October 22, 2001

Source: EPRI
http://www.epri.com/journal/details.asp?id=130&doctype=features

Is PV the PC of the 21st Century? Photovoltaics as a Disruptive Technology

Mainframe computers yielded to the PC. Montgomery Ward surrendered to Wal-Mart. Generations of
computer hard drive manufacturers rode new products to success only to see their fortunes fade as other
upstarts offered even more innovative products. New understanding of how such "disruptive technologies"
emerge to blindside established companies—many of which seem unable to react until fatally wounded—may
offer important insights into the future of PV. Is solar power the next big disruptive technology?

The concept of disruptive technologies gained wide notice through a 1995 Harvard Business Review article
written by Joseph Bower and Harvard Business School Professor Clayton Christensen, and was further fleshed
out in Christensen’s 1997 book, The Innovator’s Dilemma. The twist in Christensen’s argument is his belief
that established companies don’t lose opportunities to nimble upstarts because their managers are
incompetent, arrogant, or complacent. Rather, he says they go wrong by doing exactly what good companies
are supposed to do: giving their customers what they want.

Christensen’s thesis is that companies build business by increasing the performance and quality of products
to meet their customers’ evolving needs. This is defined as a "sustaining technology." Disruptive technologies,
on the other hand, by their very definition do not give customers what they need. They are often simpler,
cheaper, offer fewer features, and promise lower margins instead of greater profit. They are typically first
commercialized in emerging or insignificant markets. And, at least initially, they are products that an
established firm’s customers cannot use and do not want. Since there is almost no incentive for a big
company to risk investing in them, it often falls to smaller, less mature organizations to seize an innovative
technology and find new markets for it.

One of the best examples of a successful disruptive technology is found in the rapid rise of personal
computers at the expense of the mainframe market. Initially, old-school bastions such as IBM had little
interest in PCs, and for good reason: their business customers didn’t need them and the home market didn’t
exist. Compared to the large mainframes then in use, PCs performed poorly and didn’t support
well-established systems and software. From IBM’s perspective, meeting customer need meant improving the
performance of products their customers already demanded, not stepping "backward" to develop an unfamiliar
and inferior product. It was left to upstart companies to improve PC performance and create the software and
networking solutions that over the years made PCs a dominant rival of mainframe computers. To its credit,
IBM provides a good example of an established company adapting to a disruptive technology—making and
marketing its own successful line of PCs, albeit later and with a smaller market share than its
competitors—but many other companies fail to make that transition.

PV possesses many of the attributes of a disruptive technology. First, it displays consistent performance
improvement and cost reduction over time (see "PV Module Price Experience" graph). According to
Christensen, that graph’s trajectory must indicate that continued improvement could someday make a
disruptive technology competitive in parts of the mainstream market. That is clearly the case for PV within the
first two decades of this century.

Some business analysts believe that timing can also be crucial to a disruptive technology’s success. A
disruptive technology may have only a small window of opportunity in which customers will abandon a
sustaining technology they thought they wanted for a disruptive technology they come to realize they need.
Such opportunity often surfaces during times of industry uncertainty or chaos that allow a disruptive
technology to not only compete with the established technology on its own turf, but also to help redesign the
playing field. The restructuring and deregulation of the electric power industry may provide such an opportunity
for PV today. It is possible—though certainly not assured—that PV could emerge in a reordered energy arena
as an enabler of benefits and structure that are as-yet only dimly articulated.

The tendency of a disruptive technology to be simpler and cheaper than its established counterpart may
appear problematic for PV: what could be simpler and—for at least the near term—cheaper than plugging an
electric appliance into a wall socket? Christensen’s approach suggests recasting the question and seeking
out markets in which this perceived weakness becomes a strength.

"Established firms confronted by disruptive technology typically viewed their primary development challenge as
a technological one," writes Christensen. "In contrast, the firms that were most successful in commercializing
a disruptive technology were those framing their primary development challenge as a marketing one: to build
or find a market where product competition occurred along dimensions that favored the disruptive attributes of
the product." Many PV proponents recognize that solar power production is simpler and cheaper than
conventional grid power when entire product life cycle—including fuel processing, transport, generation,
transmission and distribution—is considered. Finding and nurturing markets that appreciate those qualities will
be key to advancing PV.

Christensen also points out that a disruptive technology need not surpass the performance of an established
technology to succeed. It must only meet the needs of the marketplace. PV may not need to prove that it is
technically "better" than grid power to compete with it, but only that it can provide the kind of performance that
customers expect.

While steady progress is necessary to lower costs and improve performance, true disruptive technologies
cannot rely on technological breakthroughs for success. "Rather, they consist of components built around
proven technologies and put together in a novel product architecture that offers the customer a set of attributes
never before available," Christensen writes. This very closely describes the state of the PV industry, which
forecasts continued incremental progress in efficiency while offering customers new products—such as
building-integrated PV—plus an unprecedented degree of energy independence and environmental benefit.

"The key to prospering at points of disruptive change is not simply to take more risks, invest for the long term,
or fight bureaucracy," write Christensen and Bower in the Harvard Business Review. "The key is to manage
strategically important disruptive technologies in an organizational context where small orders create energy,
where fast low-cost forays into ill-defined markets are possible, and where overhead is low enough to permit
profit even in emerging markets." With relatively modest investment in PV today, companies can serve a small
but growing customer segment, receive public recognition for supporting renewable energy, and gain critical
early experience with an emerging disruptive technology. Every advance in PV cost and performance will open
new markets to companies both old and new.