Readings
"Innovators Solution" Chapter 3 and 4 - Notes
Clay Christensen. "Meeting the Challenge of Disruptive Change"
A great manager
- identifies the right person for the right job
- trains employees to succeed at the jobs they're given.
- trains employees to succeed at the jobs they're given.
Can't just assess people
Must assess abilities and disabilities of the organization
Organizations facing major change may destroy what sustains them by making drastic adjustments
- must understand what types of change they are capable of handling
How to recognize core capabilities
- resources
- tangible - people, equipment, technologies, and cash
- intangible - product designs, information, brands, and relationships with suppliers, distributors, and customers
- processes
- patterns of interaction, coordination, communication, and decision making
- formal - explicitly defined and documented
- informal - routines, evolve over time
- values
- standard by which employees set priorities that enable them to judge whether an order, customer, or idea is attractive or important
- prioritization decisions
Good management is evident when there is clear, consistent values permeated through the organization
Organization's capabilities evolve over time
- start in resources then move to visible articulated processes and values' and finally to culture
- if they continue to face the same sorts of problems management is straightforward
Sustaining technologies
- innovations that make a product or service perform better in ways that existing customers already value
- provides something better than what had previously been available
Disruptive innovations
- create an new market with an introduction of a new kind of product or service
- seems worse initially - pcs compared to mainframes
- don't address the next-generation needs of leading customers in existing markets.
Industry leaders develop and introduce sustaining technologies
Disruptive innovations are intermittent and no company has a routine process for handling them.
- lower profit margins
- not attractive to best customers
- inconsistent with established companies values
Start-ups lack resources but
- their values can embrace small markets
- cost structures can accommodate low margins
- market research and resource allocation allow managers to proceed intuitively (no need to carefully research and analyze
Create capabilities to cope with change
- create new organizational structures within corporate boundaries in which new processes can be developed
- heavyweight teams - new people dedicated to new challenge
- spin out an independent organization from existing and develop the new processes and values
- different cost structure required to be profitable and competitive
- opportunity is insignificant to the growth needs of the mainstream organization
- acquire a different organization that closely match the requirements of the new task
- let the new acquisition stand alone and infuse resources into its processes and values
- cannot be forced to compete for resources within the mainstream
- run both in tandem - retain the old processes and create additional
Only the CEO can ensure a new organization gets the required resources and is free to create processes and values that are appropriate to the new challenge.
Must assess abilities and disabilities of the organization
Organizations facing major change may destroy what sustains them by making drastic adjustments
- must understand what types of change they are capable of handling
How to recognize core capabilities
- resources
- tangible - people, equipment, technologies, and cash
- intangible - product designs, information, brands, and relationships with suppliers, distributors, and customers
- processes
- patterns of interaction, coordination, communication, and decision making
- formal - explicitly defined and documented
- informal - routines, evolve over time
- values
- standard by which employees set priorities that enable them to judge whether an order, customer, or idea is attractive or important
- prioritization decisions
Good management is evident when there is clear, consistent values permeated through the organization
Organization's capabilities evolve over time
- start in resources then move to visible articulated processes and values' and finally to culture
- if they continue to face the same sorts of problems management is straightforward
Sustaining technologies
- innovations that make a product or service perform better in ways that existing customers already value
- provides something better than what had previously been available
Disruptive innovations
- create an new market with an introduction of a new kind of product or service
- seems worse initially - pcs compared to mainframes
- don't address the next-generation needs of leading customers in existing markets.
Industry leaders develop and introduce sustaining technologies
Disruptive innovations are intermittent and no company has a routine process for handling them.
- lower profit margins
- not attractive to best customers
- inconsistent with established companies values
Start-ups lack resources but
- their values can embrace small markets
- cost structures can accommodate low margins
- market research and resource allocation allow managers to proceed intuitively (no need to carefully research and analyze
Create capabilities to cope with change
- create new organizational structures within corporate boundaries in which new processes can be developed
- heavyweight teams - new people dedicated to new challenge
- spin out an independent organization from existing and develop the new processes and values
- different cost structure required to be profitable and competitive
- opportunity is insignificant to the growth needs of the mainstream organization
- acquire a different organization that closely match the requirements of the new task
- let the new acquisition stand alone and infuse resources into its processes and values
- cannot be forced to compete for resources within the mainstream
- run both in tandem - retain the old processes and create additional
Only the CEO can ensure a new organization gets the required resources and is free to create processes and values that are appropriate to the new challenge.
