Disruptive innovation - easy peasy explained
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Ever wondered what disruptive innovation is all about? It is not about web services, it is not about digital, (even though it could be!) but rather about gross margins and growth opportunities.
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Disruptive innovation - easy peasy explained
- 2. Disruptive innovation Why big companies aren’t always capable of seizing the moment
- 3. Can one company manufacture both of these products?
- 4. Cable operated excavators was dominant during many years up until the 50ies
- 5. During the 50ies the first hydraulic operated excavators entered the market
- 6. 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!
- 7. Why is that? 23 november 2011 Sida 7
- 8. The logic was that ”The bigger the bucket, the better the excavator!” Bucket size Product performance Time
- 9. 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!
- 10. 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?
- 11. 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 users Product performance Need for locala contractors Need for private persons Hydraulic excavators Time
- 12. 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 better Impact on decisions Values and capabilties Processes Resources Difficulty to change
- 13. 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 Growth volume
- 14. 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 costs gross margins Net margins
- 15. 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
- 16. 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 loss When considering disruptive technologies incumbent companies will not see the benefits
- 17. 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 volume Disruptive technologies can’t fulfill the growth need for a big company Demanded revenue growth Incumbent current revenue Disruptive revenue possibilities Disruptive current revenue
- 18. Incumbent companies do not have the values to invest in disruptive technologies due to the very reason that makes them succesful!
- 19. 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?
- 20. Examples of possible disruptive innovations Incumbent technology Disruptive technology Affected industry Software sector Installed office software Online cloud applications
- 21. Examples of possible disruptive innovations Incumbent technology Disruptive technology Affected industry Telco sector Proprietary operator centric Open source user centric telco telco model model
- 22. Examples of possible disruptive innovations Incumbent technology Disruptive technology Affected industry Fredrik Kansli Public sector Sjukvård Skola Polis Department centric public Citizen centric public services services
Editor's Notes
- The resources that reside within a given organisation. Could be people or any other type of resources. Could rather easily change to manufacture and sell new type of technologyHow resources interact in order to perform the activities needed to add value. Not as easy to change as resources. Processes in place to sell new technology probably not in placeValues define the common sense in investment decisions within a company, i.e. what is worth doing and not. Values define what a company can do but more importantly, what it can not do
- The growth problem: The bigger the company, the bigger NEW revenuestream must be addedeveryyear to ensure the demandedgrowth from shareholders. This leads to lowacceptance for investements with lowprojectedvolumes