Change management and strategy mtb 19 may 2016 - dr sam ruturi disruptive innovations

Masterclass in Disruptive Innovations Strategies © Dr Sam RUTURI
2016
samruturi@yahoo.com Cell 263- 0734 371 341 / 263- 0734371340
1
MBS
MORTGAGE BANKING SCHOOL
OF SOUTHERN AFRICA
UNIVERSITY OF ZIMBABWE
GRADUATE SCHOOL OF MANAGEMENT
Continuous Professional Development
Centre for Advanced Strategy and Leadership
MORTGAGE BANKING SCHOOL OF SOUTHERN AFRICA
Masterclass in Disruptive Innovations
“Strategies to Beat Your Most Powerful Competitor”

UZ - MBA 543 - MANAGING
CHANGE AND COMPLEXITY
© DR.
2
Job Challenge What I do for fun
Who I admire
Happiest moment
in my life
PRESENTER: Dr. Sam RUTURI
FETC, (Lon),AIBS,(SA);AIB,(SA); Dip. H.F (USA), Grad. Diploma IMM (SA); BBA.(SA) B. Com . (SA) MSc. (UK); MBA
(NUST) ,MBA,(USA) PhD (USA), B Phil . MCom, (SA). DBA (France) (Pending)
Director & Senior Lecturer: 1. Mortgage Banking School of Southern Africa
Part-Time Lecturer: 2. MBA - G S M; University of Zimbabwe
Part-Time Lecturer: 3. MBA – GSB -Chinhoyi University of Technology
Consultant & Facilitator: 4. Strategy, Quality, Change and Housing Finance
Day I bought
my first house
Tom
PETERS
Teaching people to
learn to act on what
they have learnt
LET ME INTRODUCE MYSELF…
Play Golf
for Fun

“Disruptive Innovations:
Strategies to Beat Your Most Powerful Competitor”
Programme Agenda: Thursday 19 May 2016
08:00 to 08:15 AM - Welcome and Introductions
08:15 to 09:30 AM - Innovators Dilemma:
Sources, Types and Myths of Disruptive Innovations
09:30 to 10:45 AM - Disruptive Innovation Models:
A Valuable Corporate Asset- The Steel Industry & Industries in Zim.
10:45 to 11:00 AM - Innovator’s Battle Plan
Competitive advantage, Asymmetries of Motivation and Skills
11:00 to 12:45 AM - Shaping Ideas to Become Disruptive:
Challenger’s Game changing Business Strategies & Models
12:45 to 13:50 AM - Conclusions
Question and Answer Session
2016

Introduction
The Executive Director of Management Training
Bureau and Staff, Distinguished Guests, Ladies and
Gentlemen
• I do not profess to be an expert in your industries.
Because you are the experts and you know your
industries better than I do.
• Neither can I prescribe solutions to resolve all your
industry problems
• BUT, what I would like to offer you, is a NEW LENS of
Theory that could be used to look into your firms in
order to understand some of the changes giving rise
to the problems afflicting your industries.
Masterclass in Disruptive Innovations Strategies © Dr Sam RUTURI 2016
samruturi@yahoo.com Cell 263- 0734 371 341 / 712221348 Telephone: 263 4 750447/8

Please apply this theory because :
“There is nothing so practical as good Theory”
The NEW LENS that I am offering you is the
DISRUPTIVE INNOVATION THEORY (DIT)
2016

The
Innovator’s
Dilemma
The
Innovator’s
Solution
Seeing
What’s
Next
Professor Clayton M. Christensen’s Books
2016

•Barriers to Entry
– Lobby for legislation that Excludes Rivals to
reduce Competition
– Zimbabwe Automobile industry against
Importers of Used Vehicles
– Banks Versus ECONET
Build Non-Competitive Industry Structures
StrongDefensiveWalls
• Reduce Rivalry
• Use Price Wars: Telecell Vs ECONET
• Differentiate—Generic Strategies
• Segment and Divide Up Markets
• Use the Power of Monopoly
• Over Buyers - ZESA, NRZ
• Over Suppliers – ZIMCHE, Universities
2016

