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August 19 - August 22, 2016
Even though most managers don’t think of themselves as being theory driven, they are in reality voracious consumers of theory.
In our studies, we have observed that industry-based or product/ service-based categorization schemes almost never constitute a useful foundation for reliable theory.
Then in the mid-1990s, when they finally succeeded in driving the last integrated mill out of the structural beam market, pricing again collapsed. Once again, the reward for victory was the end of profit.
Disruption works because it is much easier to beat competitors when they are motivated to flee rather than fight.
An idea that is disruptive to one business may be sustaining to another.
Predictable marketing requires an understanding of the circumstances in which customers buy or use things. Specifically, customers—people and companies—have “jobs” that arise regularly and need to get done. When customers become aware of a job that they need to get done in their lives, they look around for a product or service that they can “hire” to get the job done. This is how customers experience life.
The functional, emotional, and social dimensions of the jobs that customers need to get done constitute the circumstances in which they buy.
Companies that target their products at the circumstances in which customers find themselves, rather than at the customers themselves, are those that can launch predictably successful products. Put another way, the critical unit of analysis is the circumstance and not the customer.
Sending separate communications about each of these jobs to the same customer is prohibitively expensive, and yet communicating all of them to the customer at once would be confusing. So what’s the chain to do? The answer is that just as it needs to develop products for the circumstance and not the customer, the chain needs to communicate to the circumstance, and not necessarily to the consumer.
The target customers are trying to get a job done, but because they lack the money or skill, a simple, inexpensive solution has been beyond reach.
These customers will compare the disruptive product to having nothing at all.
The technology that enables the disruption might be quite sophisticated, but disruptors deploy it to make the purchase and use of the product simple, convenient, and foolproof.
The disruptive innovation creates a whole new value network. The new consumers typically purchase the product through new channels and use the product in new venues.
By selecting a channel that had up-market disruptive potential itself, Sony harnessed the energies of its channel to promote and position its products.
“What do we need to master today, and what will we need to master in the future, in order to excel on the trajectory of improvement that customers will define as important?” The answer begins with the job-to-be-done approach: Customers will not buy your product unless it solves an important problem for them.
Interdependent architectures optimize performance, in terms of functionality and reliability.
Modular architectures optimize flexibility, but because they require tight specification, they give engineers fewer degrees of freedom in design.
Overshooting does not mean that customers will no longer pay for improvements. It just means that the type of improvement for which they will pay a premium price will change.
Executives and investors indeed are often eager to hammer out the standards before they invest their money, to preempt wasteful duplication of competing standards and the possibility that a competitor’s approach might emerge as the industry’s standard. This works when functionality and reliability and the consequent competitive conditions permit it. But when they do not, then having competing proprietary systems is not wasteful.
Formally, the law of conservation of attractive profits states that in the value chain there is a requisite juxtaposition of modular and interdependent architectures, and of reciprocal processes of commoditization and decommoditization, that exists in order to optimize the performance of what is not good enough. The law states that when modularity and commoditization cause attractive profits to disappear at one stage in the value chain, the opportunity to earn attractive profits with proprietary products will usually emerge at an adjacent stage.
A surprising number of innovations fail not because of some fatal technological flaw or because the market isn’t ready. They fail because responsibility to build these businesses is given to managers or organizations whose capabilities aren’t up to the task. Corporate executives make this mistake because most often the very skills that propel an organization to succeed in sustaining circumstances systematically bungle the best ideas for disruptive growth.
In fact, one reason that many soaring young hot-product companies flame out after they go public is that the key initial resource—the founding team—fails to institute the processes or the values that can help the company follow up with a sequence of hot new products.
Culture enables employees to act autonomously and causes them to act consistently.
An example of these factors is the short tenure in assignment that is typical in the career path of high-potential employees. Management development systems in most organizations move high-potential employees into new positions of responsibility every two to three years in order to help them master management skills in various parts of the business. This practice is critical in management development, but its effect is to influence midlevel managers to accord priority to projects that will pay off within the typical tenure that they expect in their jobs. They want to produce improved results
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The resource allocation process therefore systematically diverted manufacturing capacity away from DRAMs and into microprocessors. This occurred without any explicit management decision to change strategy. Senior management, in fact, continued to invest two-thirds of R&D dollars into the DRAM business even as the resource allocation process was executing a systematic exit from DRAMs.
“Openness to emergent strategy enables management to act before everything is fully understood—to respond to an evolving reality rather than having to focus on a stable fantasy. . . . Emergent strategy itself implies learning what works—taking one action at a time in a search for that viable pattern or consistency.”
We have concluded that the best money during the nascent years of a business is patient for growth but impatient for profit.
The dilemma of investing for growth is that the character of a firm’s money is good for growth only when the firm is growing healthily.
Apparently a low-end disruption wasn’t a viable strategy because there just weren’t enough over-the-road bikers who were over-served by the brands and muscle of Harleys, Triumphs, and BMWs. What emerged was a new-market disruption, which Honda subsequently did a masterful job of deliberately exploiting.
The senior executives of a company that seeks repeatedly to create new waves of disruptive growth have three jobs. The first is a near-term assignment: personally to stand astride the interface between disruptive growth businesses and the mainstream businesses to determine through judgment which of the corporation’s resources and processes should be imposed on the new business, and which should not. The second is a longer-term responsibility: to shepherd the creation of a process that we call a “disruptive growth engine,” which capably and repeatedly launches successful growth businesses. The
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A principal refrain in this book is that blindly copying the best practices of successful companies without the guidance of circumstance-contingent theory is akin to fabricating feathered wings and flapping hard.
Never say yes to a strategy that targets customers and markets that look attractive to an established competitor.
If your team targets customers who already are using pretty good products, send them back to see if they can find a way to compete against nonconsumption.
If there are no nonconsumers available, ask your team to explore whether a low-end disruption is feasible.
If the project leader ever uses the phrase, “If we can just get the customer to . . . ,” terminate the conversation. Send the team back to find a way to help customers get done more conveniently and inexpensively what they already are trying to get done.
If the team’s product or marketing plan focuses on market segments whose boundaries mirror your organization’s boundaries, or if the targeted market is segmented along the lines for which data are readily available (by product type, price point, or demographic category), send the team back.
Ask them to segment the market in ways that mirror the jobs that customers are trying to get done.
If your disruptive product or service is not yet good enough and your team seems enthralled with industry standards and the attendant outsourcing and partnering deals, raise a big red flag.
