EuropeanManagementJournalVoI.15, No. 2, pp.

117-127,1997
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Patterns in the Evolution

of Product Competition
CLAYTON CHRISTENSEN, Associate Professor of Business Administration, Harvard Business
School

Individual products may pass through life cycles of red, however: industry technologists and managers
birth, growth, maturity and demise. But product were able to improve reliability at a faster rate than
categories and brands tend to follow cycles of the industry was able to absorb, until multiple
evolution, rather than life cycles. The character of competing products were 'reliable enough': the
this evolution is determined by the cumulative trajectory of improvement in reliability had
changes in the attributes of individual new product overshot what the mainstream market demanded.
models that are introduced within a given category. When this happened, reliability no longer was a
Recent studies of new products and services intro- competitively meaning dimension of differentiation.
duced in four very different industries - hydraulic
excavators, disk drives, executive education and In each case, the focus of efforts to differentiate new
diabetes care - reveal a rather stunning regularity in products then shifted toward convenience. Cus-
how the nature or basis of competition has evolved in tomers began to favor products that had enough
these industries. The article describes these patterns, functionality and were reliable enough, but were
and shows that the basic mechanism precipitating a more convenient to use, and were supplied and
shift from one basis to another is when the trajectory distributed by companies that were more convenient
of improvement which product developers achieve is to deal with. But as companies then began focusing
steeper than, and hence surpasses, the trajectory of their innovative efforts on convenience as the new
performance improvement which customers in the basis of competition, the same phenomenon recur-
market demand, or can absorb. red: the trajectory of improvement in convenience
which product developers achieved, ultimately
In each of these cases, the initial basis upon which exceeded the convenience that the market
companies competed and were compared was the demanded or was able to absorb. When multiple
functionality of their product or service (hereafter competitors offered products that were convenient
called 'product'). However, technologists were able enough, the basis of competition among products
to improve the products' functionality at a faster then shifted to price.
rate than the market needed, or was able to absorb.
As a result, multiple competitors 'overshot' cus- The patterns in the evolution of competition in these
tomer needs in their mainstream market - their industries result from the interaction of trajectories
products improved to provide greater functionality of performance improvement that technologists
than their customers could use. Continued differen- provided to their market, with the trajectories of
tiation along traditional measures of functionality, performance improvement that customers demanded
therefore, became competitively meaningless in or could absorb. This article uses these insights to
each of these markets. derive several propositions about when, how, and
why the basis of competition can be expected to
evolve. © 1997 Elsevier Science Ltd
When functionality had surpassed market need, the
basis of competition, or the attributes along which
companies could meaningfully claim advantage for Although the concept of a product life cycle - the notion
their products over competitors, tended to shift to that products go through phases of birth, growth,
reliability. Measures related to the reliability of maturity and death - generated substantial interest when
products, and the reliability of the companies that first proposed, ~ it has been discredited by management
manufactured and distributed them, became the scholars who cite examples of products which have been
meaningful metrics along which products were managed such that their growth and life show no sign of
differentiated. The same phenomenon then occur- ending. In most product categones, however, it is rare

EuropeanManagementJournalVo115No 2 April 1997 II7

PATTERNS IN THE EVOLUTION OF PRODUCT COMPETITION

that individual product models survive for decades. It is Trajectories of Technology

more generally the case that product categories or brands
survive and evolve, even as individual product models Improvement and Trajectories of
within them follow a growth and maturity cycle. In fact, Market Needs
it is the aggressive and competent replacement of mature
products by new ones with improved features and The manufacturers of most products have established a
performance that sustains vigor and growth in many trajectory of performance improvement over time. Intel,
product categories, and can reverse the maturity of some for example, pushed the speed of its microprocessors
previously staid industries. 3 ahead about 20 per cent per year - from its 8 megahertz
(MHz) 8088 processor in 1979 to its 133 MHz Pentium
chip in 1994. Eli Lilly and Company improved the purity
A central thesis of this article is that in many industries, of its insulin from 50,000 impure parts per million (ppm)
there is a product attribute (or a rank-ordering of a in 1925 to 10 ppm in 1980 - a 14 per cent annual rate of
family of attributes), which constitutes the criteria by improvement. Manufacturers of hydraulic excavators
which mainstream customers determine whether one increased by 15 per cent per year the amount of earth
product is better than another. This is the basis of product their machines could heft in a single scoop - from 0.25
competition in an industry. It is the basis of product cubic yards in 1948 to 10 cubic yards by 1974.
competition not only because customers value products
along that criterion, but because improving this attribute Most manufacturers track closely the trajectory of
in their new generations of products tends to be a product performance improvement - for themselves
dominant objective of those engaged in new product and their competitors. When a measurable trajectory is
development. 4 established, determining whether a new product is better
than competing offerings is an unambiguous question.
Because replacing aging products with new ones plays Marketers price new products relative to existing ones
such a key role in sustaining profit and growth, the by their position on the trajectory. And customers
search for patterns in product evolution, to enable employ the same trajectories to assess the value offered
marketers to predict more accurately which attributes of by competing suppliers.
a product's performance will be most highly valued in
the next generation, is a critical concern of everyone The steepness of a technology trajectory - hereafter
involved in new product development. As an example, called a technology trajectory - is affected by the rate at
in the market for microprocessors used in personal which engineers develop solutions to, or roadblocks
computers, the speed of the chip has been a key metric of around, technological constraints 5 - and by the incentive
product performance for fifteen years. Marketers have of improved profitability which companies can expect
been able to predict that new products offering greater through the introduction of higher-performance,
speed would meet robust demand and command higher premium priced products. 6
prices. But will this always be the case? Might there
come a point when a new, faster chip proves incapable of There are also trajectories of market needs - the rate of
capturing for its innovators premium prices and product improvement which customers demand or can
substantial sales - when the market simply doesn't need absorb. In spreadsheet software, for example, the rate of
anything faster than what it already has? Will the market improvement which consumers demand is determined
change the metrics by which it defines what is new and by factors such as the capability of computer hardware;
improved - the criteria by which customers choose one the rate at which they discover uses for spreadsheets;
product over another - thus shifting the basis of and the time available to learn the software's features
competition in that industry to another attribute of the and how to use them.
product? The challenge for product developers is to
gauge accurately whether, when and how the basis of Because the steepness of trajectories of improvement
product competition is likely to change, so that their provided by technologists and the trajectories demanded
new products continue to improve along those attributes in the market are generally determined by different
or dimensions that address the evolving needs of their factors, these trajectories often do not follow parallel
customers. paths. Usually, the performance trajectory in a product
category rises more steeply than does its market needs
trajectory. 7 This means that technological progress can
Recent studies of four very different industries: disk cause the performance of products which squarely match
drives, hydraulic excavators, diabetes care and executive what a market demands today, to overshoot the
education, suggest that there may be a common causal performance demanded in the future. And it means that
mechanism and a certain regularity in the changes in the products which underperform relative to market needs
basis of product competition that has occurred in these today, may meet those needs tomorrow.
industries. The purpose of this article is to describe this
mechanism, and to present a framework to help It is this interaction between these trajectories, and in
managers anticipate when the basis of competition is particular, the phenomenon where product performance
poised to change - when they need to begin blazing overshoots what the market demands - a situation I label
new trajectories of improvement along new dimensions. 'performance oversupply' - which is the mechanism that

