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April 6 - April 23, 2017
It is striking to note that Sears received its accolades at exactly the time—in the mid-1960s—when it was ignoring the rise of discount retailing and home centers, the lower-cost formats for marketing name-brand hard goods that ultimately stripped Sears of its core franchise. Sears was praised as one of the best-managed companies in the world at the very time it let Visa and MasterCard usurp the enormous lead it had established
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.
Second, the pace of technological progress can, and often does, outstrip what markets need.
Principle #1: Companies Depend on Customers and Investors for Resources
Principle #2: Small Markets Don’t Solve the Growth Needs of Large Companies
Principle #3: Markets that Don’t Exist Can’t Be Analyzed
Principle #4: An Organization’s Capabilities Define Its Disabilities
An organization’s capabilities reside in two places. 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.
Principle #5: Technology Supply May Not Equal Market Demand
The basis of product choice often evolves from functionality to reliability, then to convenience, and, ultimately, to price.
“Those who study genetics avoid studying humans,” he noted. “Because new generations come along only every thirty years or so, it takes a long time to understand the cause and effect of any changes. Instead, they study fruit flies, because they are conceived, born, mature, and die all within a single day.
The fear of cannibalizing sales of existing products is often cited as a reason why established firms delay the introduction of new technologies.
Because an organization’s structure and how its groups work together may have been established to facilitate the design of its dominant product, the direction of causality may ultimately reverse itself: 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.
They found that firms failed when a technological change destroyed the value of competencies previously cultivated and succeeded when new technologies enhanced them.
Consequently, parallel value networks, each built around a different definition of what makes a product valuable, may exist within the same broadly defined industry.
Step 1: Disruptive Technologies Were First Developed within Established Firms
Step 2: Marketing Personnel Then Sought Reactions from Their Lead Customers
For an organization to accomplish a task as complex as launching a new product, logic, energy, and impetus must all coalesce behind the effort.
Three factors—the promise of upmarket margins, the simultaneous upmarket movement of many of a company’s customers, and the difficulty of cutting costs to move downmarket profitably—together create powerful barriers to downward mobility. 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. In fact, cultivating a systematic approach to weeding out new product development initiatives that would likely lower profits is one of the most important achievements of any
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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.
Senior managers typically see only a well-screened subset of the innovative ideas generated. 3
Most marketers, for example, have been schooled extensively, at universities and on the job, in the important art of listening to their customers, but few have any theoretical or practical training in how to discover markets that do not yet exist.
Processes differ not only in their purpose, but also in their visibility.
Discerning technology oversupply is difficult. Doing something about it is even more so.
Historically, disruptive technologies involve no new technologies; rather, they consist of components built around proven technologies and put together in a novel product architecture that offers the customer a set of attributes never before available.
