The Chinese AI startup DeepSeek has made waves by challenging established American companies with a smaller, more efficient, and cheaper model. This emergence, predicted by disruption theory, highlights the trend of low-cost alternatives in AI. DeepSeek's success stems from utilizing cheaper hardware, an open architecture, and a focus on domain-specific applications, differentiating it from its American counterparts. Management theory suggests several strategic approaches for companies in this evolving landscape, including diversification of risk, single-supplier partnerships, and plural governance.
The Chinese startup DeepSeek shocked many when its new model challenged established American AI companies despite being smaller, more efficient, and significantly cheaper. However, management theory — specifically disruption theory — could have predicted that a challenger like this would inevitably come along. After all, disruptive innovation is all about low-cost alternatives that aren’t cutting-edge but perform adequately for many users.
On the other hand, a benefit of working with a single supplier is reduced administrative costs and better understanding of capabilities on both sides of the partnership. Prior management theories also suggest a third possibility: plural governance, which involves using a combination of external suppliers and internal developers to leverage an emerging technology.is Lumry Family Associate Professor at the Harvard Business School and Associate Editor at Management Science.
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