118 European Management Journal Vo115 No 2 April 1997

 PATTERNS IN THE EVOLUTION OF PRODUCT COMPETITION

has driven changes in the basis of product competition in typical users of new mainframe computers, increased at a
industries studied in this article. The following sections slower 15 per cent annual rate. Note that in 1974 the
describe the patterns in how this happened, and what the average capacity provided by disk drive suppliers, about
competitive result was. 130 megabytes (MB) per drive, was equal to the capacity
demanded by the typical user of mainframe computers.
In subsequent years, however, designers of disk drives
Performance Supplied vs. Performance overshot the capacity demanded in the mainframe
market, as they aimed for the higher prices and margins
Demanded in the Rigid Disk Drive that were attainable in the higher-end markets, for
Market scientific and super computers, s°

Disk drives write and read information that computers Around 1978, several entrant firms developed smaller 8-
use. The early product history in this industry can be inch drives averaging 20 MB of capacity. This was a
summarized in a trajectory map, reproduced in Figure 1.8 disruptive technology, because it disrupted, rather than
Through the late 1970s, nearly all drives used disks that sustained, the established trajectory of performance
were 14 inches in diameter, and were sold to mainframe improvement. Disruptive products provide customers
computer manufacturers. The solid line originating at with lower performance, according to the measures of
point A is a best-fit regression line through hundreds of performance that are valued in mainstream markets.
points representing the capacity of each new 14-inch Because of their small capacities, the disruptive 8-inch
disk drive introduced into the market beginning in 1974 drives were of no interest to mainframe computer
- showing that the average capacity of 14-inch drives manufacturers, who at that time were demanding drives
introduced for sale each year increased at a 22 per cent with 300--400 MB capacity. The 8-inch drive makers
annual rate. What drove this trajectory of improvement? therefore found a new application - minicomputers.II
A series of technological innovations incorporated into Minicomputer makers previously had been unable to
new models, spanning the spectrum from incremental to offer drives in their small, desk-side minicomputers
radical, called sustaining technological changes. In each because 14-inch models were too big and expensive.
instance of sustaining technological change, the
industry's leading firms took the lead in developing Once the use of 8-inch drives became established in
and introducing these technologies.9 minicomputers, the trajectory of capacity shipped
(demanded) with the median-priced minicomputer grew
The dotted line originating at point A is the best-fit about 25 per cent per year. This trajectory, measured by
regression line through hundreds of points, measuring the dotted line originating at point B, was determined by
the hard disk capacity that was purchased by mainframe the ways in which minicomputer owners learned to use
computer makers for their Customers in the median their machines. At the same time, however, the 8-inch
priced, typically configured mainframe computer system drive makers found that they could increase the capacity
in each of those years. This trajectory, representing the of their products at over 40 per cent per year, as shown
disk capacity demanded (as revealed in purchases) by the by the solid-line trajectory. In consequence, even though

10000 - - Intersecting Trajectories of Capacity Demanded vs. Capacity Supplied: - -

14- vs. 8-inch Rigid Disk Drives

r..)

•~ lOOO
c~

100

B ~
10

i i p I i i i i i i
74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90

Figure 1 I n t e r s e c t i n g T r a j e c t o r i e s of C a p a c i t y D e m a n d e d vs. C a p a c i t y Supplied: 1 4 - vs. 8 - i n c h Rigid Disk

Drives

European Management Journal Vo115 No 2 April 1997 119

PATTERNS IN THE EVOLUTION OF PRODUCT COMPETITION

1000 . .~ .
in reliability (as measured in mean time between failure,
or MTBF).

