Disruptive Innovations
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Disruptive Innovations

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Disruptive Innovations Disruptive Innovations Presentation Transcript

  • Disruptive innovations Aleksejs Busarovs [email_address]
  • 90% of all companies are unable to sustain an above-average growth rate for more than few years 80% of venture capital funded start-ups fail 75% of new products launched by established companies fail
  • Managing Innovation does not have to be random
    • Traditional thinking: Managing innovation is risky and unpredictable
    • Managers have just not understood the factors that need to be controlled
    • By understanding these factors and making the right choices, innovation becomes much more predictable
  • We are going to :
    • Understand the variables around innovation
    • Identify areas of new growth in your business
    • Predictably create successful growth strategies
  • Critical questions to get right :
    • How do I beat the competitors?
    • Which customers should I focus on?
    • Will our targeted customers really buy our products?
    • How should I structure this business?
    • Where should this idea live in organization?
    • How do I prevent commoditization?
    • What should we outsource? Keep in-house?
    • How do I create the right strategy?
    • What kind of money is good? What kind of is bad?
  • Theory is a practical management tool
    • Using theory to guide actions requires no change in behavior
    • We don’t question the theory of gravity
    • We use theory of cause and effect in our management decisions every day
  • How do we beat our competitors?
    • Better to disrupt them
    • Don’t bring better product to the market they are competing in
  • The pace of technological progress outstrips the ability of mainstream customers to use it Time Performance measure Performance customers can use Most demanding customers Least demanding customers Pace of technological progress
  • Sustaining innovation Time Performance measure Performance customers can use Most demanding customers Least demanding customers Analog to digital Digital to optical
  • Entrants nearly always win the battles of disruptive innovation Time Performance measure Performance customers can use Most demanding customers Least demanding customers Disruptive innovation
  • Sustaining vs. Disruptive innovations Time Performance measure Disruptive innovation Sustaining innovations Not good enough Too good
  • What makes this so hard? The technology is the easy part It is the business model that enables disruption
  • The Innovator’s Dilemma This is good guidance for sustaining innovation strategies; but following these same paradigms paralyze the well-run company against disruptive innovation
    • Always listen to your best customers
    • Focus your investments where the profitability is most attractive
  • Conventional integrated mills
  • Electric arc furnace 20% lower costs than integrated mills
  • Disruption in the steel industry 1975 1980 1985 1990 Steel quality Rebar 4% Angle iron, bars & rods Structural steel Sheet steel 8% 22% 55% % of tons 7% 12% 18% 25-30%
    • Enter with disruptive strategy?
      • Leader is motivated to flee
      • Entrants almost beat incumbents
    • Enter with a sustaining strategy?
      • Leader is motivated to fight
      • Incumbents almost always beat entrants
    Asymmetry of motivation
  • Disruption is relative Dell’s business model Direct to consumer via telephone, catalog HP’s business model Sold to consumer via retail otlets Internet Sustaining to Dell Disruptive to HP
  • Low-end disruptive strategy Time Performance measure Low-end Disruptive innovation Sustaining innovations Mainstream customer
  • Low-end disruptive strategy
    • Takes root with overshot customers in lo w end of existing market
    • Low cost business model
      • Lower overheads
      • Higher asset turns
      • Lower gross margins
    • Steel minimills, discount department stores
    • Leader is motivated to flee
  • New-market disruptive strategy Time Performance measure Low-end Disruptive innovation Sustaining innovations Mainstream customer Time Different Performance measur p New-market disruptive strategy Non consuming context
  • New-market disruptive strategy
    • Takes root in a new plane of competition
    • Simpler product to non-consumers
      • Historically couldn’t afford or didn’t have skill to do it
    • Cisco’s router
  • +
  • New-market disruptive strategy Time Performance measure Low-end Disruptive innovation Sustaining innovations Mainstream customer Time Different Performance measur p New-market disruptive strategy Non consuming context
  • Strategic choice Lack skills to compete successfully Motivated to flee incursion Deem market too small to matter, lack key skills Competitor response Extension of winning model Attractive returns at lower prices Completely new model Business model Improvement along primary basis of competition Good enough performance at lower prices Simplicity, customization Technology Undershot customer Overshot customer at low-end Nonconsumer or nonproducer Customers Sustaining innovation Low-end disruption New-market disruption
  • How separate is separate?
    • Not necessary a physical separation
    • Keep separate from processes and cost structure that will kill the new organization
    • Separate from pressures that force me to get too big too fast
    • Disruptions have a longer runway
    • Separate from planning and strategy processes of the core business
  • The larger a company gets, the harder it is to prioritize small opportunities. Size of the company Growth needs New business $40 million $40 billion 25% 25% $10 million $10 billion The existing opportunities of tomorrow are small today
  • Initiating projects
    • Sustaining innovation
    • Make assumptions
    • Build projections based on assumptions
    • Make decisions to invest based on projections
    • Execute the project
    • Disruptive innovation
    • Make projections
    • Determine assumptions that must prove true for projections to happen
    • Implement plan to learn and test critical assumptions
    • Invest to implement the strategy
    Numbers & rules Intuition
  • When should I integrate? IBM 1980’s Operating system Micro-processor Assembly Design Intel Microsoft
  • When should I integrate?
    • Outsourcing non-core competence
    • Not always; depends on industry timing and structure
  • When should I integrate?
    • What are the circumstances in which being vertically integrated is critical?
    • What are the circumstances in which being vertically integrated is the kiss of death?
    • When can I say what is not commodity today will become commoditized?
    • When can I say what is a commodity will become de-commoditized?
  • When should I integrate? Time Performance Modular architectures Interdependent architectures Beat competitors with functionality Beat competitors with speed, responsiveness and customization
  • Commoditization
    • Modularity of the system makes it impossible to differentiate your product over anybody else’s
    • Product becomes more than good enough
    • Performance improvements do not merit improvements in pricing
  • Recommended literature
  • most photos from Flickr under a creative commons license authors indicated in comment page of ppt
  •