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March 13 - March 23, 2018
One theme common to all of these failures, however, is that the decisions that led to failure were made when the leaders in question were widely regarded as among the best companies in the world.
There are times at which it is right not to listen to customers, right to invest in developing lower-performance products that promise lower margins, and right to aggressively pursue small, rather than substantial, markets.
First, disruptive products are simpler and cheaper; they generally promise lower margins, not greater profits. Second, disruptive technologies typically are first commercialized in emerging or insignificant markets. And third, leading firms’ most profitable customers generally don’t want, and indeed initially can’t use, products based on disruptive technologies. By and large, a disruptive technology is initially embraced by the least profitable customers in a market. Hence, most companies with a practiced discipline of listening to their best customers and identifying new products that promise
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the right markets, and the right strategy for exploiting them, cannot be known in advance.
discovery-based planning,
The first is in its processes—the methods by which people have learned to transform inputs of labor, energy, materials, information, cash, and technology into outputs of higher value.
The second is in the organization’s values, which are the criteria that managers and employees in the organization use when making prioritization decisions.
The basis of product choice often evolves from functionality to reliability, then to convenience, and, ultimately, to price.
The fear of cannibalizing sales of existing products is often cited as a reason why established firms delay the introduction of new technologies.
The organization’s structure and the way its groups learn to work together can then affect the way it can and cannot design new products.
parallel value networks, each built around a different definition of what makes a product valuable, may exist within the same broadly defined industry.
just as a value network is characterized by a specific rank-ordering of product attributes valued by customers, it is also characterized by a specific cost structure required to provide the valued products and services.
The cost structures characteristic of each value network can have a powerful effect on the sorts of innovations firms deem profitable.
The technology S-curve forms the centerpiece of thinking about technology strategy. It suggests that the magnitude of a product’s performance improvement in a given time period or due to a given amount of engineering effort is likely to differ as technologies mature.
If and when they progress to the point that they can satisfy the level and nature of performance demanded in another value network, the disruptive technology can then invade it, knocking out the established technology and its established practitioners, with stunning speed.
Competition within the value networks in which companies are embedded defines in many ways how the firms can earn their money.
Rather, disruptive projects stalled when it came to allocating scarce resources among competing product and technology development proposals
Sustaining projects addressing the needs of the firms’ most powerful customers (the new waves of technology within the value network depicted in Figure 2.5) almost always preempted resources from disruptive technologies with small markets and poorly defined customer needs.
The firms attacking from value networks below brought with them cost structures set to achieve profitability at lower gross margins.
The operative trigger is the slope of the curve of the established technology. If the curve has passed its point of inflection, so that its second derivative is negative (the technology is improving at a decreasing rate), then a new technology may emerge to supplant the established one.
Disruptive technologies generally improve at a parallel pace with established ones—their trajectories do not intersect.
the disruptive technology is improving from below along a trajectory that will ultimately intersect with what the market needs.
The context, or value network, in which a firm competes has a profound influence on its ability to marshal and focus the necessary resources and capabilities to overcome the technological and organizational hurdles that impede innovation.
Value networks are also defined by particular cost structures inherent in addressing customers’ needs within the network.
At its core, therefore, the issue may be the relative flexibility of successful established firms versus entrant firms to change strategies and cost structures, not technologies.
The key considerations are whether the performance attributes implicit in the innovation will be valued within the networks already served by the innovator; whether other networks must be addressed or new ones created in order to realize value for the innovation; and whether market and technological trajectories may eventually intersect, carrying technologies that do not address customers’ needs today to squarely address their needs in the future.
The fundamental technological concept in a key component (the engine) changed from steam to internal combustion, and the basic architecture of the product changed.
These differences in the rank-ordering of performance attributes defined the boundaries of the industry’s value networks.
established firms attempt to push the technology into their established markets, while the successful entrants find a new market that values the technology.
It is this upward mobility that makes disruptive technologies so dangerous to established firms—and so attractive to entrants.
it is driven by resource allocation processes that direct resources toward new product proposals that promise higher margins and larger markets.
sensible resource allocation processes were at the root of companies’ upward mobility and downmarket immobility across the boundaries of the value networks in the disk drive industry.
the best resource allocation systems are designed precisely to weed out ideas that are unlikely to find large, profitable, receptive markets.
Established firms are also captive to the financial structure and organizational culture inherent in the value network in which they compete—a captivity that can block any rationale for timely investment in the next wave of disruptive technology.
In the internal debates about resource allocation for new product development, therefore, proposals to pursue disruptive technologies generally lose out to proposals to move upmarket.
different cost structures
no research and development costs,
Sound managerial decisions are at the very root of their impending fall from industry leadership.
good management itself was the root cause.
The very decision-making and resource-allocation processes that are key to the success of established companies are the very processes that reject disruptive technologies: listening carefully to customers; tracking competitors’ actions carefully; and investing resources to design and build higher-performance, higher-quality products that will yield greater profit.
five fundamental principles of organizational nature that managers in the successful firms consistently recognized and harnessed.
Resource dependence: Customers effectively control the patterns of resource allocation in well-run companies.
Small markets don’t solve the growth needs of large companies. The ultimate uses or applications for disruptive technologies are unknowable in advance. Failure is an intrinsic step toward success. Organizations have capabilities that exist independently of the capabilities of the people who work within them. Organizations’ capabilities reside in their processes and their values—and the very processes and values that constitute their core capabilities within the current business model also define their disabilities when confronted with disruption. Technology supply may not equal market demand.
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They found that their markets generally coalesced through an iterative process of trial, learning, and trial again.
They created different ways of working within an organization whose values and cost structure were turned to the disruptive task at hand.
it is a company’s customers who effectively control what it can and cannot do.
resource dependence,
Resource allocation and innovation are two sides of the same coin: Only those new product development projects that do get adequate funding, staffing, and management attention have a chance to succeed; those that are starved of resources will languish.
the patterns of innovation in a company will mirror quite closely the patterns in which resources are allocated.
Senior managers typically see only a well-screened subset of the innovative ideas generated.
