The genesis of this idea came from Bruce Spenner (General Manager of the DMD) and his project to implement Reduced Instruction Set Computing (RISC) architecture into HP’s minicomputers and workstations. RISC design is based on the premise that most of the instructions a computer carries out are simple instructions. As a result, RISC architecture limits the number of instructions that are built into the microprocessor but optimises each one so that it can be carried out very quickly. On top of that, their motto could have been: The smaller, the better. The new technologies market had huge potential to cause new-market disruptions especially with regard to the size of products.
HP would be a precursor with its Kittyhawk. Indeed, a 1.3” disk drive would be the smallest drive in the world. Its potential competitors were:
- Flash memory: it retained information stored on it even if the power was turned off. But it had a very low capacity drive.
- A 1.8” disk drive: the most predictable next step after the 2.5” drive. It would have greater capacity than the Kittyhawk but it would be larger and consume more power.
Flexibility of a start up and resources of a big structure
The team which had been dedicated to the Kittyhawk project combined the flexibility of a start up and resources of a big structure.
Indeed, as the DMD culture was focused on getting higher capacity the team had been separated from the rest of the division and was quickly considered as a priority project. This status gave the Kittyhawk team total autonomy to develop the drive, find new markets and cultivate a customer base. They were able to make any decisions regarding manufacturing, financial, marketing and commercial fields. One of the strongest points was the setting up of the team. It contained three functional representatives (manufacturing, marketing, and R&D). An entrepreneurial manager from R&D was assigned as group leader, and was given freedom to recruit any star engineering talent he required (mostly selected from within DMD). Above all, the two main skills were to be “can do” and “risk taker” people. In order to bind the team members together they were required to sign a creed that stated: “I am going to build a small, dumb, cheap disk drive”. And only those who had strong beliefs in the project were kept. This deep feeling of being part of this exciting new project was a real strength and had always been maintained by the executives.
Adding to this start up structure the project commanded the resources of a big structure such as HP. The latter employed a management by objective (MBO) process. They focused on financial goals and placed great responsibility on the team members so that they felt fully involved in the project. It made the work more challenging. Moreover HP executives developed Management By Wandering Around (MBWA). It allowed a decrease in bureaucratic lines of communication. It also allowed for managers to communicate organisational values and management philosophy at a personal level. The very top management of HP had supported the Kittyhawk team in every step of the project, facilitating any action or decision and putting at their disposal any resources they required. In order to ensure the way the team should work, literature on group development was created.
This approach of the project on two levels gave the team a strong background to start the Kittyhawk adventure.
II. The reasons for failure
Although the Kittyhawk team was well-managed, the commercialization of the product ultimately failed.
Sustaining versus disruptive innovation
In order to better understand the reasons of the Kittyhawk failure, it is important to define the two following approaches: sustaining and disruptive innovations. As mentioned before, the Kittyhawk was to be “the smallest hard disk drive in the world”, and the creed the engineers had to sign showed that the Kittyhawk was to be a disruptive innovation.
On the one hand, a disruptive innovation is an innovation that brings to the market a product not as good as the products in the current market, and so it cannot be sold to the mainstream customers. However it is simple and it is more affordable. Disruptive technologies take root in lower-end markets or entirely new ones. They are often the catalysts for emerging markets and they are typically cheaper, smaller, simpler, frequently more convenient to use and lower performing. They bring a different value proposition to the market but simpler disruptive products generally allow lower margins and no higher profits. Successful disruptions have been launched most often by entrant companies. On the other hand, a sustaining innovation is an innovation that brings to the market a product or service that a company in the existing market could sell for higher margins to its best customers. It is a better product with more capacity. Some sustaining innovations are incremental year-by-year improvements and others are breakthroughs. Successful sustaining innovations have been launched more often than not by the established companies.
In order to meet their potential customers’ requirements and to better commercialize the Kittyhawk, the team modified the product several times. The latter received several design specifications such as “to withstand a 3-foot drop onto concrete”, to have “low weight and low power consumption” and “20 MB of capacity”. All this led them to add components and features which increased the price of the product. The Kittyhawk which was designed to be a disruptive innovation and a “cheap” product, finally moved to a sustaining innovation and became an expensive product with better capacities. This shift was mainly due to bad customer targeting.