Yester-year success breeds hubris. And hubris begets
Complacency and complacency breeds normalisation
of arrogance and arrogance brings failure
Yester-year Success

 Challenges Facing Industries In Zimbabwe are to:-
 rebuild growth, and profitability,
 up-skilling staff and achieve efficiencies following
the period of hyper-inflation and the collapse of
industries.
• Problems are further compounded by
disruptive innovations from within and
outside and these have brought about
structural changes in many industries.
• These Convergent Disruptions have created a
hypercompetitive VUCA environment.
2016

What Kind of a World Do You Live In?
…Falling Barriers
• Unconventional Entrant Attackers?
 Mushikashikas
• Foreign Entrant?
Chinese or Nigerian phenomenon
•Industry Collision & Adjacent Industry?
Telecoms versus Banks,
Supermarkets versus Banks
Housing Cooperatives versus Formal Building Contractors
• Convergence Disruptions?
Firms copying each other - copiers that , store docs , scan, print, collate
Smartphones, email s, camera, internet, calendar, music, games, typewriter,
whatsapp, ebanking, calculatorMasterclass in Disruptive Innovations Strategies © Dr Sam RUTURI
2016

What is Disruptive Innovations?
“Disruptive innovation theory (DIT) points to
situations in which new organizations can use:
• relatively simple,
• convenient,
• cheaper,
• low-cost innovations to create growth and
triumph over powerful incumbents,
The entrant attackers (disruptive innovators)
serve the
least demanding underserved customers,
as well as those not currently served”

Disruptive Innovation Theory
“Undershot and Overshot”
Time
Performance
Overshot Customers
Give examples of products that started with an undershot and with improvements ended
with an overshot e.g. cell-phones, cell-phone number, television sets, cars, books, on
internet buying, reading, kindle
• When customers are undershot they continue to
pay a premium for improvements in functionality
• When customers are overshot they no longer will pay a premium for
improvements and the basis of competition changes
Customer Demand Trajectory
Product Im
provem
ent Trajectory
Undershot Customers
2016

13
Sustaining Innovations Most Demanding
Customers
Performance
that customers
can utilise
Performance
Time
Source: Ruturi, S. 2015; Adapted from Christensen , C. Innovator’s Dilemma Harvard
Business School
Least Demanding
Customers
Pace of Technological improvement trajectory
PerformanceLevel&
Customerdemandlevel
2016

Why is Disruptive Innovation Important?
• Helps Create New Markets
• Disrupts an Existing Market and Value Network
– Can Take a Few Years or Even Decades
• Displaces an Earlier Technology
• Unpredictable
• Designed for a Different Set of Consumers in a
New Market
• Lowers Prices in Existing Market
2016

Why is Success Very Difficult to Sustain?
If you look across the sweep of business history you will see that
companies that were widely regarded as unassailably successful,
a decade or two later they were at the middle of the pack and
often a decade later they were at the bottom of the heap and in
many cases they were no more in existence.
Zimbabwe’s Corporate Graveyard
BOO
K
PUBLISHIN
G
INDUSTR
Y
R.I.P
Zimbab
we POST
OFFICE
R.I.P
ZUPC
O
R.I.P
ZISC
O
R.I.
P
Textile
industry
R.I.P
2016

Why is Success Very Difficult to Sustain?
If you look across the sweep of business history you will see that
companies that were widely regarded as unassailably successful,
a decade or two later they were at the middle of the pack and
often a decade later they were at the bottom of the heap and in
many cases they were no more in existence.
Zimbabwe’s Corporate Graveyard
BOO
K
PUBLISHIN
G
INDUSTR
Y
R.I.P
POST
OFFICE
R.I.P
ZUPC
O
R.I.P
ZISC
O
R.I.
P
Textile
industry
R.I.P
2016

