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Disruptive strategic innovations and strategic re-orientations Professor Feng Li The Business School University of Newcast...
Main Issues <ul><li>Disruptive innovations in the network economy </li></ul><ul><li>Some possible strategic responses to d...
Disruptive Innovations <ul><li>Clayton Christensen –  Innovators Dilemma  and  Innovator’s Solution </li></ul><ul><li>Sust...
Sustaining vs Disruptive Innovations <ul><li>Sustaining innovation  targets demanding high end customers with better perfo...
The Customer isn’t always right: Why high performing companies fail <ul><li>‘ The highest performing companies .. Have wel...
Two Types of Disruptions <ul><li>New Market Disruptions – compete with non-consumption as they are so cheap and simple the...
The Impact of Sustaining and  Disruptive Technological Change
The Process of New Market Disruption
Examples <ul><li>Low cost airlines – British Airways and KLM under attack from easyjet and Ryanair  - full service, hub-an...
Disruptive innovations <ul><li>Emphasis on different product or service attributes </li></ul><ul><li>Start out as small an...
Responses to disruptive innovations <ul><li>Focus on and invest in the traditional business – the disruptive innovation wi...
Responses to disruptive innovations  <ul><li>In almost all cases of disruptive innovations, the net effect is total market...
A Third Type - Top Down Disruptions <ul><li>Low end and new market disruptions - under-performs established products in ma...
Top Down Disruptions … continued <ul><li>Gives incumbents a better chance of surviving  </li></ul><ul><li>Potential danger...
The Internet & Disruptive Strategic Innovations <ul><li>The Internet enables new ways of working and new business models s...
The Internet & Disruptive Strategic Innovations (2) <ul><li>One of the most influential theories since the late 1990s  </l...
Strategic Re-Orientations: From Products  and Services to Solutions and Experiences <ul><li>Two strategic re-orientations ...
Examples <ul><li>General Motors –  </li></ul><ul><ul><li>Automotive services - sales, repairs, financing, parts and access...
Examples 2  <ul><li>UPS </li></ul><ul><ul><li>Logistics service business </li></ul></ul><ul><ul><li>Core – pick-up, drop-o...
The Next Step – Experience Innovation <ul><li>The focus of innovation will shift from products and services to experience ...
Examples - Cardiac pacemaker <ul><li>5m adults in US alone suffer cardiac problems </li></ul><ul><li>Pacemaker monitors an...
Value to patients <ul><li>Value lies in the co-creation experience of a specific patient, at a specific point in time, in ...
Questions <ul><li>Fundamental changes ? </li></ul><ul><li>Role – or different types of roles - of Internet and related tec...
What is e-Business?  How the Internet Transforms Organisations <ul><li>Chapter 7. Managing Disruptive Strategic Innovation...
Further readings <ul><li>Christensen, Clayton M (1997) The Innovator’s Dilemma.  Harvard Business School Press, Boston </l...
Further readings (2) <ul><li>Charitou, C & C Markides (2003) Responses to Disruptive Strategic Innovations.  Sloan Managem...
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Transcript of "Disruptive strategic innovations and strategic re-orientations"

  1. 1. Disruptive strategic innovations and strategic re-orientations Professor Feng Li The Business School University of Newcastle upon Tyne E-Mail: [email_address] © Feng Li, 2006
  2. 2. Main Issues <ul><li>Disruptive innovations in the network economy </li></ul><ul><li>Some possible strategic responses to disruptive innovations </li></ul><ul><li>Strategic re-orientations: from product and services to solutions and experiences </li></ul>
  3. 3. Disruptive Innovations <ul><li>Clayton Christensen – Innovators Dilemma and Innovator’s Solution </li></ul><ul><li>Sustaining Innovation – make better products that can be sold for more money to attractive customers – incumbents prevail </li></ul><ul><li>Disruptive Innovations – commercialize a simpler, more convenient product that sells for less money and appeals to a new or unattractive customers – new entrants beat incumbents </li></ul>
  4. 4. Sustaining vs Disruptive Innovations <ul><li>Sustaining innovation targets demanding high end customers with better performance than what was previously available </li></ul><ul><li>Disruptive innovations don’t attempt to bring better products to established customers in existing markets – rather they introduce products and services that are not as good as currently available products but they are simpler, more convenient and less expensive and appeal to new or less demanding customers </li></ul><ul><li>Disruption occurs as the rate of technological improvements are higher than customers can utilise or absorb </li></ul><ul><li>The disruptive products and services eventually become acceptable to high-end customers </li></ul>
  5. 5. The Customer isn’t always right: Why high performing companies fail <ul><li>‘ The highest performing companies .. Have well developed systems for killing ideas that their customers don’t want. As a result, these companies find it very difficult to invest adequate resources in disruptive technologies – lower margin opportunities their customers don’t want – until [those same customers decided that they] want them. And by then it is too late.’ </li></ul><ul><li>- Innovator’s Dilemma </li></ul>
