2. Imperative Dilemma► Investors’require to grow► But innovation that can satisfy investors’ demand for growth require taking risks unacceptable to investors► We need to know how to grow
3. Disruptive Innovation Model► DisruptiveInnovation Model► 3-D Disruptive Innovation Model► Shaping ideas to become disruptive
4. Disruptive Innovation Model B A
5. Disruptive Innovation Model► Customer’s performance acceptance level► Steeper company’s ability to make technology progress Thus, after Point A, overshoot► Distinctionbetween sustaining and disruptive innovation – moving to lower parallel line B – outstrip point Low-end disruptionReturn
6. 3-D Disruptive Innovation Model
7. 3-D Disruptive Innovation Model► The third dimension: new value network for previous non-consumers – similar to BOS New-market disruptionReturn
8. Shaping ideas to become disruptive Three litmus tests►Explore whether the idea can become a new market disruption►Explores the potential for a low-end disruption►Is the innovation disruptive to all of the significant incumbent firms in the industry?
9. Test 1Is there a large population of people whohistorically have not had the money,equipment, or skill to do this thing forthemselves, and as a result have gonewithout it altogether or have needed to paysomeone with more expertise to do it forthem?Return
10. Test 2Are there customers at the low end of themarket who would be happy to purchase aproduct with less (but good enough)performance if they could get it at a lowerprice? Can we create a business model thatenables us to earn attractive profits at thediscount prices required to win the businessof these over-served customers at the lowend?Return
11. Test 3Is the innovation disruptive to all of thesignificant incumbent firms in the industry? Ifit appears to be sustaining to one or moresignificant players in the industry, then theodds will be stacked in that firm’s favor, andthe entrant is unlikely to win.
12. Competing Against Non-consumption► Why Competing Against Non-consumption So Hard?► What Makes Competing Against Non- consumption So Hard?► How to Avoid Hard Non-Consumption Competition
13. Why Competing Against Non- consumption So Hard?► The logic of competing against non- consumption as the means for creating new-growth markets seems obvious.► Despite this, established companies repeatedly do just the opposite.Return
14. What Makes Competing Against Non- consumption So Hard?► Not see disruption coming in. Even if,► Threat rigidity - Threat elicits more intense and energetic response than opportunity, and then focus on countering the threat to survive.Return
15. How to Avoid Hard Non- Consumption Competition► First,get top-level commitment by framing an innovation as a threat during the resource allocation process. ex. Newspapers embraced online editions to give existing customers additional choice
16. How to Avoid Hard Non- Consumption Competition► Later,shift responsibility for the project to an autonomous organization that can frame it as an opportunity. ex. Place the responsibility to commercialize the disruption in an independent unit for which the innovation represents pure opportunity – newpaper’s online group
17. How to Avoid Hard Non- Consumption Competition• This is incumbent’s problem, not for new entrant.• This take care of both commitment and flexibility.
18. Getting the Scope of Business Right Integration or Outsourcing? Circumstance and production design Production architecture and integration Innovation Strategy PC industry as innovation strategy example
19. Integration or Outsourcing? 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 a 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?
20. Core Competence? If something fits your core competence, you should do it inside? NO! Ex., IBM outsourcing microprocessors and operating systems was a mistake. Answer relied on: Circumstance-Based versus Production Design
21. Circumstance Based Integration or outsourcing decision based on products good enough or not good enough
22. Production Design Interdependence One part cannot be created without the other. Optimize performance in functionality and reliability Proprietary Modularity Optimize flexibility Sacrifice performance due to rigid design
23. Production Architecture and Integration B A
24. Innovation Strategy Before Point A: Interdependence architecture Goal: improve performance After Point A: Overshooting, Commoditization point Goal: speed, convenience, customization, etc.
