What is the explanation of Intel's decision to develop the Celeron chip using the disruptive innovation logic?
Clay Christensen of Harvard University wrote The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail, which ushered in the concept of disruptive innovation. By definition, disruptive innovation is new ideas and breakthroughs that alter or shift the existing technological or business situation, or paradigm, resulting in growth and expansion of markets. Christensen posits that disruptive innovation (disrupting the situational or paradigm norm) is the key to business success. This opposes the theory that business success rests upon good management practice.
Intel invited Christensen to deliver seminars on disruptive innovation. During the series, Andy Grove, Intel chairman, took special note of Christensen's illustration of disruptive innovation from steel industry production of low-value rebar (reinforcing-bar) that then stole 40 percent of the steel industry market share. "Rebar" became an Intel catch-word while they turned their own thoughts to disruptive innovation by seeking a way to innovate within the then neglected low-value personal computer industry. From these "rebar" efforts came the Celeron chip, specialized for personal computers because of its low-end, lower performance capability.
The paradigm of high-performance, high-end technology was disrupted by Intel's innovation of a lower performance chip. Thus the explanation to Intel's decision to develop the Celeron chip using disruptive innovation logic was that Grove understood and embraced Christensen's position that innovation resulting in a disrupted paradigm produces business growth. A side benefit of disruptive innovation is that it opens a market window for "copy-cats" who can use the innovation for lower quality, more affordable similar products thus resulting in all round economic growth.
[Polly LaBarre. "The Industrialized Revolution." FastCompany.com. November 1, 2003.]