  6. 6. Two Types of Disruptions <ul><li>New Market Disruptions – compete with non-consumption as they are so cheap and simple they attract new customers previously don’t use the products and services </li></ul><ul><li>Low End Disruptions –simple low cost business models to pick off the least attractive of the established firms’ markets and progress upwards </li></ul>
  7. 7. The Impact of Sustaining and Disruptive Technological Change
  8. 8. The Process of New Market Disruption
  9. 9. Examples <ul><li>Low cost airlines – British Airways and KLM under attack from easyjet and Ryanair - full service, hub-and-spoke strategy versus low cost, point to point, no-frills strategies </li></ul><ul><li>Financial services – Merrill Lynch versus Charles Schwab, E*Trade and Ameritrade </li></ul><ul><li>Unilever and P&G versus low priced distributor owned private labels </li></ul><ul><li>Barnes & Noble versus Amazon.com </li></ul><ul><li>The attackers utilised strategies that were both different from and in conflict with the strategies of the top dogs – Disruptive strategic innovations </li></ul>
  10. 10. Disruptive innovations <ul><li>Emphasis on different product or service attributes </li></ul><ul><li>Start out as small and low margin business – unattractive until they grow big </li></ul><ul><li>They grow to capture a large share of the established market – good enough in old attributes and superior in new attributes than established firms </li></ul><ul><li>Established firm’s can’t compete because of conflict with mainstream strategy and established way of working </li></ul>
  11. 11. Responses to disruptive innovations <ul><li>Focus on and invest in the traditional business – the disruptive innovation will not grow indefinitely (10-20%) and won’t capture 100% of the market </li></ul><ul><li>Ignore the innovation – it is not your business – different customers, value propositions and require different skills and competences </li></ul><ul><li>Attach back – disrupt the disruptive innovation – create an even newer game </li></ul><ul><li>Playing both games simultaneously – via a separate unit </li></ul><ul><li>Embrace the innovation completely and scale it up </li></ul><ul><li>Charitou, C & C Markides (2003) Responses to Disruptive Strategic Innovations. Sloan Management Review Winter 2003: 55-63 </li></ul>
  12. 12. Responses to disruptive innovations <ul><li>In almost all cases of disruptive innovations, the net effect is total market growth </li></ul><ul><li>In new market disruptions – major growth opportunities for both incumbents and upstarts </li></ul><ul><li>Gilbert, Clark (2003) The Disruption Opportunity. Sloan Management Review Summer 2003: 27-32 </li></ul>
  13. 13. A Third Type - Top Down Disruptions <ul><li>Low end and new market disruptions - under-performs established products in mainstream markets and sold for less money to least profitable customers </li></ul><ul><li>Top down disruptions outperform existing products, selling at a premium price, initially purchased by the most demanding and least price-sensitive customers </li></ul><ul><li>Federal Express and Wang Labs’ word processing system - started at top end and rapidly moved downwards to disrupt established markets. </li></ul><ul><li>Apple iPod and Satellite Radios. </li></ul>
  14. 14. Top Down Disruptions … continued <ul><li>Gives incumbents a better chance of surviving </li></ul><ul><li>Potential danger of premium brands moved downwards - long term viability. </li></ul><ul><li>Damage the brand and disfranchise their most profitable customers at top end in long term. </li></ul><ul><li>Marks & Spencer in the UK and BMW of Germany? </li></ul><ul><li>Need to be assessed over different time scales </li></ul><ul><li>Carr, Nicholas (2005) Top-Down Disruption. Strategy + Business , Issue 39, Summer 2005. http://www.strategy-business.com/magazine </li></ul>
  15. 15. The Internet & Disruptive Strategic Innovations <ul><li>The Internet enables new ways of working and new business models superior than established firms </li></ul><ul><li>Basis for disruption in different industries </li></ul><ul><li>Long list of examples in Innovator’s Solution pp56-65 </li></ul><ul><li>Amazon.com; Charles Schwab; Cisco; Dell; e-Bay; ….. </li></ul><ul><li>Useful Framework for analysing, explaining and addressing strategic challenges and opportunities in various industries </li></ul>
  16. 16. The Internet & Disruptive Strategic Innovations (2) <ul><li>One of the most influential theories since the late 1990s </li></ul><ul><li>Insights to battles between industry leaders and unknown new entrants </li></ul><ul><li>Not specific to network economy </li></ul><ul><li>But Internet provided numerous opportunities for new entrants </li></ul><ul><li>Low cost models to compete with industry leaders in ways impossible in the past. </li></ul>
  17. 17. Strategic Re-Orientations: From Products and Services to Solutions and Experiences <ul><li>Two strategic re-orientations in recent years </li></ul><ul><li>In a world of commoditized products, companies are turning to service offering for growth - often in the name of business solutions </li></ul><ul><li>‘ What the customer buys and considers value is never a product. It is always utility – that is, what a product does for him ’ – Peter Drucker </li></ul>
