Determine whether the technology is disruptive or sustaining: disagreement between marketing and research group, caused by different managerial and financial incentive structure. Top-level manager should explore.
Define the strategic significance of the disruptive technology: asking the right questions to the right people, lead customers are reliably accurate to assessing the sustaining technologies, but also reliably inaccurate when assessing the disruptive technologies.
Locate the initial market for disruptive technology: the traditional market-sizing tool is usually ineffective, disruptive technology signal the emergence of new market, where the future market will be. The traditional market gauging method is not designed for disruptive market. Small and hungry organizations are good at agilely test the market and make strategic change in response to market feedback. Every company that has tried to manage mainstream and a disruptive businesses within a single organization failed.
Place responsibility for building a disruptive technology business in an independent organization: in order that it may live, a corporation must be willing to see business units die.
Chapter 1 The growth imperative:
Pursing growth the wrong way can be worse than no growth at all. Example from ATT. Company has to grow, but how? When core business grow maturity, and investors demand new growth, the management made seemingly sensible strategies to generate it, their plan fail to meet the market expection, and they sacked. Shareholder has to recruit a new patch of management and back to low-growth core business mode.
A dearth of ideas is rarely be the core problem in a company that struggles to launch new growth business, the problem is in shaping the process, potentially new ideas seem inexorably to be recast into attempts to make existing customers still happier.
How theory is build? It proceeds in 3 stages, begins with describing the phenomenon. After the phenomenon has been thoroughly characterized, researcher can start classify the phenomenon into categories of corporate diversification, in last stage researchers articulate a theory that asserts what causes the phenomenon to occur, and why. The theory must show whether and why the same causal mechanism might result in different outcomes, depending on the category or situation, the process of theory building is iterative, researchers and managers keep cycling through there three steps, refining their ability to predict what actions will cause what result, under what circumstances.
The middle stage in this cycle—getting the categories right is the key to developing useful theory
<Phd research questions come from when a fad theory wont work. Asking questions like this almost always improves the validity of the original theory. This opportunity to improve our understanding often exists even for very well done, highly regarded pieces of research>
Chapter 2 How can we beat our most powerful competitors?
in sustaining circumstances-when the race entails making better products that can be sold to more money to most attractive customers, the incumbents almost always win. In disruptive circumustances-the challenge is to commercialize a simper more convenient product, that sells for less money to a new unattractive customer set-the entrant are likely beat the incumbents. It’s the managers responsibility to shape any tech and business model to the form of disruptive impact, and then implement it, because, the research advise the odds of competitive success is much higher for disruptive strategy.
A sustaining innovation targets demanding, high-end customers with better performance than what was previously available, it's the incremental improvements that all good company grind out. The established firms has the resource to win the sustaining battle, all their products are tailored for higher profit margins to best customers.
Disruptive innovation don't attempt to bring better product in existing market, rather they disrupt and redefine the trajectory by introducing the products are not good as the current available products, but it offers other benefit-typically more simpler and convenient and less expensive products that appeal to less-demanding customers. Once it make a foothold in the low-end market, it becomes to improvement cycle, because the pace of tech progress is overpass the customer’ abilities to use it, when eventually the not-so-good tech meet the requirement of demanding customers, the disruptors are on a path to crush the incumbents.
That’s why most current established firm are triumph the battle in sustaining battle, and successful disruption have been launched most often by entrant companies. It’s the core of innovation dilemma, that, with resource allocation process designed and perfected to support sustaining innovation, it is constitutionally unable to respond the challenge from low-end and unattractive customer that entrants find interesting.
It's not denying the importance of sustaining innovation, though it's extremely hard to fight with incumbent in that field, it usually the new entrant excel on disruptive strategy stretching up market from below to shape the rules of competition.
Disruption is a relative term a value network is the context within which a firm establish a cost structure and operating process and works with suppliers and channel partners in order to respond profitably to the common needs of a class of customers. Cost structure, choices of markets and customer to serve determines its economic value of an innovation
New market disruption vesus low end disruption
New market disruptor’s challenge is to create a new value network, where it is nonconsumption, not the incumbent, that must be overcome. The new market disruption does not invade the main stream market, rather pulls customers out of the mainstream market into the new value network. It’s hard for leading firm to feel the disruption given they keep moving up market and replacing the low margin customers to the new market value network. Only until the last stage of the new market disruption, that it's too late.
Low end disruption take root at the low end of the original or mainstream value network, low end disruption motivate the incumbents to flee the attack.
Many disruptions are hybrids, combing new market and low end approach. Disruptors in one generation becomes disruptees later.
Few tech and ideas are disruptive in nature, or inherently sustaining, it's depends on the manager to shape a strategic plan to form the tech in order to tap the market
What products will customers want to buy?
Using circumstance-based segmentation to gain a disruptive foothold, after getting the foothold, the exciting growth happens when an innovation improves in ways that allow it to displace incumbent offering. These are sustaining innovation.
The low end disruptor’s marketing task is to extend the lower cost business model up toward products that do the jobs more profitable customers are trying to get done.
The new market disruption, in contrast, the challenge is to invent the upward path, because nobody has been that trajectory before.
Who are the best customers for our products?
It’s relatively easy to identify the customers for low-end disruption, they are current customers of a mainstream products, who seems disinterested to adapt the improved-performance products, with a premium price. The key to success with low-end disruption is to devise a business model that can earn attractive returns at the discount prices required to win in low-end business.