25. Innovation Strategy Between A & B: Either approach OK With interdependence: performance over-satisfied With modularity: performance not satisfied but other factors are After B: Should take Modularity approach Performance and other factors all satisfied Once mature, back to interdependence approach
26. Innovation Strategy Example IBM interdependence design – dominate mainframe After 1964, System 360 to respond to non-performance demand modularity allowed custom-configuration Birth of mini-computer – disruption from mainframe! Then, DEC dominated with integration design – better performance
27. The Transition from Vertical Integration to Horizontal Stratification inthe Microprocessor-Based Computer Industry
28. How to Avoid Commoditization• Process of commoditization• Process of de-commoditization
29. Process of Commoditization 1As a new market coalesces, a companydevelops a proprietary product that, whilenot good enough, comes closer to satisfyingcustomers’ needs than any of itscompetitors. It does this through aproprietary architecture, and earnsattractive profit margins.
30. Process of Commoditization 2As the company strives to keep ahead of itsdirect competitors, it eventually overshootsthe functionality and reliability thatcustomers in lower tiers of the market canutilize.
31. Process of Commoditization 3, 4 &5This precipitates a change in the basis ofcompetition in those tiers, which . . .. . . precipitates an evolution towardmodular architectures, which . . .. . . facilitates the dis-integration of theindustry, which in turn . . .
32. Process of Commoditization 6. . . makes it very difficult to differentiatethe performance or costs of the productversus those of competitors, who haveaccess to the same components andassemble according to the same standards.This condition begins at the bottom of themarket, where functional overshoot occursfirst, and then moves up inexorably to affectthe higher tiers.
33. Process of De-Commoditization 1The low-cost strategy of modular productassemblers is only viable as long as they arecompeting against higher-cost opponents.This means that as soon as they drive thehigh-cost suppliers of proprietary productsout of a tier of the market, they must moveup-market to take them on again in order tocontinue to earn attractive profits.
34. Process of De-Commoditization 2Because the mechanisms that constrain ordetermine how rapidly they can move up-market are the performance-definingsubsystems, these elements become notgood enough and are flipped to the left sideof the disruption diagram.
35. Process of De-Commoditization 3Competition among subsystem supplierscauses their engineers to devise designsthat are increasingly proprietary andinterdependent. They must do this as theystrive to enable their customers to deliverbetter performance in their end-useproducts than the customers could if theyused competitors’ subsystems.
36. Process of De-Commoditization 4The leading providers of these subsystemstherefore find themselves sellingdifferentiated, proprietary products withattractive profitability.
37. Process of De-Commoditization 5This creation of a profitable, proprietaryproduct is the beginning, of course, of thenext cycle of commoditization and de-commoditization.
38. Death Spiral of Core Competence• When facing commoditization, companies may still insist their core competence. They then miss the opportunity to go up- market.• Likewise, if they insist on performance optimization, they miss disruption.
39. Death Spiral of ROA MaximizingDue to the low premium in modular competition base,• Increasing the numerator of ROA is nearly impossible, and• Decreasing the denominator will facilitate dis-integration. – It can shrink the asset where they might need to move up to interdependence strategy, or – It can result in better profitability for later on integration.
40. Capability of Disruptive Growth► Reasons innovation fails► Right organization structure for sustaining and disruptive growth
41. Why Innovation fails► Not because of some fatal technological flaw or because the market isn’t ready► They fail because responsibility to build these businesses is given to managers or organizations whose capabilities aren’t up to the task.► An organization’s capabilities become its disabilities when disruption is afoot.
42. Factors affecting structure choice► Organization’s processes vs. development team Heavyweight team Lightweight team Functional organization► Organization’s value vs. responsible commercial structure Autonomous organization Mainstream organizationNext
43. Heavyweight TeamA group of people who are pulled out of theirfunctional organizations and placed in a teamstructure that allows them to interact overdifferent issues at a different pace and withdifferent organizational groups than theyhabitually could across the boundaries offunctional organizations – to changeprocesses.Return
44. Organization’s Valuestandards by which employees makeprioritization decisionsReturn
45. Autonomous Organization► New growth opportunity in non- consumption market – disruptive opportunity► Autonomous organization shares different value► Opportunity, not threat
46. A Framework forFinding the Right Organizational Structure and Home