The target market
In order to define their target, the Kittyhawk team members had to define high-potential areas of opportunity and threat.
On the one hand, disruptive innovation markets are made of non-consumers or over served customers. This last kind of consumers are people complaining about overly complex product or customers refusing to pay premiums for previously valued innovations: they prefer low-end disruptive innovations that provide “good-enough” functionality at lower prices. The non-consumers are often locked out of a market because they lack special training or because consumption takes place in inconvenient settings: they prefer new market disruptive innovations that bring new benefits around convenience or customization. On the other hand, sustaining innovation markets are made of existing customers interested in higher capacities. The Kittyhawk team had to choose between DMD’s existing customers or a new market. But the problem was that in existing markets, planners can forecast demand quite accurately; but when new markets for new technologies emerge companies have constantly dismal records in forecasting demand for innovations that can ultimately lead to the new markets and customers that secure long-term growth. There was a mismatch between the innovation and its deployment. The Kittyhawk team planned to offer the innovation to its most demanding customers who still were unsatisfied with the performance of the product they were purchasing.
The Kittyhawk team had to weigh up its market options:
- either a disk drive specifically focused at the mobile computing market (to DMD’s existing customers) or,
- A drive so inexpensive that it could be used in applications where disk drives previously had not been economically feasible (explore emerging opportunities elsewhere).
They thought “that the PDAs would be the next bigg thing to hit the market” the Kittyhawk’s marketing staff was projecting the next 2 year demand from the PDA market to be over 500 000 units. At the end OEM was pricing high volume at about $250. However, they were interested by Nintendo. The leading video game manufacturer told them that if the Kittyhawk’s team could supply a 1.3” drive for $50, then they would be interested in purchasing millions of units for their gaming cartridges. Nintendo needed to have more cheap storage, for their more complex games. This challenge, designing a $50 drive, seemed to be unrealistic for Seymour (he was the program manager from R&D, leader of the project team) and White (he was the marketing manager of the team), and “would require a significant design breakthrough”. The team, in order to meet the requirements of the Kittyhawk potential customers, needed to develop three technologies like the accelerometer (3-foot drop of capacity), a new substrate material for disks, and a new level of integration for Kittyhawk’s electronics (the 1.3” module would use less power, be lighter, and manufacturable at lower cost). The specificity of the 1.3” drive should have at least 20 megabytes of storage. As a result, HP decided that its small disk should target the PDA and ultrathin laptop market rather than the video game manufacturers.
Indeed, the market research led nowhere because they talked to existing customers and to the Kittyhawk team, without changing their normal methodology for finding where the larger customers would be. They were influenced by the Kittyhawk’s team. The latter found several customers, but not those they had initially considered (Japanese word processors, Digital cameras, Cash registers, Telecom switching systems) except for PDA’s, but they never reached the volumes expected. The Kittyhawk wasn’t able to meet either HP’s Corvallis Division for their storage requirements; or Chicago’s control requirements with the Kittyhawk II and its 43 MB of storage. Nonetheless, the Kittyhawk team found its real market which finally seemed to be divided in two groups: customers interested in Kittyhawk’s ruggedness based upon its accelerometer technology (most prized attribute), customers who needed a cheap, simple drive priced at around $50. The Kittyhawk team got out of their laboratories and focused groups in order to create knowledge about new customers and applications; they made discovery-driven expeditions into the marketplace (Customers Electronic Show in Chicago). Finally they did not have the capability to enter a small emerging market: they did not see at first the value in investing in a disruptive innovation whereas leadership in this kind of technology could have created enormous value.
The strategic objectives
HP’s senior managers decided to design the smallest drive in the world 1.3” which would undercut the 2.5” drives in terms of cost and outdo them in terms of capacity, but it was also the drive that would enable the DMD to hold a profitable position.
