Disruptive innovation - easy peasy explained

Disruptive innovationWhy big companies aren’t alwayscapable of seizing the moment

Can one company manufacture both of theseproducts?

Cable operated excavators was dominant duringmany years up until the 50ies

During the 50ies the first hydraulic operatedexcavators entered the market

Only four dominant players in the cable operated business still exists today……while all current dominating companies were entrants to the business in the 50ies!

Why is that?23 november 2011 Sida 6

The logic was that ”The bigger the bucket, the better the excavator!” Bucket sizeProduct performance Time

The new kind of excavator did not fit the current market place very well! Less suitable for Small bucket heavy duty work Smaller body Relatively robust Relatively weak More manouverable…But that does not mean that it was sub par, just that it was different from status quo!

The market for the different types of companies was essentially very different Market for cable operated Market for hydraulic• Big building sites • Small building sites• Earthmoving • Garden work• Mining • Ditching and och drainage• Road work • Private users• …. • … Characteristics of business Characteristics of business• Bulk sales • Sales of individual machines• Whole sales towards big end users • Retail sales• Big customers preferred with • Rental based • Big volumes and big margins • Small customers with• Economies of scale • Low volumes and low margins Why on earth would you ever wanna go into the hydraulic market?

Because market characteristics are not static and neither is the performance disruptive technology! Bucket size Hydraulic excavators Cable operated excavators Need for ”high-end” users Need for mainstream usersProduct performance Need for locala contractors Need for private persons Hydraulic excavators Time

Why didn’t the incumbent companies manage to transition into the new technology? By using the RPV framework do describe why companies act in a specific way we can understand this betterImpact on decisions Valuesand capabilties Processes Resources Difficulty to change

Values define the common sense for investment decisions within a companyThere are two main parameters that a company consider before making an investment Gross Margins Growth volume

Values define the common sense for investment decisions within a company There are two main parameters that a company consider before making an investment Gross Margins Incumbent technology Incumbent overhead Incumbent costsgross margins Net margins

There are two main parameters that a company consider before making an investment Gross Margins Disruptive technology Disruptive overhead Disruptive costs gross margins Net margins

There are two main parameters that a company consider before making an investment Gross Margins Combining disruptive technology gross margins with incumbency overhead costs creates a net loss rather than a profit Incumbent Disruptive overhead gross margins costs Net lossWhen considering disruptive technologies incumbent companies will not see the benefits

Values define the common sense for investment decisions within a company There are two main parameters that a company consider before making an investment Growth volumeDisruptive technologies can’t fulfill the growth need for a big company Demanded revenue growth Incumbent current revenue Disruptive revenue possibilities Disruptive current revenue

Incumbent companies do not have the values to invest in disruptivetechnologies due to the very reason that makes them succesful!

Some Swedish disruptors• SKF Förlänger livstiden 2000 ggr!• IKEA Skär bort något som ansågs nödvändigt• HM Prefabricerar istället för individuellt• Claes Ohlson Någon som sett några järnhandlare nyligen!• Skype Prata gratis!• The Pirate Bay Skall vi byta grejer med varandra?

Examples of possible disruptive innovations Incumbent technology Disruptive technology Affected industry Software sectorInstalled office software Online cloud applications

Examples of possible disruptive innovations Incumbent technology Disruptive technology Affected industry Telco sectorProprietary operator centric Open source user centric telcotelco model model

Examples of possible disruptive innovations Incumbent technology Disruptive technology Affected industry Fredrik Kansli Public sectorSjukvård Skola PolisDepartment centric public Citizen centric public servicesservices

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Disruptive innovation - easy peasy explained

by Johan Bergelin on Nov 23, 2011

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Disruptive innovation - easy peasy explained — Presentation Transcript