It appears that the convenience or flexibility which the 3.5-

inch design offered to computer designers seems then to
have become the criteria by which they opted for the 3.5-
inch architecture. The smaller form gave designers more
degrees of freedom in designing their computers - and in
shrinking their desktop footprint, in particular. In
addition, because the 3.5-inch product managed many
of the drive's functions through microcode rather than
through mechanical parts or electronic circuitry, it was
easy to customize features of the drive to match particular
features that marketers wanted to emphasize in their
computers. In addition, the fact that it was a convenient
supplier with which to do business was key to the
marketing message of the leading 3.5-inch drive maker,
Conner Peripherals. Said one executive, 'Other disk drive
179 80 81 82 83 84 85 86 87 88 89 90 companies first design their drives, then they make them,
and then they sell them. We do it differently. First we sell
Figure 2 Intersecting Trajectories of Capacity the drive. Then we design it, and then we make it'. 13
Demanded vs. Capacity Supplied in Rigid Disk
Makers of larger drives still outperformed the 3.5-inch
products on the capacity dimension, but that was no
the smaller drive initially had been unusable in the longer the basis of product choice in the desktop market.
mainstream market when it first emerged, by 1988 Because competition had shifted to flexibility and
makers of 8-inch drives offered the capacity required in convenience, the personal computer makers began
the mainframe market. switching to 3.5-inch drives in droves. By 1989, 60
per cent of their new models used 3.5-inch drives, even
After the 14- and 8-inch products both became able to though the small drives commanded 20 per cent
satisfy the capacity demanded in the mainframe market, premiums in price per megabyte. Moreover, personal
what criteria did the computer makers then use to computer makers were opting for the convenient but
choose between the two types of drives? Because costlier drive in a context of fierce price competition in
differences in capacity were no longer meaningful, they their own product markets. This is because convenience,
needed to use other criteria, or attributes, by which to and not price, had become the basis of competition.
judge which products would best meet their needs.
Interviews with industry marketing executives suggest Ultimately, however, several makers of 3.5-inch drives
that this attribute tended to be the reliability of the emulated and even improved upon Conner Peripherals'
drives. The smaller drives contained fewer parts and ability to customize products for each OEM customer, to
were less prone to breakdown. In addition, the the satiation of customers' need for convenience. At this
positioning of the 8-inch drive's smaller head assembly point, the basis of competition in the market for disk drives
over the proper track on the disk was easier to control sold to desktop personal computer makers then seems to
precisely, so that there were fewer reading and writing have shifted to price. Price-based competition among 3.5-
errors. On the basis of its superior reliability, therefore, inch drives targeted at the desktop personal computer
the market rapidly converted to the smaller drive - even segment has subsequently become intense, with gross
though, on a cost-per-megabyfe basis, the 8-inch format margins tumbling below 12 per cent in some instances.
was about 20 per cent more expensive.I2
Figure 3 summarizes how the basis of competition
The basis of competition in the industry continued to evolved in the disk drive market: on the industry's
evolve. Figure 2 describes how in I988, the capacity of trajectory map, the attribute measured on the vertical
the average 3.5-inch drive, which initially was only axis repeatedly changed. Performance oversupply trig-
usable in portable computers, had increased to equal the gered each redefinition of the vertical axis, first from
capacity demanded in the desktop personal computer capacity to reliability, then from reliability to con-
market. The average capacity of 5.25-inch drives had by venience or flexibility, and finally to price. This occurred
that time overshot the market need. As such, desktop in each instance because the trajectory of performance
personal computer makers had a choice of which size of supplied sloped upward more steeply than the trajectory
drive to offer their customers: the 5.25 and 3.5-inch of performance demanded. The evolution of the disk
drives both provided perfectly adequate capacity, so that drive industry was defined by the sequential interplay
it could no longer be a meaningful criterion of product between the trajectories of what the market demanded
choice. Nor could reliability serve as this differentiator, and what the technology supplied, across the evolving
because 3.5-inch drives were equal to 5.25-inch products basis of competition. 14

I20 European ManagementJournal Vol 15 No 2 April 1997

 PATTERNS IN THE EVOLUTION OF PRODUCT COMPETITION

The basis of
competitive success
i g ,s J"

Phase 1: t I ~,- s .

Competition |
based upon Time l
capacity Phase 2: I
Competition
based upon Time
reliability
Phase 3:
Competition
based upon
convenience
Phase 4:
Competition
based upon
price

Figure 3 Evolution in the Basis of Competition in the Disk Drive industry

The disk drives offered for sale to makers of desktop Gasoline engines were a sustaining technology relative to
personal computers continue to be differentiated in terms steam engines: they provided more power more effi-
of capacity, weight, shock resistance and reliability. But ciently. Just as established firms led in every sustaining
in the desktop computer market, none of the companies innovation in disk drives, the leading innovators in
whose products lead their competition in these attributes gasoline engine technology were the steam shovel
is able to command a price premium for its superior industry's dominant firms. Twenty-three of the 25
performance. This is because, on each of these largest makers of steam shovels successfully negotiated
dimensions, the technology trajectory has overshot the the transition to gasoline power. 16 The established
trajectory of market need. manufacturers of gasoline-powered shovels also initiated
the next major sustaining technological transition, to
shovels powered by diesel engines and electric motors.
Trajectories of Technology Supply and These sustaining technological improvements drove the
size of bucket that could be hefted by the average cable
Market Demand in the Excavator excavator along the 12 per cent trajectory shown by the
Industry solid line originating at point A in Figure 4.

Excavators and their steam shovel predecessors are huge The largest of the three markets for excavators consists
pieces of capital equipment sold to excavation con- of general excavation contractors who dig basements or
tractors. While few would consider this a fast-moving, engage in civil engineering projects such as canal
technologically dynamic industry, what it has in construction. The second significant market comprises
common with the disk drive industry is that its sewer and piping contractors who dig long trenches. The
trajectories of technological progress have been steeper third application for mechanical shovels is strip mining
than the trajectories of performance improvement that and dredging. Contractors in each of these markets
contractors have been able to absorb. When these historically measured the functionality of excavators by
intersecting trajectories created conditions of per- their reach, and by the cubic yards of earth that could be
formance oversupply, the basis of competition changed lifted in a single scoop. ~7
in ways that are similar to what happened in the disk
drive industry. Figure 4 shows that in I945, sewer and piping
contractors on average used machines whose bucket
From the invention of the steam shovel in I837 through capacity was about I yard (they often needed to dig
the early 1920s, mechanical earthmoving equipment was relatively narrow trenches), while the average general
steam-powered. These machines manipulated a bucket excavation contractor used excavators that hefted 2.5
through a system of pulleys, drums and cables. In the yards per scoop. The average bucket size of mining
early 1920s the industry faced technological upheaval as shovels was about eight yards. Notice by the dotted
gasoline-powered engines were substituted for steam lines in Figure 4 that the average bucket capacity used in
power. This was a radical technological transition. The the general and piping markets increased at about 2.5 per
fundamental technological concept changed from steam cent per year - a rate of increase in size that was
to internal combustion, and the product's architecture constrained by other logistical factors in the broader
was revamped. ~5 systems-of-use such as truck size and traffic. (The larger

