Assignment on Innovation Management

Q1. Cannon disrupting Xerox. Explain the story behind it.

Answer:
In business theory, a disruptive innovation is an innovation that creates a new market and value
network and eventually disrupts an existing market and value network, displacing established
market-leading firms, products, and alliances. The term was defined and first analyzed by the
American scholar Clayton M. Christensen.

When Canon started to make cheap photocopiers in the mid-1970s, the market leader Xerox had
little cause for concern. Xerox had after all invented the photocopier industry and the new
machines, which used technology that was 20 years out of date, offered little competition for its
products.

However Canon did find a ready market amongst those who could not afford a Xerox. Soon
everyone had a copier and as the market expanded and the cheap copiers improved, Canon
started to compete more directly with Xerox. Within 10 years, Xerox’s market share had fallen to
under 40% and a decade later, Canon was the world’s number one copier brand.

1982: Xerox is under siege. Japanese rivals such as Canon, Minolta and Ricoh have made
devastating inroads into the company’s core market

2000: Xerox, again, is under siege, and questions are being raised about its ability to survive.
This time, though, it isn’t just competitors that are nipping at Xerox’s heels. Revenues — $19.2
billion in 1999 — are flat, earnings are plunging and the company has been caught in such a
severe cash crunch that its ability to sell commercial paper to pay its bills has been impaired.

Xerox fail to capitalize on its invention of the laser printer. One factor, explains Myers, is that
the company was a victim of its own success. The company had traditionally relied on direct
sales by its own sales force, which was an extremely profitable undertaking. The laser printing
products, however, had to be marketed through computer superstores and other sales channels,
which squeezed the profit margins in that business. “Xerox focused on businesses that had
extremely high profit margins, rather than those that had rapid turns characteristic of low-margin
businesses,” he says. The result, however, was that Xerox all but abandoned the laser-printer
field to rivals

According to Christensen, many companies innovate too quickly because they try to keep up
with the customers and believe that by targeting the top end of the market, they can charge the
highest prices. However in doing so they end up with products that are too expensive and
complicated. This makes way for a disruptive innovation at the bottom of the market, one which
allows a whole new group of consumers access to a product or service that was previously
beyond their means. This was the story behind Canon's disruptive innovation against Xerox.