Magnetic
Tapes
INDUSTRY
R.I.P
Walk
man
R.I.P
Video
Recorde
r
R.I.P
Photo
Films
R.I.P
Video
Shop
s
R.I.P
Technology is Going to Advance and There is
No Stopping it, Even if it Ruins an Industry…
…The Good News is That it Often
Creates a New Industry
2016

Companies Either Get on Board…
BOOK
PUBLISHING
INDUSTRY
R.I.P
POST
OFFICE
R.I.P
ZUPC
O
R.I.P
ZISC
O
R.I.
P
David
Whitehea
d
R.I.P
…Or Get Left Behind in Corporate Graveyard
2016

NEW IMPORTANT CONCEPTS
• Asymmetry of motivations arises when what
interests one company is not the same as what
interests the other company.
• Asymmetry of skills arises when one company’s
strength is another company’s weakness, and
vice versa.
• The law of conservation of attractive profits.
• Companies when confronted with an attacker they
flee or take flight to profits
• The law states that in the value chain there is a
requisite juxtaposition of modular and interdependent
architectures, and of reciprocal processes of
commoditization and de-commoditization.
Graduate School of Management-University of Zimbabwe - MBA 543 - Managing Change & Complexity
© Dr. Sam RUTURI 2016 Email: samruturi@yahoo.com cell: 263 734371341
Landline 263 4 750447/8

• Disruption is proven to be such a consistently
effective strategy for causing strong
incumbent competitors to flee from their
entrant attackers, rather than fight them
• Shape a business idea into a disruptive
strategy
• Know in advance which growth strategies
would succeed, and which would fail
Graduate School of Management-University of Zimbabwe - MBA 543 - Managing Change & Complexity
© Dr. Sam RUTURI 2016 Email: samruturi@yahoo.com cell: 263 734371341
Landline 263 4 750447/8

Beat competitors with asymmetry of motivation
“The Flee or Fight for Profit” -Law of Preservation of Attractive Profits
% Tons
of Steel
55%
22%
8%
4%
7%
12%
18%
25%-30%
% Profit Margin
Integrated Steel Mills
M
ini Steel M
ills
1975 1980 1990 2000
Rebar
Sheet Metal
Angle iron, bars & rods
Structural Steel
SteelQuality
2016

What is Creativity and Innovation?
And the often unspoken goal of innovation is to:
CUSTOMERS SOLVE A PROBLEM
• Creativity and Innovation
• The creativity is the generation of new
ideas, while the innovation is making
money out of those ideas
2016

Innovation Comes In Many Forms
Product Innovation
-New product or service
Technological Innovation
-Enabling technology
Market innovation
Branding/
Marketing
Promotion innovation
Packaging
Institutional Innovation
-New business model
Process Innovation
Internal process
Six Sigma
2016

What is the Difference Between…
Sustaining
Innovation
“Doing it Better”
Make products better for
mainstream customer
Expensive
Better quality
Inconvenient
Existing value network
Does Not Create New
Growth
“Playing the Game Differently” –
Game Changer
 Creates a New Market
 Transforms or Destroys Current
Market
 Products Become
Simpler
 More Affordable
 More Accessible
 Customizable
Subsequently Markedly Superior
 Drives Growth
2016
Disruptive
Innovation&

INTRODUCTION TO DISRUPTIVE INNOVATIONINTRODUCTION TO DISRUPTIVE INNOVATION
Because companies tend to innovate faster than
their customers' lives change, most organizations
eventually end up producing products or services
that are:-
too good,
too expensive, and
too inconvenient for many customers.
Such companies eventually become good
candidates for disruptions because they are
sustaining innovations
2016