European Management JournalVo115 No 2 April 1997 12I

PATTERNS IN THE EVOLUTION OF PRODUCT COMPETITION

demanding machines with buckets that held two to eight

100 ~ . ~ cubic yards. As a result, the entrant firms had to develop
a new application for mechanical excavating. Small
residential contractors began to purchase hydraulic
..-'" <~ backhoes as attachments to farm tractors, to dig narrow
ditches from water and sewer lines in the street to the
10t c~<"~P-~-~i~%
- " " * " t ~Ain¢" 0£
.... ..4'\/
~C3 a~~ edge of houses they were building. These very small
jobs had never warranted the expense or time required
............. ,
to bring a big, imprecise, cable-actuated, track-driven
Ca acaV D ;~
shovel into a subdivision or residential area. The
trenches had always been dug by hand. Hydraulic
.................. 771]! backhoes attached to highly mobile tractors could do
these jobs in less than an hour per house, and they
................. " : ~....
_Capoo~j2eman~¢d b~.p."
Re~ide~t"al Contractors
became extremely popular with contractors building
large tract subdivisions in the housing booms after
World War II.

The solid line emanating from Point B in Figure 4 charts

Year the rate of improvement in bucket size that hydraulics
engineers were able to provide in the new excavator
Figure 4 Intersecting Trajectories of Bucket architecture. The maximum available bucket size had
Capacity Supplied vs. Bucket Capacity Demanded reached 3/8 yard by 1955, 1/2 yard by 1960, and 2
yards by 1965. By I975 the largest hydraulic excavators
machines required to heft larger buckets were difficult to had the muscle to lift 10 yards. This trajectory of
transport into and out of typical construction sites.) In improvement, which at 15 per cent per year was far
strip mining and dredging applications, however, more rapid than the rate of improvement demanded in
operators were less constrained by traffic and any of the markets, carried this disruptive hydraulics
infrastructure, and the trajectory of market need technology upward from its original market through the
increased at a steeper 6 per cent rate. large, mainstream excavation markets, even to the point
that it could be used in some mining and dredging
Despite the established firms' solid track record in applications. (Note that although the market needs
adopting important new sustaining technologies, an trajectory in mining has been steeper, however, by 1985
innovation that emerged shortly after World War II that market was still dominated by cable-actuated
precipitated widespread failure in the industry. While the excavators and draglines.)
dominant source of power remained a diesel engine, a
new mechanism emerged for extending the bucket and Once cable-actuated and hydraulics-actuated machines
lifting the dirt: hydraulically-actuated, rather than cable- both could satisfy their requirements for bucket-size and
actuated excavation. Just as in disk drives, the intersecting arm-reach, contractors could no longer choose between
trajectories of performance supplied and performance these technologies on the basis of which had greater
demanded, precipitated a change in the basis of competi- bucket capacity. Both were good enough. The fact that
tion. The leading cable excavator manufacturers largely cable offered larger buckets ceased to have competitive
missed this new technology, and the change in the basis relevance. So how did contractors then choose between
of competition which it heralded. And just as in disk the two types of machines? On the basis of reliability.
drives, the explanation for the failure of the leading cable Contractors found that hydraulic machines were more
excavator makers at this juncture cannot be found in the reliable than their cable ancestors. The drums, clutches,
intrinsic difficulty of the technology. pulleys and winches in the cable machines were complex
and prone to breakdown. In addition, cables occasionally
Hydraulic excavation technology was introduced by would snap when hefting heavy loads of earth, putting
Britain's J. C. Bamford in the late 1940s. Its machines operators' lives in danger. Contractors had put up with
were called 'backhoes' because they were mounted on the breakdowns and dangers of cable equipment as long
the back of industrial or farm tractors. Backhoes as it was the only technology that provided the required
excavated by extending the shovel out, pushing it bucket size. After hydraulic machines offered enough in
down into the earth/8 curling or articulating the shovel reach and bucket capacity, however, the basis of product
under the slice of earth, and lifting it up out of the hole. choice in the market shifted rapidly to reliability. On this
Limited by the power and strength of available hydraulic basis, piping and general excavation contractors began
pumps, hoses and seals, the capacity of these early adopting hydraulic equipment rapidly beginning in 1964.
machines was a mere 0.25 cubic yards, as shown in
Figure 4. Their reach was also limited to about six feet. By the early 1980s, cable excavators had been completely
driven from these markets. Only four of the 30 or so
Because hydraulic excavators' capacity was so small and makers of cable excavators were able to establish strong
their reach so short, they were of no use to mining, hydraulic product lines and remain competitive in these
general excavation, or sewer contractors, who were markets. A few others survived by riding the technology

122 European ManagementJournalVo115No 2 April 1997

 PATTERNS IN THE EVOLUTION OF PRODUCT COMPETITION

trajectory of cable excavation upward, into the mining syringe. Only then could they inject themselves with the
market. The vast majority, however, failed. insulin. This process typically took one to two minutes.

