This lecture is part of course New Technology at Reykjavik University.

1. Disruptive Technology “In questions of science, the authority of a thousand is not worth the humble reasoning of a single individual.” - Galileo Galilie. Copyright © 2011, Ólafur Andri Ragnarsson

2. The World is Changing Copyright © 2011, Ólafur Andri Ragnarsson

3. Technology doesn’t care Copyright © 2011, Ólafur Andri Ragnarsson

4. Copyright © 2011, Ólafur Andri Ragnarsson Adjacent Possible When in one room someone will open the next door

5. Copyright © 2011, Ólafur Andri Ragnarsson Western Union Telegraph Business

6. Copyright © 2011, Ólafur Andri Ragnarsson Bell offered the telephone patent for $100.000 Western Union turned Belldown Bellwent into business himself, founding AT&T

7. Copyright © 2011, Ólafur Andri Ragnarsson In 1900 AT&T had over million users AT&T revenues were $13 million while Western Union’s revenues were $6 million

8. Copyright © 2011, Ólafur Andri Ragnarsson Why would Western Unionmake such short-sighted decision?

9. We tend to view technology based on past usagesbut not the future potential Copyright © 2011, Ólafur Andri Ragnarsson

10. How will this innovationchange an industry, and what impact does this have on the firms I care about? Copyright © 2011, Ólafur Andri Ragnarsson

11. Copyright © 2011, Ólafur Andri Ragnarsson Nordic Marketing Conference of Lottery Companies, Mývatn, September 1995

12. Sustaining Innovations Gradual Improvements Foster improved product performance Each year new and improved products are offered Copyright © 2011, Ólafur Andri Ragnarsson

13. Market Leading Companies Have a high probability of beating entrant attackers when the contest is about sustaining innovations Incremental or radical improvements to already existing products Airplanes that fly further, computers that process faster, and televisions with clearer images Copyright © 2011, Ólafur Andri Ragnarsson

14. Copyright © 2011, Ólafur Andri Ragnarsson Red Ocean Industry Bloody Competition Well know industry boundaries Rules are established, sustained Innovation Commodites Disruption Blue Ocean Value Innovation Align innovation with utility, price, and cost position NewTechnology, new markets

15. Disruptive Technolgoy The product performance is good enough to fulfill a unfilled need in the market Current products can’t compete Copyright © 2011, Ólafur Andri Ragnarsson

16. The Disruptive Innovation Theory Existing companies have a high probability of beating entrant attackers when the contest is about sustaining innovations Copyright © 2011, Ólafur Andri Ragnarsson Source: (Christensen, 2000)

17. The Disruptive Innovation Theory New organization can use relatively simple, convenient, low-cost innovations to create growth and triumph over powerful incumbents Copyright © 2011, Ólafur Andri Ragnarsson Source: (Christensen, 2000)

18. The Disruptive Innovation Theory Low-end Can occur when existing products and services are “too good” and hence overpriced relative to the value existing customer can use – Value Innovation Copyright © 2011, Ólafur Andri Ragnarsson Source: (Christensen, 2000)

19. The Disruptive Innovation Theory New-market Occur when characteristics of existing products limit the number of potential consumers or force consumption to take place in inconvenient, centralized settings Copyright © 2011, Ólafur Andri Ragnarsson Source: (Christensen, 2000)

20. The Disruptive Innovation Theory Copyright © 2011, Ólafur Andri Ragnarsson Source: Christensen et. al. Seeing what’s next

21. The Innovators Dilemma Firms that succeed in one generation of innovation almost inevitable become hamstrung by their own success and thus doomed to lose outin the next wave of innovation Copyright © 2011, Ólafur Andri Ragnarsson Source: (Christensen, 2000)

22. Disruption and Innovation Copyright © 2011, Ólafur Andri Ragnarsson Force Majeure Legal/Regulatory Political Disruptive changes in Business Environment Opportunity/Pitfall to Make/Lose Money Financial Competitor Strategy Technology Popular opinion or fashion Source: Yang, Harvard