Example: A Firm Pursuing Sustaining InnovationsProductPerformance
SustainingInnovations
Products become
 too good,
 too expensive,
too inconvenient
By pursuing only "sustaining
innovations" that perpetuate
what has historically helped
them succeed, companies
unwittingly open the door to
disruptive innovations.
Time
PaceofTechnologicalimprovement
trajectory
2016

How Does A Little Boy Kill The Giant?
Know in advance of the battle plan whether
you are going to be able to beat the
competition?
Disruptive
Innovation
Sustaining
Innovation
2016

Can You SPOT The Difference?
2016

Would you Agree that these two cars
have a Price Difference of £220 00?
2016

The original Spirit of Ecstasy on the Rolls Royce Phantom (left) and
on the Geely GE (right)
Chinese car companies have a reputation for copying foreign classics
– sometimes leading to legal action.
The Real Deal:
2016

Can You Spot The Brand
Difference?
Who is Disrupting Who?
2016

Who is Disrupting Who?
Can You Spot The Difference?
Chinese Geely Price $40K
Rolls Royce Price $400KMasterclass in Disruptive Innovations Strategies © Dr Sam RUTURI
2016

Computer Industry - Disruptive
Innovations:
Transform complicated, expensive products, into simpler
and more affordable ones to underserved market
segments
Miniframe: P = $500 000
GM = $150 000
Desktop (PC): P = $2 000
GM = $ 700
Laptop: P = $1 000
GM = $ 250
Smart Phone P = $200
GM = $ 80
Segment B:
Customers with
money and Skill
Segment C:
Customers with
less money and
low skill
Segment D:
Customers with
small money and
low Skills
Segment E:
Customers with
little money and
no skill
Mainframe
P = $2 000 000
GM = $1 200 000
Segment A:
Customers Deep
pockets and lots
of Skill
2016

Disruptive Innovation Theory
• Established firms often retreat
upmarket in the face of disruptive
attacks
• They give up their least valuable
customers in pursuit of higher margins
• Asymmetry of motivation
• Disruptive attacker develops skills and
continues upmarket.

36
Over-
served
Sustaining
Innovations
Pace of
Technological
Progress
Most Demanding
Customers
Least Demanding
Customers
Performance
that customers
can utilise
Disruptive
Innovations
Performance
Time
Unattractive Market Segment B
Attractive
Market
Segment A
New competitors nearly always win
Incumbents nearly
always win
Source: Ruturi, S. 2015; Adapted from Christensen , C. Innovator’s Dilemma Harvard
Business School
Sustaining Innovations Versus Disruptive Innovations
2016

Fascinating Industry
Disruptions
• Banking Industry: Banks versus
Telecommunications Industry
• Education Sector: Universities versus Company
Academies & On-line Degrees
• Urban Passenger Transport: ZUPCO versus
Commuter
• Funeral Services Sector: Funeral Homes Services
versus SME Funeral Services Sector
• Steel Industry: Integrated Mills Versus Mini Mills
2016

CLAYTON CHRISTENSEN INSTITUTE# christenseninst
UZ Graduate School of Management is Being
Disrupted
Performance
Time
Time
DifferentMeasure
ofPerformance
1 - 1½Part-time MBAs MSU, NUST, AU
1 - Year Online “MBAs” Overseas
2½ - 3 Year MBA UZ
Corporate Universities: Competing
against nonconsumption
Distance Learning MBA ZOU
Overshot
Market
Help me solve this problem
Teach me what I need to know to become a great manager
Give me the credentials I need to get the next, more lucrative
job
Help me switch careers
Help me join a prestigious network
• Brand
• Connections
New Market
2016

39
Over-
servedSustaining Innovations
Commercial Banks - Money Transfer
Most Demanding
Customers
Least Demanding
Customers
Performance that
customers can
utilise
Performance
Time
Unattractive
Market
Segment B
Attractive
Market
Segment A
Incumbents nearly always win
Source: Ruturi, S. 2015; Adapted from
Mobile Banking ECHOCASH
1st Generation Disruptive Innovations
Unattractive Market
Segment C
CASE 1: BANKING SECTOR
Peer-to Peer Lending
2
nd Generation Disruptive Innovations
Pace of technological Progress Trajectory
2016