Novo's pen, in contrast, held a cartridge holding a

Performance Oversupply in the Insulin mixture of the fast-acting and gradually released types of
insulin. People using the Novo pen simply had to turn a
Market small dial to the amount of insulin they needed to inject,
poke the pen's needle under the skin, and press a button.
Another example of performance oversupply They could do this in under ten seconds. This was a far
precipitating a change in the basis of competition - and more convenient way to take an insulin injection. In
threatening the industry leader- is found in the worldwide contrast to Lilly's struggle to command a premium price
insulin business. In 1922, four researchers in Toronto first for its Humulin, Novo easily sustained a 30 per cent
successfully extracted insulin from the pancreases of price premium per unit of insulin with its convenient
animals and injected it, with miraculous results, into pens. Propelled largely by the success of its convenient
humans with diabetes. Because insulin was extracted from pens and pre-mixed cartridges, Novo increased its share
the ground-up pancreases of cows and pigs, improving the of the world market substantially - and profitably. The
purity of insulin (measured in impure parts per million, convenience of Novo's pen brought many more patients
ppm) constituted a critical technology trajectory. with diabetes into the insulin-using market, particularly
Impurities dropped from 50,000 ppm in 1925 to 10,000 in Europe. Improvement in both brands of insulin had
ppm in 1950, and 10 ppm in 1980 - primarily the result of satiated the demand for purity in the mainstream market,
persistent investment and effort by the world's leading and FDA oversight assured the reliability of both. The
insulin manufacturer, Eli Lilly and Company. basis of competition consequently shifted to con-
venience - a dimension along which Novo to date has
Despite this improvement, animal insulins at the competed much more successfully.
molecular level were slightly different from human
insulin, and a fraction of a per cent of diabetic patients
built up a resistance in their immune systems to animal
insulins. Thus, in 1978 Eli Lilly contracted with
Performance Supplied and Demanded in
Genentech to create genetically altered bacteria that the Market for Executive Education
could produce insulin proteins which were equivalent to
human insulin and which were 100 per cent pure. The The Harvard Business School initiated executive
project was technically successful, and in the early 1980s education shortly after World War II with its Advanced
after nearly a billion dollars of investment, Lilly Management Program (AMP) - an intensive 12-week
introduced its Humulin I9 insulin to the marketplace - program offered to executives who had risen to the top
priced at a 25 per cent premium over insulins of animal of their functional organizations and needed to be
extraction. trained in advanced principles of general management,
prior to accepting their first general managerial
The market's response to this technological miracle, assignment. The program is expensive (nearly $40,000
however, was tepid. Lilly found it difficult to sustain a per participant in 1996, plus the opportunity cost to the
premium price, and the growth in Humulin sales was company of having a capable executive absent for nearly
disappointingly slow. 'In retrospect,' noted a Lilly three months). But participants give the AMP superb
researcher, 'The market was not terribly dissatisfied with ratings, believin~ that the educational experience is well
pork insulin. In fact, it was pretty happy with it.' Lilly worth the cost. ~1
had spent enormous capital and organizational energy
overshooting the market's demand for product purity, z° Attracted by Harvard's success and the profitability of
Once again, this was a differentiated product to which leveraging incremental programs from the base of
the market did not accord a price premium because its largely fixed costs incurred for their MBA programs,
performance trajectory had overshot the trajectory of many other leading business schools including MIT,
market need. Stanford, Northwestern, Duke and Virginia, launched
similar programs, creating a substantial executive
Meanwhile, innovators at Novo Nordisk, a much smaller education industry. Competition among these schools
Danish insulin maker, were busy developing a line of for the business of the most promising executives has
insulin pens - a more convenient way for taking insulin. forced their faculties to hone the quality of their
Conventionally, people with diabetes carried a separate programs to a remarkable degree. These schools have
syringe, inserted its needle into an insulin vial, pulled its invested aggressively in sustaining innovations. The
plunger out to draw slightly more than the desired courses are taught only by the best and most
amount of insulin into the syringe, and flicked the experienced faculty, in classrooms outfitted with the
syringe several times with a finger while holding its latest multimedia presentation technologies, often using
needle up to dislodge any air bubbles that clung to the interactive case materials provided on compact disks.
walls of the syringe's cylinder. They generally then had
to repeat this process to draw a second type of insulin, In the mid-1980s a disruptive innovation emerged in the
which went to work more gradually in the body, into the executive education industry. A group of Harvard

European Management JournalVo115 No 2 April 1997 123

PATTERNS IN THE EVOLUTION OF PRODUCT COMPETITION

the basis of competition. The business schools continue

to have an edge in this segment.

How Technology Oversupply Drives

Changes in the Basis of Competition:
Five Propositions
This article began by posing a question about the
Time
microprocessor industry as a way to flame an important
general issue faced by those engaged in product and
service innovation: Will the market continue to reward
Figure 5 T h e T r a j e c t o r i e s of P e r f o r m a n c e S u p p l i e d
manufacturers for repeatedly introducing to the market
vs. P e r f o r m a n c e D e m a n d e d , in t h e M a r k e t for
Executive Education Programs
ever-faster products? Or will there come a point where the
market is fully satisfied with the speed of existing
products, so that the basis of competition in the industry
Business School faculty members who were outstanding
shifts to other attributes? If that happens, when and why
teachers but were denied tenure because they did not
might it occur, and in what direction will the market
enjoy the research and writing that is required to achieve
evolve?
that status, set up the Center for Executive Development
(CED) - an independent provider of executive education
programs, with a very different value proposition. They The patterns in these four case studies offer some
would use Harvard's case study materials, as did most insights about this puzzle. This article concludes by
other business schools. But rather than requiring summarizing these in the form of five propositions.
executives to come to them, CED created customized
educational programs for each corporate client and 1. The mechanism by which the basis of competition
offered them whenever and wherever the customer within a product category evolves, consists of companies
wanted. pushing along a trajectory of technological progress
which overshoots what important segments of their
The programs offered by the CED and the hundreds of markets demand. This implies that:
competitors it has spawned are a disruptive innovation
to established business school programs, because they (i) If the technology trajectory slopes more steeply
simply are not as good (although they are getting than the trajectory of market need, the basis of
better). The experience of sitting in a classroom for a few competition will not change until performance
days with people from your own company simply overshoots market need.
cannot be as rich an experience as immersing One's self
for I2 weeks in a classroom filled with capable (ii) If the slope of the trajectory of market needs is
executives from outstanding companies throughout the parallel to or steeper than the trajectory of
world. Predictably, the leading innovators in customized, performance improvement, the market's need will
on-site executive education have been entrants to the not become satiated, and the basis of product
executive education industry. The business schools have competition will not change. For example
been reluctant followers. (although it was not plotted in Figures I and 2
for purposes of expository simplification), this
The market for customized on-site programs has grown appears to have been the case in the engineering
robustly for more than a decade, so that it now accounts workstation market for disk drives. In that market,
for over half of the total market.22 Why has this the requirement of digitize complex graphics has
happened? As the diagram in Figure 5 shows, it is not created a seemingly insatiable demand for hard
because these programs surpass the quality of those disk capacity - creating a steeply sloping
offered on the business school campuses. They probably trajectory of market need. Hence, smaller drives
never will be as good. But they are probably good have been slow to penetrate this market segment.
enough. The trajectory of performance improvement
blazed by the independent firms has intersected with the (iii) Even if one competitor's technology trajectory
trajectory of quality demanded in the mainstream has overshot the market, it is likely to continue
market. This has precipitated a change in the basis of finding premium prices and robust demand for new
competition in this market to convenience. The firms products offering improved performance, as long
offering more convenient programs not only have made as the performance of competing products is still
executive education accessible to many more people, but below what the market needs. We saw this in the
have gained market share dramatically versus the mining and dredging segment of the excavator
business schools, who are being squeezed into a market: because its trajectory of market need has
shrinking high-end market niche where the reliability risen relatively steeply, hydraulic machines have
(reputation) of the provider of education continues to be not yet captured that market.