23. The Innovators Dilemma Traditional Concept of Good Management Focus on your best customers Focus on your highest margin products Cannibalism is bad Possible consequences Leads successful companies to ignore disruptive innovation threats with deadly consequences The Innovation Trap Copyright © 2011, Ólafur Andri Ragnarsson Source: Yang, Harvard

24. The Innovation Trap Copyright © 2011, Ólafur Andri Ragnarsson “We listen to our best customers”

25. The Innovation Trap Copyright © 2011, Ólafur Andri Ragnarsson “Our customer is asking for the new product, but we don’t have it and its to late the enter the market”

26. The Innovation Trap Copyright © 2011, Ólafur Andri Ragnarsson “Our customer are starting to ask for our new product.”

27. Copyright © 2011, Ólafur Andri Ragnarsson It is very difficultfor incumbent companies to disrupt themselves, so usually others will do it

28. Copyright © 2011, Ólafur Andri Ragnarsson Only ONEestablished firm managed the transition from one generation to the next Image Source Page: http://www.teach-ict.com/wp/archives/264

29. Copyright © 2011, Ólafur Andri Ragnarsson Why did they fail?

30. Copyright © 2011, Ólafur Andri Ragnarsson They listened to their customers

31. The RPV Theory Resources, Processes and Values Theory Resources (what a firm has), processes (how a firm does it´s work), and values (what a firm wants to do) collectively defines an organization’s strengths as well as weaknesses and blind spots Copyright © 2011, Ólafur Andri Ragnarsson Source: (Christensen, 2000)

32. The RPV Theory Resources, Processes and Values Theory Organizations successfully tackle opportunities when they have the resources to succeed, when their processes facilitate what needs to get done, and when their values allow them to give adequate priority to that particular opportunity in face of all other demands that compete for the company’s resources Copyright © 2011, Ólafur Andri Ragnarsson Source: (Christensen, 2000)

33. The RPV Theory Copyright © 2011, Ólafur Andri Ragnarsson Possible consequences Source: Christensen et. al. Seeing what’s next

34. Copyright © 2011, Ólafur Andri Ragnarsson Western Union Telegraph Business

35. The telephone was a new-market disruptive innovation Western Union’s resources, processes, and values meant that what ultimately became the right course appeared to be unattractive at the outset Western Union saw entrants improving. However, investment in the core business kept trumping investment in the new business By the time the right course was clear, it was too late Copyright © 2011, Ólafur Andri Ragnarsson

36. Copyright © 2011, Ólafur Andri Ragnarsson Western Union was in the telegraph business, not the communication business

37. Example disruption waiting to happen Copyright © 2011, Ólafur Andri Ragnarsson

38. Copyright © 2011, Ólafur Andri Ragnarsson Book Publishers Flickr Image by wallyg

39. Copyright © 2011, Ólafur Andri Ragnarsson WhenDisruptive TechnologiesCross the Chasm

40. Copyright © 2011, Ólafur Andri Ragnarsson “’This time it’s different’ are the four most expensive words in the investing language ” - Sir John Templeton Photo by flickr.com/photos/r4n/

41. The Hype Cycle A graphic representation of the maturity, adoption and business application of specific technologies Copyright © 2011, Ólafur Andri Ragnarsson

42. Copyright © 2011, Ólafur Andri Ragnarsson NASDAQ January 2000 The Internet Bubble

43. Copyright © 2011, Ólafur Andri Ragnarsson

44. Copyright © 2011, Ólafur Andri Ragnarsson

45. The Railway Bubble Railway Stock in Britain The value of railway stock grew 4 fold from 1826 to 1846 Many companies, heavy overinvestment The Bubble burst 1846 Copyright © 2011, Ólafur Andri Ragnarsson

46. Summary The Innovators Dilemma The Innovators Trap The Disruptive Innovation Theory Resources, Processes and Values Theory Copyright © 2011, Ólafur Andri Ragnarsson