https://www.youtube.com/watch?v=rpkoCZ4vBSI
Massive, integrated steel companies ($10 billion in start up cap today) were forced to compete vs. mini mills. These mini-mills would melt scrap steel and make steel for 20% lower costs than a larger integrated mill.
In 1979, competition became so fierce among these low-cost mini-mill that price of re-bar steel dropped 20% almost overnight.
This was the first domino to fall as rebar is the lowest quality steel product, thus has lowest profit margins. Easy for executives to drop these products from their production since lowest tier steel yields lowest margins, and thus they were 'migrating upwards' and increasing their return on equity/RoIC.
With greater margin as quality rises (rebar < angle iron < structural steel < rolled steel), the smaller competitors moved upstream to gain share in higher-margin businesses. Thus a race for yield (in industry, not fixed income investing) created a feedback loop where large integrated mills were happy to exit the rebar business yielding 7% margins in favour of concentrating investment in angle iron at 10-12% margin.
Strategy simple: low cost strategy only works as long as high cost competitor in the market.
Once the last high-cost integrated mill left the re-bar business, prices collapsed and the mini-mills beat each other up until costs plummeted.
Same thing happened up the value chain (angle iron, bar and rod vs. structural steel vs. sheet steel), in 1984 rod and bar steel was commoditized.
In EVERY case, the low-cost mini-mills would go up the value-add chain, driving the prices down.
Why we're the manages alert to this?! Because everytime they left the business, their profitablity got better!
This is the innovators dilemma. Pursuit of profit is the causal mechanism. To kill a giant, one aught to define a business where you enter below, taking out the low-haning profits, then the incumbant is incentivized to flee rather than compete.
Profitablity improved at the integrates because they were out-competed on price for their lowest profit products.
Same practice with cars.
new entrants steal the bottom of the market, since incumbents are unwilling to defend the lowest-profit segment of their market.
Disruptive Innovators transform complicated expensive products into simpler and more affordable ones.
All net jobs created in the last 100 years are from disruptive innovators. They need capital to finance growth.
Sustainable innovations are different, they are like the steps from mainframes, to PCs, to mobile (make very good products better). On average, this kind of innovation doesn't create jobs. These don't require much capital either, but critically, they don't create net new jobs.
Efficiency innovations: selling the same products, but cheaper (Walmart, Amazon, etc).
Japan died because they rapidly disrupted, then stopped. Once you get to the top of the market, the margins are great, but customers are harder to come by.
Capital is cheap and abundant. In some cases, cost of capital is negative. This causes a problem in finance since net present value relies on.
Scarcity is in human capital, not financial capital.