim of USA is to make Fuel Cell Vehicle available at an affordable cost. General Motors: General motors one of the oldest companies of USA is planning to get 1000 fuel cell vehicles on road by 2013-2015.

Ford Motor Company: Ford is also planning to launch its commercial hydrogen fuel cell vehicle in 2015. 4. 2. 2 Japan: One can say Japan is the very first to start the research in this area and it is since 1981. It was in Japan in Tokyo electric Company, Toshiba and an American based company fuel cell company manufactured and installed an 11 MW power plant (Source: www. platinummetalsreview. com/pdf/pmr-v33-i1-010-012. pdf). Apart from this the major Japanese automotive companies look promising in terms of Hydrogen uel cell vehicle compared to other companies in the world. Toyota: Toyota has promised in its recent Autocar show that it will start selling the hydrogen fuel cell vehicle in USA specifically in California, since by 2015 it is predicted that there will be 68 hydrogen fueling stations in California. (Source: http://content. usatoday. com/communities/driveon/post/2012/08/toyota-to-start-selling-hydrogen-fuel-cell-car-in-2015/1#. UHFOcE3Mj38) Honda: CEO Takanobu Ito just announced that Honda will launch a new fuel-cell electric car in the U.

S. and Europe starting in 2015. It will “showcase further technological advancement and significant cost reduction. ” Honda has already been letting consumers test its fleet of FCX Clarity hydrogen fuel-cell cars for a couple of years (Source: http://www. firstcoastnews. com/news/article/276774/11/Automakers-take-fresh-look-at-hydrogen-fuel-cells) Nissan: Nissan has also announced its interest in hydrogen fuel cell vehicle and has declared that it is ready to mass produce hydrogen fuel cell cars by 2015 (Source: http://www. irstcoastnews. com/news/article/276774/11/Automakers-take-fresh-look-at-hydrogen-fuel-cells) 4. 2. 3 Europe: Europe is not left behind in this research. All the major brands BMW, Mercedes Volkswagen etc have shown interest in hydrogen fuel cell, but at the same time have said hydrogen fuel cell will take at least 10 more years to commercialize. 4. 2. 4 India: India is the place where we can say Christensen’s framework is applicable perfectly. Here the auto rickshaw for the lower end market has been made using hydrogen fuel cell. t was displayed at pragati maidan in January 2012 and is expected to hit the road by 2015. Source: http://www. nytimes. com/2012/10/02/business/energy-environment/hydrogen-fuels-autorickshaws-and-dreams-of-cleaner-air. html? pagewanted=all&_r=0) Apart from this biggies like TATA Motors and Mahindra and Mahindra have shown interest in this area. Tata Motors have manufactured the bus based on hydrogen fuel cell technology known as starbus. Following figure shows the Auto Rickshaw and the Hydrogen fuel cell Bus

Figure 5: Hydrogen fuel cell vehicles in india Following are some of the comments from various high profile executives from various companies: * Executives from Ford, General Motors, Chrysler and Volkswagen see fuel-cell vehicles as being further out, and most have not said when they’ll have vehicles on the market. * “We don’t see it as early as Toyota does,” said Oliver Schmidt, general manager of engineering with the VW Group. “We see it in the 2020 time frame. * Joe Bakaj, Ford vice president of powertrain engineering, said, “The question is when (will) fuel-cell vehicles become affordable to customers,” specifically when the fuel-cell stack competes with the battery pack on cost. * “Within 10 years, I think they will be as affordable as full battery vehicles, and the fuel cell will have a big advantage in range,” Bakaj said. “We think it will happen in the next 10 years. ” * Gary Smyth, GM executive director working on global research and development, said he sees little commitment in the U. S. to the necessary infrastructure by 2015. Source: http://content. usatoday. com/communities/driveon/post/2012/08/toyota-to-start-selling-hydrogen-fuel-cell-car-in-2015/1#. UHFOcE3Mj38) Part from all this various other countries and companies have shown immense amount of interest in hydrogen fuel cell Recently Korea and Korean company Hyundai has also announced an hydrogen fuel cell vehicle launch by 2015. So the major companies all around the world and the allied companies are responding really well to the upcoming technology of hydrogen fuel cell and all of them are doing their bit to save the environment. 5 Conclusion:

It is very clear from the above assignment that hydrogen fuel cell is the future of the world. It is definitely one of the biggest disruptive technologies of all time. Biggest because, once the technology is commercialized, many big players all around the world will have to change their base of technology. Technology innovation and upcoming technologies are posing threat on the current industry and are eventually forcing companies out of business. New technologies are exerting power to shape the market and change the basis of the competition. Hence, it is important for the companies to continuously assess the technologies and capabilities.

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