Readings
"Innovators Solution" Chapter 5 and 6 - Notes
"Innovators Solution" Chapter 5 and 6 - Notes
Lecture Notes
Audio
Executing the market strategy for disruptive innovation
- each company has to fit the best strategy for them
- the more you can fit the easier it is going to be to implement
- much easier to predict what will happen rather than when it will happen
Don't assume you're making a decision forever
- markets will change so be ready to change
The internet is a disruptive system because
in the knowledge economy it will change design systems in profound ways
need to transform the way humans interact with technology by
making it more appealing to them
Amazing opportunity because
the world is full of systems that could be designed better
Playing by different rules in the marketplace
- Which activities should a new growth venture do internally in order to be as successful as possible as fast as possible, and which should it outsource to a supplier or partner?
- Will success be best built around a proprietary product architecture, or should the venture embrace modular, open industry standards?
- What causes the evolution from closed and proprietary product architectures to open ones?
- Might companies need to adopt proprietary solutions again, once open standards have emerged?
Decisions about what to in-source and what to procure from suppliers and partners have a powerful impact on a new-growth venture’s chance for success.
If something fits your core competence, you should do it inside. If not, and another firm can do it better, you should rely on them to provide it.
Interdependent versus Modular Architectures
- Interdependent architecture
- No “clean” interfaces - one part cannot be created independently of the other
- The same organization must develop all the interdependent components
- optimizes performance, functionality and reliability
- proprietary architectures
- Modular architecture
- Clean, well specified interfaces - no unpredictable interdependencies
- Modular components can be developed by independent groups or companies
- Optimize flexibility, time-to-market, cost – at the expense of performance
- Generally open architectures
Interdependent, optimized, proprietary architectures
- Most applicable in early stages of a product, when performance, reliability, functionality and components are not good enough
- Highly integrated design and development makes up for deficiencies – but at considerable cost and time-to-market
- Companies/units competing with proprietary, interdependent architectures must be vertically integrated, controlling design and manufacturing of every critical component
Modular, open, flexible architecture
- Most applicable in mature stages, when overall products and critical components have achieved “good enough” performance, reliability, and functionality
- New products can be introduced faster, at significantly lower costs, with far more flexibility and responsiveness
- Companies and industries disaggregate when building product with modular architectures – value-chains and ecosystem become very important
Should you build proprietary or open products?
- Performance dimension
- Proprietary: high performance, leading edge products - higher profit margins, high value services, requires close customer relationships, . . .
- Open, modular: high volume, mature products – generally low profit margins, commodities, requires very good processes, . . .
- Architectural layer dimension
- Open, modular: “lower”, more mature layers – shared infrastructure, industry standards, open source, requires industry cooperation, standard bodies, . . .
- Proprietary: new applications and solutions built on top of open layers; requires good project management, leading edge tools, complex systems know-how, …
Executing IBM’s e-business strategy in the marketplace
Key Organizational Factors
- Balance between proprietary and open
- Did not participate in “browser wars”, looked at browser as “basic dial tone”
- Embraced open source Apache web server vs “http” internal effort
- Focused internal efforts on proprietary enterprise quality software: WebSphere built on Apache and other open source components
- Build in-house vs partnerships and acquisitions
- Made a number of key acquisitions to build up software and services business
- Market offerings – key focus and segments
- Focused on key areas where IBM had skills and enterprise had needs: hosting, security, back end integration, web application servers, . . .
- Organized offerings around Content, Collaboration and Commerce
- Financial and Market measurements
- Tracked directly a number of key, “pure” Internet projects
- Focused primarily on larger Internet impact on overall revenues, key client engagements, and market impact
- Reviewed progress closely with CEO and top senior management
Executing the market strategy for disruptive innovation
- each company has to fit the best strategy for them
- the more you can fit the easier it is going to be to implement
- much easier to predict what will happen rather than when it will happen
Don't assume you're making a decision forever
- markets will change so be ready to change
The internet is a disruptive system because
in the knowledge economy it will change design systems in profound ways
need to transform the way humans interact with technology by
making it more appealing to them
Amazing opportunity because
the world is full of systems that could be designed better
Playing by different rules in the marketplace
- Which activities should a new growth venture do internally in order to be as successful as possible as fast as possible, and which should it outsource to a supplier or partner?
- Will success be best built around a proprietary product architecture, or should the venture embrace modular, open industry standards?
- What causes the evolution from closed and proprietary product architectures to open ones?
- Might companies need to adopt proprietary solutions again, once open standards have emerged?
Decisions about what to in-source and what to procure from suppliers and partners have a powerful impact on a new-growth venture’s chance for success.
If something fits your core competence, you should do it inside. If not, and another firm can do it better, you should rely on them to provide it.
Interdependent versus Modular Architectures
- Interdependent architecture
- No “clean” interfaces - one part cannot be created independently of the other
- The same organization must develop all the interdependent components
- optimizes performance, functionality and reliability
- proprietary architectures
- Modular architecture
- Clean, well specified interfaces - no unpredictable interdependencies
- Modular components can be developed by independent groups or companies
- Optimize flexibility, time-to-market, cost – at the expense of performance
- Generally open architectures
Interdependent, optimized, proprietary architectures
- Most applicable in early stages of a product, when performance, reliability, functionality and components are not good enough
- Highly integrated design and development makes up for deficiencies – but at considerable cost and time-to-market
- Companies/units competing with proprietary, interdependent architectures must be vertically integrated, controlling design and manufacturing of every critical component
Modular, open, flexible architecture
- Most applicable in mature stages, when overall products and critical components have achieved “good enough” performance, reliability, and functionality
- New products can be introduced faster, at significantly lower costs, with far more flexibility and responsiveness
- Companies and industries disaggregate when building product with modular architectures – value-chains and ecosystem become very important
Should you build proprietary or open products?
- Performance dimension
- Proprietary: high performance, leading edge products - higher profit margins, high value services, requires close customer relationships, . . .
- Open, modular: high volume, mature products – generally low profit margins, commodities, requires very good processes, . . .
- Architectural layer dimension
- Open, modular: “lower”, more mature layers – shared infrastructure, industry standards, open source, requires industry cooperation, standard bodies, . . .
- Proprietary: new applications and solutions built on top of open layers; requires good project management, leading edge tools, complex systems know-how, …
Executing IBM’s e-business strategy in the marketplace
Key Organizational Factors
- Balance between proprietary and open
- Did not participate in “browser wars”, looked at browser as “basic dial tone”
- Embraced open source Apache web server vs “http” internal effort
- Focused internal efforts on proprietary enterprise quality software: WebSphere built on Apache and other open source components
- Build in-house vs partnerships and acquisitions
- Made a number of key acquisitions to build up software and services business
- Market offerings – key focus and segments
- Focused on key areas where IBM had skills and enterprise had needs: hosting, security, back end integration, web application servers, . . .
- Organized offerings around Content, Collaboration and Commerce
- Financial and Market measurements
- Tracked directly a number of key, “pure” Internet projects
- Focused primarily on larger Internet impact on overall revenues, key client engagements, and market impact
- Reviewed progress closely with CEO and top senior management