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 PATTERNS IN THE EVOLUTION OF PRODUCT COMPETITION

2. The leading, established competitors in each of the (it) Reliability, and then Convenience or Simplicity,
industries reviewed in this article had a difficult time re- seem to constitute the bases of product
orienting their trajectories of product improvement, to competition once two or more products are
excel in the new basis of competition. Most often, the available whose technology trajectories have
leading firms continued upward along their established surpassed the trajectory of market need. Eight-
trajectory of performance improvement, while entrant inch drives supplanted 14-inch products because
firms or minor players in the industry were first to seize the they were more reliable. As long as cable
opportunities created by the shifting bases of competition. excavators were the only products with adequate
bucket capacity, contractors put up with the
(i) Perhaps one reason why it is difficult for danger and unreliability inherent to the cable-
established competitors to lead when the basis of actuated architecture. But as soon as hydraulic
competition changes in a category is that most machines could heft enough earth, their reliability
markets are multi-tiered. For example, even though carried them to dominance. Competition based
firms may overshoot the trajectory of market needs upon brand names is often a symptom that the
in one tier of the market, there are often market tiers functionality of products in a category has
above them, whose needs for functionality have not surpassed market need, and that reliability
yet been satisfied. Hence, even as performance constitutes the new basis of competition. Related
oversupply may precipitate a change in the basis of to the question about microprocessor manufac-
competition in lower-tier markets, higher-tier turers posed above, it is noteworthy that Intel is
customers may continue to reward innovators for advertising aggressively to establish a strong
improvements in functionality. brand image with end users - portending a
possible shift in the basis of competition from
(it) Indeed, because of the multi-tiered character of functionality to reliability.
most markets, it is often quite difficult to detect
where the trajectory of market need actually is. For In diabetes care, when insulins had become pure and
expository simplification, the market-needs reliable enough, the convenience of injection
trajectories shown in this article use single lines, became the frontier of innovation. Often conveni-
defined by regression analysis, that represent the ence is manifest by suppliers' willingness to
trajectory of needs of the average or typical customize product features to the needs of
customer in each market tier. In reality there are individual customers. For example, the ease of
customers scattered all over the trajectory map, and customized design offered by the makers of 3.5-inch
the overshooting of market needs is more often a disk drives became the basis of their conquest of the
continuous, incremental, customer-by-customer desktop computer market, once they had improved
process than it is a discrete, identifiable event. to offer adequate functionality (capacity). And the
convenience of on-site customized executive
3. Users of products seem to exhibit a certain education is a primary reason why independent
prioritization of requirements, which constitutes a executive educators are stealing market share from
pattern along which the basis of competition within a the on-site programs of the business schools.
product category might be expected to evolve.
Although we would not expect every product in every (iii) Price is the criteria by which customers choose
category to march in lock step through this sequence, products after two or more available products have
the tendency in the industries studied here is that: improved to satiate their needs for functionality,
reliability and convenience.23
(i) Product Functionality is the primary basis of
product choice: if no available product will perform Another popular conception of how competition within
satisfactorily the job for which the product is product categories evolves, articulated by Geoffrey
purchased, then customers will tend to chose the Moore in his book, Crossing the Chasm, 24 has a similar
product that comes closest to doing the job. Hence, underlying logic. Moore suggests that products are
within each of the market segments in the computer initially used by innovators and early adopters in an
industry, disk drive manufacturers strove to industry - customers who are willing to put up with all
outdistance each other on the capacity dimension. sorts of unreliability and inconvenience because they
Excavation contractors would not consider need the product's functionality. During this phase the
hydraulics or any excavator technology, for that top-performing products command significant price
matter, until it provided adequate bucket capacity premiums. Moore observes that markets then expand
to do the job. Insulin manufacturers spent billions of dramatically, but only after the demand for functionality
dollars making insulin more pure. Harvard, which in the mainstream market has been met, and vendors
has consistently been regarded as having the finest begin to address the need of 'early majority' customers
MBA school of general management in the world, for reliability. A third wave of growth occurs when
became a leader in the executive education market product and vendor reliability issues have been resolved,
because it legitimately laid claim also to having the and the basis of innovation and competition shifts to
finest executive education programs in general convenience. This pulls in the 'late majority' customers.
management as well. Underlying Moore's model is the notion that technology

