By Mary Arnold
In our final wrap-up session at Advanced Leadership Institute, Harvard Business School Professor Peter Tufano talked a little bit about "disruptive technology," a term most of us have heard before but may not have thought really applied to our own lines of business. More and more, I feel that it does.
Tufano, one of the institute's lead faculty, explained that disruptive technology initially comes in and delivers lower functionality than the current leading-edge" product or service, like the PC when it was introduced. This new technology "appeals to less-sophisticated buyers and has the potential to overtake existing technology."
The PC is a perfect example: Early models were extremely limited in their capabilities compared to the high-powered mainframes of the day, but PCs had their appeal to a certain market that wanted to do basic computing at home or work. While Digital Equipment Corp.'s Ken Olson famously proclaimed in 1977 that "There is no need for any individual to have a computer in their home," we all know that they improved in power and capability by leaps and bounds until, today, a certain part of the population (pause while I help my daughter download a couple songs from iTunes) can't go anywhere without their PDA or Treo.
Earlier in the week, another HBS professor, Frances Frei, spoke on a related concept, "the incumbent's hazard," illustrating it with a less-familiar example: pianos. She explained that Steinway & Sons long controlled the piano market, making beautiful hand-crafted, expensive pianos. Then Yamaha entered the market by taking apart a Steinway, piece by piece, and reverse-engineering it for mass production.
At first the Yamahas didn't sound that great, Frei said, but there was a certain introductory market that appreciated the low cost. Steinway knew its pianos were superior, that there was a market for these top-notch pianos. Thus, it continued doing pretty much what it had always done. Meanwhile, Yamaha continued to improve its product as fast as it could, until little by little, Yamaha pianos had reached symphony quality and the Steinway market share had shrunk to a shadow of its former self.
To be fair, Frei noted that at a certain point, Steinway did see the handwriting on the wall, but by that time Yamaha had made too much progress for Steinway to fight back. She explained, "If you're improving at a faster rate than me, at some point, you'll be better than me. Focus on rate of improvement, especially if you are doing well."
Is there a Yamaha out there today, competing for credit union members--someone we might barely be registering right now? What about the various peer-to-peer lending players, ING Direct or Commerce Bank? All are relatively new; all have less capabilities than full-service credit unions; all appeal to a certain market segment. Which will be the most disruptive? Who else should credit unions be watching?
Mary Arnold is VP/publications for CUES and editor of Credit Union Management magazine.
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