Lecture Notes
Formulating a market strategy with disruptive innovation
- is tech advanced enough
- are there other competitors
- is marketplace ready
The limitations are almost never over technology
Resources
Extremely important in early stages
Values
How you want your employees to behave when there is no one else around
Processes
- How do you decide that it is now time to begin formulating a disruptive, technology-based strategy Key Market Factors
Creating Capabilities to Cope with Disruptive Innovations
Disruptive Innovations and New Markets
What makes competing against non-consumption so hard? Threats versus Opportunities
- is tech advanced enough
- are there other competitors
- is marketplace ready
The limitations are almost never over technology
Resources
Extremely important in early stages
Values
How you want your employees to behave when there is no one else around
Processes
How do you decide that it is now time to begin formulating a disruptive, technology-based strategy
Key Market Factors
- How advanced is the technology?
The Internet and Web were breaking out of the research community into the “early adopter” general marketplace
- What is the marketplace saying about it?
The marketplace started paying more and more attention, especially after the Netscape IPO in August, 1995
- What are competitors doing?
Major competition was arising, both existing companies – e.g., Sun, later Microsoft, and new companies – e.g., Netscape and many new “dot coms”
- How are your clients reacting?
Clients were beginning to experiment with the Web – both putting up websites, front ends to their existing systems, and developing brand new applications, …
- How do you decide that it is now time to begin formulating a disruptive, technology-based strategy Key Market Factors
- How are your clients reacting?
Clients were beginning to experiment with the Web – both putting up websites, front ends to their existing systems, and developing brand new applications, …
Formulating a Disruptive, Technology-based Strategy
Organizational Capabilities
Identifying new markets
Finding new customers
IBM’s Internet strategy - organizational issues
Standards by which employees set priorities for ideas for new products, attractiveness of orders, importance of customers, . . .
Embody strategic directions and business model of company
Important so that employees can make the proper independent decisions, especially in large, complex, global companies
Framework for Organizational Capabilities
What can this company do?
-Resources
Tangible: people, equipment, technologies, cash
Less tangible: product designs, information, brands,
relationships with suppliers, distributors and customers
- Processes
Patterns of interaction, coordination, communication, decision making
Designed to help employees perform tasks in a consistent way, time after time
Often get in the way when applied to very different, new tasks
- Values – beyond ethical connotations
Key ingredients in the culture of a company
Critical as business continues to grow, and becomes more global and distributed
Least accommodating of changes
- Resources
Most important in early stages of business or new initiative
Especially talented people
Most adaptable to change
- Processes
Increase in importance as business grows
Well defined processes are indispensable to get beyond start-up or research stage Not nearly as flexible to changes
Framework for Organizational Capabilities Different Capabilities Important at Different Stages
The challenge of disruptive innovations for larger companies The downside of entrenched processes, values and culture
Creating Capabilities to Cope with Disruptive Innovations
- New internal capabilities
Separate team dedicated to new initiative
Most appropriate when new challenges require new processes
Usually needed to improve, cross-company interactions, time-to-market, flexibility,
- Spinout organization
Separate business model with different financial measurements
Often used for new, small but important, innovative opportunities
Applicable when disruptive innovation requires different cost structures
- Acquisitions
Effective way to quickly bring new capabilities into a company
Products, talents, customer base – integrate into parent company
Processes, values, brand – leave as stand-alone organization
Disruptive Innovations and New Markets
- “Classic” market segmentation for new products
Product type, price point, demographics, . . .
Most appropriate for incremental improvements, sustaining innovations
Frequently fail for new, disruptive innovations
- Discovering new markets for new, disruptive innovations
Find new tasks that customers would like to get done and are difficult to do for a variety of reasons – complexity, costs, . . .