  18. 18. Examples <ul><li>General Motors – </li></ul><ul><ul><li>Automotive services - sales, repairs, financing, parts and accessories; roadside assistance; insurance </li></ul></ul><ul><ul><li>OnStar – travel, emergencies, satellite radio services; vehicle monitoring services; car phone and data services, personal concierge services … </li></ul></ul><ul><ul><li>Home services (GMAC) – home sales, mortgage, relocation, monitoring, insurance, satellite TV etc </li></ul></ul><ul><li>Underpinned by strong brand, an ICTs platform and a community of users and suppliers </li></ul>
  19. 19. Examples 2 <ul><li>UPS </li></ul><ul><ul><li>Logistics service business </li></ul></ul><ul><ul><li>Core – pick-up, drop-off, shipping, supplies, tracking </li></ul></ul><ul><ul><li>New services – assembly and testing, repairs, inbound and outbound logistics, warehouse management, spare parts management, customer support management … </li></ul></ul><ul><ul><li>Role of IT platform </li></ul></ul>
  20. 20. The Next Step – Experience Innovation <ul><li>The focus of innovation will shift from products and services to experience environment </li></ul><ul><li>Supported by a network of companies and consumer communities </li></ul><ul><li>Co-create unique value for individual consumers </li></ul><ul><li>Features and functionality used to be embedded in products </li></ul><ul><li>Now distinctive identities of products, services, channels, industries and companies are rapidly disappearing </li></ul>
  21. 21. Examples - Cardiac pacemaker <ul><li>5m adults in US alone suffer cardiac problems </li></ul><ul><li>Pacemaker monitors and manages heart rhythm and performance </li></ul><ul><li>Remote monitoring – deviations altered to patient and doctor simultaneously </li></ul><ul><li>Doctor in consultation with the patient can jointly decide actions </li></ul><ul><li>When patient is travelling – other doctors need to be involved – access to patient records </li></ul><ul><li>Others involved – e.g. the patient’s spouse </li></ul><ul><li>Information and skills network </li></ul><ul><li>Value – not in products, communications, and all the agents involved (hospitals, families, doctors etc) </li></ul><ul><li>Value from co-creation experience through interactions between patient and others </li></ul><ul><li>Value is determined by personal and other circumstances </li></ul>
  22. 22. Value to patients <ul><li>Value lies in the co-creation experience of a specific patient, at a specific point in time, in a specific location, in the context of a specific event </li></ul><ul><li>Circumstance-based </li></ul><ul><li>New business logic: from company- and customer-centric to network-centric </li></ul><ul><li>How can firms compete in the experience economy? </li></ul>
  23. 23. Questions <ul><li>Fundamental changes ? </li></ul><ul><li>Role – or different types of roles - of Internet and related technologies in these innovations </li></ul><ul><li>The relationships between individuals and institutions/ organisations </li></ul><ul><li>The changing business logics </li></ul><ul><li>Implications for organisations? </li></ul>
  24. 24. What is e-Business? How the Internet Transforms Organisations <ul><li>Chapter 7. Managing Disruptive Strategic Innovations in the New Economy </li></ul><ul><li>Chapter 8. Strategic Re-Orientations in the Network Economy: Products, Services, Solutions and Experiences </li></ul>
  25. 25. Further readings <ul><li>Christensen, Clayton M (1997) The Innovator’s Dilemma. Harvard Business School Press, Boston </li></ul><ul><li>Christensen, Clayton M & Michael Raynor (2003) The Innovator’s Solution: Creating and Sustaining Successful Growth. Harvard Business School Press, Boston </li></ul><ul><li>Christensen, Clayton M, Eric A. Roth & Scott D. Anthony (2005) Seeing What Next: Using Theories of Innovation to Predict Industry Change, Harvard Business School Press, Boston </li></ul><ul><li>Charitou, Constantinos & Constantinos Markides (2003) Responses to disruptive strategic innovation. Sloan Management Review 44(2): 55-63 </li></ul><ul><li>Gilbert, Clark (2003) The Disruption opportunities. Sloan Management Review 44(4): 27-32 </li></ul><ul><li>Carr, Nicholas (2005) Top-Down Disruption. Strategy + Business , Issue 39, Summer 2005. http://www.strategy-business.com/magazine </li></ul>
  26. 26. Further readings (2) <ul><li>Charitou, C & C Markides (2003) Responses to Disruptive Strategic Innovations. Sloan Management Review Winter 2003: 55-63 </li></ul><ul><li>Gilbert, Clark (2003) The Disruption Opportunity. Sloan Management Review Summer 2003: 27-32 </li></ul><ul><li>Sawhney, M; S Balasubramanian & V Krishnan (2004) Creating Growth with Services. Sloan Management Review Winter 2004: 34-43 </li></ul><ul><li>Prahalad, C K & V Ramaswamy (2003) The New Frontier of Experience Innovation. Sloan Management Review . Summer 2003: 12-18 </li></ul><ul><li>Prahalad, C K & Venkat Ramaswamy (2004) The Future of Competition . Harvard Business School Press, Boston </li></ul><ul><li>Brynjolfsson, E & Glen Urban (2001, eds.) Strategies for E-Business Success. Jossey-Bass, San Francisco </li></ul><ul><li>Cusumano, Michael & C Markides (2001, eds.) Strategic Thinking for the next economy . Jossey-Bass, San Francisco </li></ul><ul><li>Gerbert, P & A Birch (2001) Digital Storm – Fresh business strategies from the electronic marketplace . Capstone, Oxford </li></ul>
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