40
Over-
served
Sustaining Innovations
UZ - MBA 2½ Years
Pace of
Technological
Progress
Least Demanding
Customers
NUST – MBA 1-1½ Year Programme
1
st Generation Disruptive Innovations
Performance
Time
Unattractive
Market
Segment B
Attractive
Market
Segment A
Incumbents nearly
always win
Zim-Online – MBAs-1-1½ Year
2nd Generation Disruptive Innovations
Unattractive
Market
Segment C
CASE 2: University Education
Most Demanding
Customers
Performance that
customers can
utilise
2016

41
Over-
served
– DovesMorgans Funeral
Homes
Pace of
Technological
Progress
Nyaradzo –
1
Performance
Time
Unattractive
Market
Segment B
Attractive
Market
Segment A
Incumbents nearly
always win
SME Funeral homes
Unattractive
Market
Segment C
CASE 3: FUNERAL SERVICES
Most Demanding
Customers
Least Demanding
Customers
Performance that
customers can
utilise
2016

42
Over-
served
–Commercial Passenger Airlines
Pace of
Technological
Progress
No frills Airlines –
1
Performance
Time
Unattractive
Market
Segment B
Attractive
Market
Segment A
Incumbents nearly
always win
Unattractive
Market
Segment C
CASE 4: Transport- Airline Services
Most Demanding
Customers
Least Demanding
Customers
Performance that
customers can
utilise
2016

43
Over-
served
–ZUPCO Passenger
Pace of
Technological
Progress
Commuter Omnibuses
1
Performance
Time
Unattractive
Market
Segment B
Attractive
Market
Segment A
Incumbents nearly
always win
Mushikashikas
Unattractive
Market
Segment C
CASE 5: Zimbabwe Urban Commuter Services
Most Demanding
Customers
Least Demanding
Customers
Performance that
customers can
utilise
2016

CASE 5: Harare’s Urban Commuter Transport
Sustaining
innovation
Ist Generation
Disruptive innovation
2nd Generation
Disruptive innovation

Organizations are unaware of the importance of disruptive innovations
 Can’t see it’s value - Can’t see it’s threat
Cause of downfall of many companies.
Barrier 1:
Strategic Importance Not Understood
2016
 Organizations don’t contain the brainpower or resources to come up with ideas for disruptive
innovations
 Can’t move forward with an idea if there’s no idea to begin with
Barrier 2:
Inability to Generate Disruptive Concepts
 Not enough money
 Money isn’t flexible
People with the money aren’t flexible
Barrier 3:
Inappropriate Funding
Barrier 4:
Product Development isn’t Conducive to
introducing Disruptive Innovations

Question 3:
Thirdly Explore whether the innovation is sustaining to
one or more significant players in the industry, then
the odds will be stacked in that firm’s favour, and the
entrant is unlikely to win.
Assessing Disruptive Potential
2016
Question 2:
Secondly, explore whether there is potential for a low-
end disruption/over-served or new markets.
Executives must answer three questions;
Question 1:
Firstly, explore whether the idea can
become a new-market disruption.