It’s much trickier to find the new market disruption customers, how can we tell whether current nonconsumers can be enticed to begin consuming? A product that purports to help nonconsumers do something that they were not already prioritizing in their lives is unlikely to successes. A new market disruption is an innovation that enables a larger population of people who previously lacked the money and skills now to begin buying and using a product and doing the job for themselves. The job needs to be done, but the solution is historically unavailable.
Getting the scope of business right
How could a company know in advance that such a sensible decision to outsource non-core business to other companies could prove so costly? Like IBM did to outsource microprocessor to intel, and operation system to Microsoft. How can a company know which value-added activities are those in which future competence needs to be mastered and kept inside?
For those firms enjoy near-monopoly power, one key reason for their market dominance is the result of not-so-good circumstance . which mandated interdependent product or value chain architecture and vertical integration. But this is a temporary hegemony, because ultimately, companies have excelled in the race to make the best possible products find themselves making products are too good, when this happens, the entrant company begins to unravel the incumbent.
From interdependent to module design and reintegration:
1 The pace of technological improvement outscript the ability of customer to utilize it, so that a product’s functionality and reliability that were not good enough at one point overshoot what customers can utilize at a later point
2 this force companies to compete differently: the basis of competition changes, as customers become less and less willing to reward further improvement in functionality and reliability with premium prices, the suppliers get better and better to provide what customers want are able to earn attractive margins
3 as competitive pressures force companies to react fast and responsive as possible, by evolving the architecture of their product from being proprietary and interdependent toward modular.
4 modularity enables the dis-integration of the industry, a number of nonintegrated firms can now outcompete the integrated firms that dominated the industry, whereas integration at one point was a competitive necessity, It later becomes a competitive disadvantage.
With the change of customer needs, companies need to response with re-integration product performance. The general rule, companies will prosper when they are integrated across interfaces in the value chain where performance is not good enough relative to what customers require at the next stage of value addition. There are usually several such points in the complete value-added chain of an industry. Which means the industry will rarely be completely nonintegration or integrated
When the functionality and reliability of a product are not good enough to meet customers’ needs, then the company that will enjoy significant competitive advantage are those whose product architecture are proprietary and integrated cross the performance limiting value chain.
When functionality and reliability are becoming adequate, a population of nonintegrated, specialized companies whose rules of interaction are defined by modular architectures will win
At the beginning of a wave of new market disruption, the company initially will be successful will be integrated firms whose architectures are proprietary, because the product are not good enough. After years of success, those disruptive pioneers becoming susceptible to hybrid disruption of a population of fast, more flexible of nonintegrated companies whose focus gives them lower overhead cost.
How to avoid commoditization
Whenever commoditization is at work somewhere in the value chain, a reciprocal process of de-commoditization is at work somewhere else in the value chain. Whereas commoditization destroys a company’s ability to capture profits by undermining differentiability, de-commoditization affords opportunity to create and capture potentially enormous wealth.
The integrated company makes the biggest profit in the not-so-good market, for 2 reasons, first, the interdependent, proprietary architecture of their product makes differentiation straightforward. Second, the high ration of fixed to variable costs that often is inherent in the design and manufacture of architecturally interdependent products creates steep economies of scale that give larger competitor strong cost advantages and formidable entry barrier against new competitors.
Disruption and commoditization can be seen as two sides of the same coin, a company can find itself in a more-than-good-enough circumstance—that connects disruption and the phenomenon of commoditization can never win, either disruption will steal its market, or commoditization will steal its profit.
Firms that are being commoditized often ignore the reciprocal process of de-commoditization that occurs simultaneously with commoditization, either a layer down in subsystem or next door in adjacent process. They miss the opportunity to move where the money will be in the future
Big companies’ mistake based on their decision to outsource the value-added service and technology to be able to compete in the old, and money had been market. And the decoupled vertical stages in the value chain has evolve where the money will be.
Is your organization capable of disruptive growth?
resources, processes, values network
in start-up stage of business, much of what get done is attributable to its resource-the people. But the capacity mirgrate as the development of business process model, it’s key important to institute the process or the value that can help company follow up with long term success
Successful consulting firm could bear the high turnover of its people, because of its capabilities are rooted in their processes and values rather than in their resources
Managing the strategy development process
The deliberate strategy is conscious and analytical, it is often based on rigorous analysis of data on market growth, segment size, customer needs, competitor’s strength and weakness and technology trajectories.
The emergent strategy, which bubbles up from within the organization, is the cumulative effect of day-to-day prioritization and investment decisions made by middle managers, engineers, salespeople, and financial staff. Tend to be tactical, without visionary, futuristic, or strategic state of mind.
Emergent strategy should be highly appreciated in circumstance that the future is hard to read and it is not clear what the right strategy should be, this almost always the case for the early stage of a company. Emergent strategy also emerge that the formula that worked in the past may not be as effective as in the future. On the other hand, the deliberate strategy should be dominant once a winning strategy become clear.
Strategy initiatives enter the resource allocation process from two sources------deliberate and emergent. In circumstance of sustaining innovation and certain low-end disruptions, the competitive landscape is clear enough, that the strategy can be deliberately conceived and implemented. In the nascent stages of a new market disruption, it is almost impossible to get the details of strategy right; managers need to implement a process through which a viable strategy can emerge.
Three points of strategy making.
1 cost structure management, so that the customers from disruptive products could be prioritized
2 discovery-driven planning- find out what works and what not
3 ensure deliberate and emergent strategy are being followed in appropriate circumstance.
There is good money and there is bad money
Launch new growth business regularly while the core is still healthy
Divide business units to maintain patience for growth
The role of senior executives in leading new growth
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