2. Creates an entirely NEW market through the
introduction of a new kind of product or service
Makes a product or service perform better in
ways that customers have already evaluated in
the mainstream market
Sustaining
Innovation
Disruptive
Innovation
3. DISRUPT-IVE INNOVATION: LITERALLY
CREATING CHAOS IN THE MARKET!
1) It is an innovation that creates a
new market and value network, and
eventually disrupts the existing market
and value network displacing an
earlier technology
2) The new product or service costs
less than existing products or
services, and therefore is priced less,
and may not appear as attractive as
existing solutions
3) Initially, the new product performs
worse than existing products when
judged by the performance metrics that
mainstream existing customers value.
Eventually, however, the performance
catches up and addresses the needs
of mainstream customers
5. WHY IS IT IMPORTANT?
Companies nowadays are more and
more involved in sudden
changes and innovations
NEED FOR MANAGERS THAT ARE ABLE TO HANDLE THEM!
ESPECIALLY ESTABLISHED FIRMS WHERE SUCCESSFUL PROCESSES AND
BUSINESS MODELS MAY AFTERWARDS DOOM THEM TO FAILURE
GOOD MANAGERS SHOULD
- understand abilities and disabilities of the organization as whole and..
-recognize what types of change the existing organization is capable or
incapable of handling
IN ORDER TO MAKE APPROPRIATE ORGANIZATIONAL RESPONSE TO
THE OPPORTUNITIES THAT ARISE FROM DIFFERENT KIND OF CHANGE
6. Factors that affect what an organization can or cannot do
Question for mangers: how each factor might affect the capacity to change?
RESOURCES:
What can this company do?
Tangible assets: people, equipment, technologies
Intangible assets: brands, product design, relationship
with suppliers
PROCESSES:
Patterns of interaction, coordination, communication
and decision making that employees use to
transform resources into products and services of
greater worth
7. Two sets of values whose evolution makes companies
progressively less capable of addressing disruptive change
1) The way the company judges acceptable gross margins
for a new idea
eg: Adding new features to the product can attract new customers but
also increase overhead costs
2) How big a business opportunity has to be before it
can be considered interesting
eg: Small business opportunity are not interesting for big companies
VALUES: setting priorities
Standards by which employees set priorities that enables them to judge whether
- an order is attractive or unattractive,
- a customer is more important or less important,
- an idea for a new product is attractive or marginal
Where is the
threshold
value
for the
company?
8. IN THE END, PEOPLE, PROCESSES AND VALUES BECOME A CULTURE
IN THE START-UP STAGES OF AN ORGANIZATION MUCH OF
THE SUCCESS DEPENDS ON PEOPLE
Founder’s role in shaping initial processes and hiring devoted people
OVER TIME, PROCESS AND VALUES ENHANCE THEIR IMPORTANCE
Eg: McKinsey change its hundreds of MBAs every year but it keep on working with the same
processes and values
IN CASE OF SUCCESS, MATURATION LEADS PEOPLE TO ASSUME THAT
THE PROCESSES AND PRIORITIES THEY’VE USED SO
SUCCESSFULLY ARE THE RIGHT WAY TO DO THEIR WORK
AS LONG AS THE ORGANIZATION CONTINUES TO FACE THE SAME SORTS OF
PROBLEMS THAT ITS PROCESSES AND VALUES WERE DESIGNED TO ADDRESS,
MANAGING THE ORGANIZATION CAN BE STRAIGHTFORWARD.
BUT THESE FACTORS REPRESENT ALSO DISABILITIES WHEN THE PROBLEMS THAT
THE COMPANY FACE CHANGE!
9. WHEN THE ORGANIZATION
CAPABILITIES RESIDE
PRIMARILY IN ITS PEOPLE,
CHANGES TO ADDRESS THE
NEW PROBLEMS ARE RELATIVELY
SIMPLE
WHEN THE CAPABILITIES HAVE COME
TO RESIDE IN PROCESSES AND
VALUES AND ESPECIALLY WHEN THEY
HAVE BECOME EMBEDDED IN
CULTURE
CHANGE CAN BE
EXTRAORDINARILY DIFFICULT
Addressing Disruptive Innovation may be a problem
10. Why do established industry leaders never introduce
DISTRUPTIVE INNOVATION BUT USUALLY DEVELOP JUST
SUSTAINING ONES?
- They are organized to develop and introduce
sustaining technologies
- They launch new and improved products to gain
an edge over the competition
- Investment in sustaining technology also fits in with the
values of leading companies due to the higher margins
from better products sold to mainstream customers
- This is what has historically helped them succeed!
In case of DISRUPTIVE INNOVATION
• DIs occur so intermittently that no company has a
routine process for handling them
• Disruptive products nearly always promise lower
profit margins per unit sold and are not attractive to
the company’s best customers
• So, they are inconsistent with the established
company's values
11. • They are more capable of pursuing emerging
growth markets
• They lack resources, <<but that doesn't
matter>>
• Their values can embrace small markets,
and their cost structures can accommodate
low margins
The «DISRUPTIVE» winners: START-UPs
These advantages add up to the ability to embrace and even
initiate DISRUPTIVE CHANGE
12. 1. Creating New Capabilities Internally
Creation of «HEAVYWEIGHT TEAMS»
(Revolutionizing Product Development, The Free Press, 1992)
These teams are entirely dedicated to the new challenge, team members are
physically located together and each member is charged with assuming personal
Managers need to pull the relevant people out of the existing organization
and draw a new boundary around a new group
How can a large company develop capabilities
to cope with change?
13. How can a large company develop capabilities
to cope with change?
2. Creating Capabilities Through a Spinout Organization
Managers have to spin out an independent organization from the existing
one and develop within it new processes and values required to solve the
new problem
• A new physical location isn't always necessary
• The development of a new operation doesn’t necessarily mean
abandoning the old one
Generally companies need to run
the two business in tandem
Only the attentive oversight of the CEO can ensure
that the new organization gets
the required resources and creates
appropriate processes and values
NO EXCEPTIONS TO THIS RULE!
14. 3. Creating Capabilities Through Acquisition
How can a large company develop capabilities
to cope with change?
Managers have to acquire a different organization whose processes and
values closely match the requirements of the new task difficult task!!
POSITIVE EXEMPLE
Cisco Systems' acquisitions
Process has worked well
because it has kept resources,
processes and values in the right
perspective
UNSUCCESFUL FUSIONS
Financial analysts have
a better intuition about
the value of resources than
they do about the value of
processes
15. CONCLUSIONS
Important questions for managers coping with a change
• Does the organization have the processes and values
it needs to succeed in this new situation?
• Are the processes by which work habitually gets done
in the organization appropriate for this new problem?
• Will the values of the organization cause this initiative to
get high priority or to languish?
They employ highly capable people and then set them to work within organizational
structures whose processes and values weren't designed for the task at hand
MAIN PROBLEM FOR INNOVATION FOR ESTABLISHED FIRMS
Ensuring that capable people are ensconced in capable organizations:
This is a major responsibility of managers in a transformational age such as ours!
NEED FOR
