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. This, it seems, is exactly how DeepSeek has created the shockwave that it has. DeepSeek isn’t sui generis. It’s operating along similar lines to many other Chinese, which differ from their American counterparts in two significant ways: 1) They often use cheaper hardware and leverage an open (and therefore cheaper) architecture to reduce cost, and 2) many Chinese LLMs are customized for domain-specific (narrower) applications and not generic tasks. Management theory also offers insight on how companies should proceed from here. On the one hand, a benefit of having multiple LLM models deployed within an organization is diversification of risk. 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.