European ManagementJournalVo115No 2 April 1997 I25

PATTERNS IN THE EVOLUTION OF PRODUCT COMPETITION

can improve to the point that the market's demand for a products' earning years - top management's stake in the
given dimension of performance can be satiated, and that product life cycle. Management Review (38), June, 1959, pp.
67-79; and William E. Cox, Product life cycles as marketing
the focus of innovation in the category will shift to models. Journal of Business (40), October, 1967, pp. 375 +.
another dimension. His assertions that innovations in 2. Articlessummarizing the conceptual and empirical problems
reliability and convenience can pull new sets of surrounding the product life cycle concept include Nariman
customers into a market seem to hold true not just in K. Dhalla and Sonia Yuspeh, Forget the product life cycle
disk drives and the high-tech markets that were the focus concept!Harvard Business Review January-February,1976, pp.
of Moore's study, but in excavators, diabetes care and 102-II2; David R. Rink and John E. Swan, Product life cycle
research:A literature review.Journal of Business Research 1979,
executive education as well. pp. 219+; and George S. Day, The product life cycle:
Analysis and applications issues. Journal of Marketing (45),
Another consulting firm, Windermere Associates, has Fall, 1981, pp. 60-67. An article by Gerard J. Tellis and C.
identified a similar sequence in the evolution of Merle Crawford, An evolutionary approach to product
competition, which it labels a 'buying hierarchy'. 25 growth theory. Journalof Marketing (45), Fall, I98I, pp. 125-
132, contains a cogent critique of the product life cycle
concept, and presents a theory of product evolution that
4. Once the functionality of two or more competing presages many of the ideas presented in this article.
products has overshot the trajectory of market need, 3. William J. Abernathy, Kim B. Clark and Alan M. Kantrow,
innovators may continue to differentiate their products Industrial Renaissance. New York: Basic Books, Inc., 1983.
along the accustomed measures of functionality (or in 4. The notion that there is a dominant attribute or rank-ordering
later phases of the category's evolution, along of attributes that characterizes product competition in an
dimensions such as reliability or convenience). Such industry is discussed more fully in Clayton Christensen and
Richard Rosenbloom, Explaining the attacker's advantage:
differentiation, however, will not create value for technological paradigms, organizational dynamics and the
innovators or customers, because it cannot constitute value network. Research Policy (24), I995, pp. 233-257.
the basis for choosing one product over another. It 5. For discussions about the technological processes by which
becomes meaningless differentiation. Hence, the engineers discover solutions to the factors that constrain
innovative products of competitors whose technology performance improvement in products, see D. Sahal, Patterns
trajectories have overshot market needs, will tend to of TechnologicalInnovation. London: Addison-Wesley, 1981;
Richard Foster, Innovation: The Attacker's Advantage. New
experience stiff pricing pressure, even while competitors York: Summit Books, 1986; and Clayton M. Christensen,
whose new products have squarely addressed the Exploring the limits of the technology S-curve. Production
shifting basis of competition can achieve substantial and Operations Management (I), 1992, pp. 1-53.
gains in profitability and volume. 6. The role that financialincentives play in goading companies
to blaze steep trajectories of improvement in product
5. If, according to the present basis of product performance is described in chapter four of Clayton M.
Christensen, The Innovator's Dilemma: When New
competition (functionality, for example), the performance Technologies Cause Great Firms to Fail. Boston, MA: Harvard
of two or more products in the market surpasses what Business School Press, 1997.
the market needs, it creates the potential for evolution in 7. See Richard S. Rosenbloom and Clayton M. Christensen,
the basis of competition; it does not guarantee that this Technological discontinuities and strategic commitments.
will happen. If no competitor introduces to the market an Industrial and Corporate Change (3), I995, pp. 655--685.
alternative product or a disruptive technology which 8. A fuller history of the impact of technological change on
offers an advantage along the new basis of competition the firms in the disk drive industry can be found in Clayton
rivalry can quickly gravitate to price. Industries in this M. Christensen, The rigid disk drive industry: A history of
commercial and technological turbulence. Business History
situation can mature prematurely. One might argue, for Review (67), Winter, I993, pp. 531-588.
example, that the 'de-maturity' in the automobile 9. The concepts of sustaining and disruptive technological
industry that was identified by Abernathy and Clark, 26 change are explored in greater detail in Clayton M.
occurred when new products emerged that caused Christensen and Richard S. Rosenbloom, Explaining the
reliability to become the basis of product competition. 27 attacker's advantage: Technological paradigms, organiza-
tional dynamics, and the value network. Research Policy (24),
I995, pp. 233-257.
The evolution of competition is not simply a techno-
10. A summary of the data and procedures used to generate
logy-vs.-technology, or a performance-vs.-performance Figures I and 2 can be found in Christensen and
battle between the products of competing companies. Rosenbloom, op.cit., p. 257.
Nor is it a game of 'those who get the most creative 11. A summary of the data and procedures used to generate
ideas win'. The evolution of competition results from the Figures I and 2 can be found in Christensen and
interaction of trajectories of performance improvement Rosenbloom, op.cit., p. 257.
that technologists in an industry can provide to a 12. Innovating entrants to the industry continued to shrink the
market, with the trajectories of performance size of disk drives, creating standard platforms with 5.25-
improvement that customers demand or can absorb. inch and 3.5-inch diameter disks. In each of these reductions
the established firms followed the entrant firms into the
smaller drives reluctantly, because the capacity of each
smaller generation was more limited than that of its
Notes predecessors, and initially could only be used in new
markets (desktop and portable computers, respectively).
1. Three of the earliest and most influential articles that Subsequently, because the trajectory of performance
proposed the existence of product life cycles were Jay W. improvement which technologists were able to provide in
Forrester, Industrial dynamics. Harvard Business Review (36), the smaller drives was steeper than the trajectory of need in
July-August, 1958, pp. 9-14; Arch Patton, Stretch your these markets, drives that initially could not meet the