DMD’s division had to bear the financial risks of the Kittyhawk. HP senior managers had raised Kittyhawk’s annual revenue targets to $100 million within two years of product release (3 times higher than had been originally forecast), the revenue growth rate had to be around 35%, and the Kittyhawk’s team had to accomplish a BET of less than 36 months and a few months after they set a launch schedule six months shorter than initially planned. Finally, the objectives were presented in a three page strategy document: “Lead industry in 1.3 inch form factor”, “ride the mobile computing explosion to get to low cost”, and “I’ll sell you a drive for $49.95”. These aggressive revenue targets were mainly responsible for the Kittyhawk’s failure.
Given these requirements, creating a $50 drive wasn’t possible according to Seymour and White because it “might not spawn a large market fast enough to achieve Bruce Spenner’s desired break-even-time”. The drive could not satisfy the revenue expectations within the launch schedule. There were inadequacies between the corporate strategy and Kittyhawk team’s project. The team viewed their disruptive technology as an irrational investment and dedicated their resources to sustaining improvements instead. According to the predictions, superportables like PDAs and ultrathin laptops should have been the next emerging market and should have been huge. However it wasn’t and the Kittyhawk team mismatched the requirements of potential customers. Moreover, they couldn’t meet Nintendo’s requirements because the team added components and features that inflated the price point well beyond $50, and Kittyhawk’s strategic flexibility was constrained by its growing losses. By seeking to improve the disruptive technology enough so that it would be suitable for known markets, the Kittyhawk team focused on a technical challenge rather than a marketing challenge. Focusing on profit can destroy even well-run corporations.
The Kittyhawk never followed the S-curve of Christensen because the cost structure the senior managers set up led the team to find larger markets to achieve the revenue goals. The Kittyhawk didn’t immediately reach its target market which impeded its takeoff and prevented it from reaching profitable margins. HP experienced both a financial and moral loss. The financial expectations decisions handicapped Kittyhawk. The Kittyhawk as a disruptive technology should have required “a very different overhead structure than the one Seymour had built in his push to get the Kittyhawk into the market in a year”, by setting modest revenue expectations. The target revenue was too large, and the division was forced to choose larger markets that wouldn’t value the disruptive technology. HP wanted to satisfy customers in established markets with higher performance which led it to include features that made the Kittyhawk too expensive to customers in the emerging market, and built the wrong product for the wrong customers. The team focused on large market in order to reach its financial goals (profit and BET) rather than focusing on small markets destined to become the larger ones in the future and ensure long term growth.
By using the management practices that allowed HP to become a leader - listening and responding to customer needs, spending R&D dollars to meet those needs – it made it difficult for the Kittyhawk team to develop a disruptive technology.
III. The Kittyhawk should have been considered as a disruptive technology
Defining the disruptive product
According to what we said earlier, Hewlett Packard made the wrong choice with the positioning of the Kittyhawk. Indeed, the Kittyhawk, as the engineers imagined it, was to be the smaller hard-drive and should have been technologically simpler, more affordable, and should have been a catalyst for a new market. That is to say, the Kittyhawk should have been considered as a disruptive technology, and everything should have been done to implement a disruptive strategy.
Before launching the production of the Kittyhawk, the team should have identified opportunities that had the highest probability of creating disruptive growth and therefore merit disproportionate focus and investment. One of the main diagnoses was to look for potential customers, and find which group of customers may be “disruptable”. Indeed non-customers are the ideal initial target.
That is why HP managers should have defined what the Kittyhawk was to be. One of the potential ways to position the product among the different markets was to use the principle of the marketing mix:
- The product: HP engineers should have clearly defined the main concept of the new hard-drive and the main expectations that the Kittyhawk should have met: a disruptive technology, smaller, simpler and lower performing. What is more, they should have launched a product without considering possible modifications in a short term. A disruptive technology must be in this case a standardized product, convenient for every customer.
- The price: HP managers should have taken into account that the market was waiting for a smaller hard-drive, at the price of $50. Consequently, they should have focused on this particularity and tried to create a new product with less technological innovation.
- The place of distribution: one of the major aspects for the launching of a new product is to analyse the different ways for its distribution, what the Kittyhawk’s team seemed not to have done. It was then necessary to think of new business models and distribution channels, like a new intern sales force.
- The promotion: with this new product, HP managers should have created a new form of promotion, targeting their new customers.