Immelt’s Approach
• Shift power to where the growth is.
• Build new offerings from the ground up.
• Customize objectives, targets, and metrics.
• Build the DI unit from the ground up, like
new companies.
• Have the DI unit report to someone high in
the organization.
47
2016

In Conclusion…
Disruptive innovation begins as less
desirable, but eventually creates a new
paradigm shift
Harnessing disruptive innovation is a
process, from generating ideas to putting
these ideas into action
Certain barriers exist to disruptive
innovation
In Conclusion
2016

Mainframe
Miniframe
Desktop (PC)
Laptop
Smartphone
Disruptive Innovations
ECONOMIC ENGINE FOR GROWTH
Efficiency
Innovations
Factors Disruptive
Jobs Creates
Capital Uses
Factors Disruptive Sustaining
Jobs Creates Little
Capital Uses Little
Factors Disruptive Sustaining Efficiency
Jobs Creates Little Eliminates
Capital Uses Little Frees
2016

But for the Future –Sustaining innovators
Beware Arrogance –
“Today’s Peacock is Tomorrow’s Feather Duster”
2016

Prof. Christensen, Clayton M., The Innovator's Dilemma:
When New Technologies Cause Great Firms to Fail,
Boston, MA: Harvard Business School Press, 1997.
Prof, Christensen, Clayton M. and Michael E. Raynor, The
Innovator's Solution: Creating and Sustaining
Successful Growth, Boston, MA: Harvard Business
School Press, 2003.
Prof, Christensen, Clayton M., Scott D. Anthony, and Erik
A. Roth, Seeing What’s Next: Using the Theories of
Innovation to Predict Industry Change, Boston, MA:
Harvard Business School Press, 2004.
Dr Sam Ruturi; Chapter 2: Disruptive Innovations: In
An Era of Convergent Disruptions; MBA 543 Change
Management and Complexity. Graduate School of
Management. University of Zimbabwe
References:
2016

52
2016

Is the innovation disruptive to all of
the significant incumbent firms in the
industry?
If it appears to be sustaining to one or
more significant players in the
industry, then the odds will be stacked
in that firm’s favour, and the entrant is
unlikely to win.
Assessing Disruptive Potential
2016

The Real Deal:
• A Rolls Royce Phantom which costs £250,000 - compared to
£30,000 for the Geely GE
• The grille, the Flying Lady mascot, also known as the Spirit of
Ecstasy, and the Rolls-Royce name and initials are specifically
protected.
• With its £250,000 price-tag, the original Rolls-Royce Phantom
has always been the preserve of the privileged few.
But in contrast;
• Costing just £30,000, the Geely GE, which stands for Geely
Excellence, appears to offer a ‘luxurious mobile palace’ on a
much tighter budget.
• For your money, you get an air purifier with separate air
conditioning, described as an ‘oxygen bar’, cigar storage, a
refrigerator and a ‘starlight’ interior roof lining – a signal
feature of the original Phantom.
2016

SPECS ROLLS-ROYCE
PHANTOM
GEELY GE
THE GEELY EXCELLENCE
BUILT: Goodwood, Sussex Zhejiang, China
PRICE: £250,000 £30,000
ENGINE: Mammoth 6.75litre V12 3.5litre V6
LENGTH: 19ft 2 inches 17ft 6 inches
TOP SPEED: Artificially restricted to 150mph / 0-
62mph: 5.7 seconds
110mph (estimated) 0-62mph: 10
seconds (estimate)
FEATURES: Original 'Grecian-style' large grille.
Spirit of Ecstasy mascot, also
dubbed 'The Flying Lady'. Romantic
'starlight Headliner' in roof to
emulate night sky. Drip dry
umbrellas hidden in rear doors. 9
standard wood veneers. 44,000
different exterior colours.
Cashmere blend headliner.
Lambswool rugs Special soft leather
interior
Single rear 'throne'. Pastiche 'Grecian-
style' large grille. Flying Lady-style
mascot
Romantic 'starlight Headliner' in roof to
emulate night sky. Glass interior divider
Pure wool carpet. 'Six star' safety. Cigar
store. Refrigerator. Wine cabinet
2016

SWISS ARMY KNIVE CONVERGENCES
2016

Would you Agree that these two cars
have a Price Difference of £220 00?
2016

2016

Sustaining Innovations Vs Disruptive Innovations
2016

Change management and strategy mtb 19 may 2016 - dr sam ruturi disruptive innovations

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