126 EuropeanManagementJournalVo115No 2 April 1997

 PATTERNS IN THE EVOLUTION OF PRODUCT COMPETITION

demands of the customers of the established firms, could the Practice. University Park, PA: The Penn State Institute
fully satisfy their needs a few short years later. for the Study of Organizational Effectiveness at the Smeal
13. Personal interview with Mr. William Schroeder, President College of Business Administration, 1995.
and Chief Operating Officer and later Vice Chairman, 23. One sees this pattern of evolution within many foods
Conner Peripherals, Inc., San Jose, CA, November 19, 1991. categories. For years, through the 1940s and 1950s,
The italics in this quotation reflect Mr. Schroeder's emphasis. competition occurred on the basis of the reliability of
14. It is important to note that in higher tiers of the market, brands. When the reliability of many competing offerings
these dynamics had not yet occurred: in applications for became assured, convenience - in the form of frozen and
engineering workstations, and in mainframe and mini- microwavable foods - became the axis of competition. The
computers, for example, the demand for functionality manufacturers of branded convenience foods are now
(capacity) had not yet been satiated. Hence, at the high experiencing severe price competition, because with the
end of the market the basis of competition still revolved adequate manifest reliability of retailers' own brands,
around the capacity and speed of drives, even while it was reliability is no longer a criterion that many consumers
evolving toward convenience and price in lower tiers. can use to choose among competing offerings.
15. This definition of what constitutes radical technological 24. Geoffrey A, Moore, Crossing the Chasm. New York: Harper
innovation is articulated in Rebecca M. Henderson and Kim Business division of HarperCollins Publishers, 1991.
B. Clark, Architectural innovation: The reconfiguration of 25. The Buying Hierarchy has been articulated by Windermere
existing systems and the failure of established firms. Associates, a firm located at Four Embarcadero Center, Suite
Administrative Science Quarterly (35), March, 1990, pp. 9-32. 590, San Francisco, CA 94111. The Windermere model is
16. This information and the data used to calculate the graphs in presented as a hierarchy of needs, cascading from function-
this section was provided by Mr. Dimitrie Toth, Jr., ality to reliability, convenience and then price. Although the
National Director of the Historical Construction Equipment findings I have reported here correspond very closely to the
Association, and his colleague, Mr. Keith Haddock. Messrs. Windermere model, they were derived independently. Ini-
Toth and Haddock have a wealth of information about the tially in my writings I had used the term 'performance' to
earthmoving equipment industry in their archives, and were describe the initial basis of competition. That proved too
most gracious in sharing their knowledge and information ambiguous, however. When I came upon the Windermere
with me. A fuller account of this history can be found in model, I adopted the term they have employed,
chapter 3 of Clayton M. Christensen, The Innovator's 'functionality'.
Dilemma: When New Technologies Cause Great Firms to Fail. 26. Abernathy, Clark and Kantrow, op.cit.
Boston: Harvard Business School Press, 1997. 27. In the auto industry, now that multiple competitors offer
I7. The true measure of performance in excavation was the products of outstanding reliability, we see an increasing
number of cubic yards of earth that could be moved per tendency for competition - especially at the dealer level -
minute. However, this measure was so dependent upon to occur on the basis of convenience. This, for example, is a
operator skill and upon the type of earth being dug, that key to the strategy of Saturn Corporation.
contractors adopted bucket size as the more robust,
verifiable metric.
18. The ability to push the shovel into the earth was a major
advantage to the hydraulics approach. Many cable actuated
excavators which pulled earth toward the operator all had CLAYTON
to rely on gravity, where the teeth of a heavy shovel fell CHRISTENSEN,
into the earth.
Associate Professor of
19. Humulin is a registered trademark of Eli Lilly Company.
Business Administration,
20. See 'Eli Lilly & Co.: Innovation in Diabetes Care,' Harvard
Business School case No. 9-690-077. This case notes that Harvard Business School,
although Lilly was not able to achieve premium pricing for its Soldiers Field Road,
Humulin insulin, there were other benefits from Lilly's Boston, Massachusetts
having made this investment. It protected Lilly against a 02163, USA.
possible shortfall in pancreas supply, threatened by declining
red meat consumption. And it gave Lilly a very valuable
experience and asset base in the volume manufacturing of Clayton Christensen is
bioengineered drugs. The description of this project in the Associate Professor of
text of this article in terms of product performance Business Administration at
overshooting market demand is not presented as a critique Harvard Business School. His research and teaching
of the decision of Lilly management to invest in the
development and production of the Humulin product Rather,
interests centre on the management of technological
it is meant simply to explain why the company had a difficult innovation, developing organizational capabilities, and
time building volume for the product at premium prices. finding new markets for new technologies. Prior to
21. This assertion is based upon my personal conversations joining the HBS faculty, he served as chairman and
with scores of current and former participants in the president of Ceramics Process Systems Corporation, a
Harvard AMP program. firm which he co-founded with several M I T professors
22. Precise market statistics for executive education are hard to in 1984. He holds the Production and Operations
come by. This description of the market's dynamics has
been assembled from several sources. The most important Management Society's I991 William Abernathy
has been my own observation of and participation in Award for Best Paper in the Management of
programs offered by universities and conversations with Technology, the Best Dissertation Award for 1992
several executives of the independent consulting firms. from the Institute of Management Sciences for his
Some published articles have also been helpful. These doctoral thesis on technology development in the disk
include the entire issue of American Journal of Management
Development (1), No. 2, 1995; Albert Vicere et al., drive industry, and the 1995 McKinsey Award for
Executive development in major corporations: A ten-year the best article published in the H a r v a r d Business
study Journal of Management Development (13), No. 1, 1994, Review. He is also an effective and sought-after
pp. 4-21; and Robert M. Fulmer and Albert A. Vicere, public service manager in the United States.
Executive Education and Leadership Development: The State of

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