With the marketing mix, HP managers should have been led to the appropriate market for the Kittyhawk.
Which markets and which objectives?
Considering the Kittyhawk as a real disruptive technology should have led the HP engineers to think differently when identifying their market. Very often mainstream customers in existing markets cannot use new technologies when they first emerge; they can only be used by different customers in different applications.
A prioritized list of outcomes is valuable in identifying a market segment entry point for a disruptive technology. The key is to identify which outcomes are very important to a certain type of market (but unsatisfied by existing solutions). It would have been possible to create a disruptive technology with the Kittyhawk and then chart its takeover of larger markets. In the first segment, the market entry point, they should have satisfied the fewest outcomes that were uniquely important to that small segment. For example Nintendo had very few needs concerning this new product (capacity of storage and small price). At this point it was still a small part of the overall market and most customers were not yet interested in the product. The next step would have been to look at another segment interested in executing this underlying process and find out what outcomes were important but unsatisfying for them. Then they could have worked toward fulfilling their requirements using this initial disruptive technology as the product platform. That could have been the case with the PDA market developing the three technological characteristics needed. This way they would have worked their way steadily into other larger markets.
According to this development in two steps, the financial objectives could have been forecast in two stages. As mentioned earlier, Hewlett Packard wanted to introduce the Kittyhawk in twelve months and then accomplish a Break-Even Time of less than 36 months; this schedule was a standard HP format for measuring project success. They also wanted to achieve a $100 million revenue rate in two years after launch. In short, they focused on short-term profits rather than growth opportunities.
- Although they created an independent unit, separated from the DMD structure, they stuck to HP methods used to measure sustaining project success;
- Therefore their objectives in time and volumes were not adapted to the situation: if they had selected the two-step market options, they could have spread out their goals and chosen a long-term profitability strategy. First of all, by choosing a market such as Nintendo at a $50 price per unit, they would not have certainly met their objectives in term of volume, but they would have found a valuable concrete outlet, which would have allowed them to target a second market, more profitable for the company in the long term. Secondly, choosing an existing market could limit the financial risks and insure sales, in case the PDA market would not have exploded as well as forecast.
The implementation of the Kittyhawk project
What is noticeable is that the team had not really thought of the operational implementation of their project.
Because of their multiple choices concerning the positioning of the product, they had implemented no real strategic planning. First of all they only determined expiry dates for the launch and the BET, but they had not clearly foreseen the different stages of the process, with a proactive plan for instance. However this schedule should not be too rigid in order to enable modifications, such as updating the financial objectives according to the evolution of the markets. They should have reduced the revenue rate, the revenue growth rate and the break even time which were too high for a disruptive technology.
Moreover the Kittyhawk team was composed of manufacturers, marketers and researchers, but the team lacked real engineered salesmen. They stayed on a passive position expecting the customers to find their needs by themselves, instead of proving and demonstrating to them the interest they could find in this new technology. After the analysis of the characteristics of the product, the marketers would have thought of a global sales strategy.
Setting up a proactive operational planification would have led them to a better global vision on the feasibility of their Kittyhawk project.
Conclusion
As a conclusion Hewlett Packard structure through Disk Memory Division offered an efficient basis for the flight of a new product: the Kittyhawk, planned to become the smallest hard drive in the world, with a size of 1.3”.
Thanks to a well-constituted team, composed of the best managers from HP, the project made a good start. They benefited from huge financial resources, an appropriate management, such as autonomy of decision-making, Management By Objectives, Management By Wandering Around, strong support from the CEO, etc.
Although their first objective was to create a disruptive technology, they failed because of their lack of vision. Indeed they stuck to their traditional launch strategy, adapted to sustaining products. Regarding a disruptive technology, they set up objectives in terms of revenue rate, growth rate and break-even time which were too high. They should also have been more flexible.
In addition they had not precisely determined the right positioning of the Kittyhawk related to the adapted target market. Before launching the product they should have established strong partnerships to be sure of selling their hard drives.
Eventually the Kittyhawk did not take off, which led to other failures for Hewlett Packard. For instance because of the mobilisation of the best DMD labour forces to this project the division missed the launch of the 4Go hard drive.