Look for and identify such new, disruptive “foothold” opportunities for disruptive innovations
Create new market and differentiated new offering that address it
Why is it so difficult to aim new innovations at new markets?
- Fear of focus
Easier to position new products against existing products from competitors
Focus implies spelling out what new product is and is not aimed at
Reluctance not to support features in competitors’ products
- Demand for quantification of opportunity
Senior management typically demands to know size of market before funding new product
Easier to quantify existing opportunities covered by existing products
Much more difficult to quantify opportunities in new markets
- Channels, advertising, customer communications
Easier to work with existing channels and existing customers along existing frameworks for products and market segments
New markets often require new ways of organizing channels and overall customers interactions
New markets require lots of attention to “brand” and branding strategy
Target new, disruptive innovation to compete against Non-consumption
The target customers are trying to just get a job done, but because they lack money or skill, a simple inexpensive solution has b been beyond their skill.
They will compare the disruptive products to having nothing at all. As a result, they will be delighted to buy it even though it may not be as good as other products available at higher prices and requiring deeper expertise.
The technology that enables the disruption might be quite sophisticated, but disruptors deploy it to make the purchase and use simple, convenient and foolproof. This enables people with less money and training to begin consuming
The disruptive innovation creates a whole new value network. The new consumers typically purchase the product through new channels and use the product in new venues.
What makes competing against non-consumption so hard?
Threats versus Opportunities
Threats elicit far more intense and energetic responses than opportunities
- Opportunity generally does not get people’s attention, especially when business is doing well
- Threats make the point that company could be imperiled if disruptive innovation succeeds
- Threats are needed to get needed resource commitments
Threats generally cause companies to focus on protecting their customers and their current business
- Be there with new innovations to protect current customers from being won over by competitors
- Companies thus miss new nonconsumption growth opportunities being targeted by competitors with disruptive innovation
- It usually does not work and ends up causing company to miss new market opportunity because innovation takes root with new nonconsumption customers
How to get commitment and flexibility?
Threats versus Opportunities
- Frame disruption as a threat within resource allocation process in order to garner needed resources
- Frame disruption as an opportunity in the strategy formulation, venture-building building process
- Set up different organization to go after new markets made possible by disruptive innovation
Formulating a Technology-based Strategy Key Organizational Factors
- What are your organization’s capabilities or “core competencies” to deal with this emerging technology?
- How well does the new technology fit with existing “legacy” products, services and installed base?
- How well does the new technology and related products and services fit with overall organization?
- Does your company have “brand permission” to go into this space naturally, or will it take a major marketing campaign to try to reposition the brand?
Formulating the IBM Internet-based Strategy
- Capabilities and “core competencies”
- The Internet and Web were becoming an integral part of the next generation IT infrastructure requiring systems, software and services Formulating the IBM Internet-based Strategy
- Fit with legacy products, services and installed base ¾Just about all existing products, services and installations were “web enabled” so they can easily integrate into an Internet infrastructure Formulating the IBM Internet-based Strategy
- Just about all existing products, services and installations were “web enabled” so they can easily integrate into an Internet infrastructure
- Fit with organization and culture
- New “dot com” were much faster moving in the marketplace than existing companies and seemed to play by different rules that they were inventing as they went along
- Brand permission and market acceptance
- There were lots of discussions that we were entering a “new economy” in which only “born to the web” companies could play and survive and existing businesses were destined to fade away
- Capabilities and “core competencies”
- The Internet and Web were becoming an integral part of the next generation IT infrastructure requiring systems, software and services
- Fit with legacy products, services and installed base
- Just about all existing products, services and installations were “web enabled” so they can easily integrate into an Internet infrastructure
- Fit with organization and culture
- New “dot com” were much faster moving in the marketplace than existing companies and seemed to play by different rules that they were inventing as they went along
Key factor for success in e-business strategy
Balance between disruptive and sustaining innovations
- Leverage organization’s skills and talent …
- but embrace new market realities: time-to-market, …
- Leverage products, installed base, customer relationships …
- but adapt to new market requirements: standards, …
- Leverage your brand and history …
- but abandon qualities that have become outmoded
- Leverage every possible strength of the organization …
-but make sure you are in harmony with the forces of the marketplace