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July 3 - August 5, 2018
“Why is success so difficult to sustain?”
“Is successful innovation really as unpredictable as the data suggests?”
What often causes this lagging behind are two principles of good management taught in business schools: that you should always listen to and respond to the needs of your best customers, and that you should focus investments on those innovations that promise the highest returns.
these two principles, in practice, actually sow the seeds of every successful company’s ultimate demise.
the innovator’s dilemma: doing the right thing is...
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the key to improving any theory is to surface anomalies—events or phenomena that the theory cannot explain. It is only by seeking to account for outliers—exceptions to the theory—that researchers can improve the theory.
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 is something about the way decisions get made in successful organizations that sows the seeds of eventual failure.
an innovator’s dilemma: the logical, competent decisions of management that are critical to the success of their companies are also the reasons why they lose their positions of leadership.
The failure framework is built upon three findings from this study. The first is that there is a strategically important distinction between what I call sustaining technologies and those that are disruptive. These concepts are very different from the incremental-versus-radical distinction that has characterized many studies of this problem. Second, the pace of technological progress can, and often does, outstrip what markets need. This means that the relevance and competitiveness of different technological approaches can change with respect to different markets over time. And third, customers
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What all sustaining technologies have In common is that they improve the performance of established products,
rarely have even the most radically difficult sustaining technologies precipitated the failure of leading firms.
disruptive technologies emerge: innovations that result in worse product performance, at least in the near-term.
Disruptive technologies bring to a market a very different value proposition than had been available previously.
suppliers often “overshoot’’ their market: They give customers more than they need or ultimately are willing to pay for. And more importantly, it means that disruptive technologies that may underperform today, relative to what users in the market demand, may be fully performance-competitive in that same market tomorrow.
2nd part of failure framework
The last element of the failure framework, the conclusion by established companies that investing aggressively in disruptive technologies is not a rational financial decision for them to make, has three bases. 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.
Principle #1: Companies Depend on Customers and Investors for Resources
established firms stayed atop wave after wave of sustaining technologies (technologies that their customers needed), while consistently stumbling over simpler disruptive ones.
Creating an independent organization, with a cost structure honed to achieve profitability at the low margins characteristic of most disruptive technologies, is the only viable way for established firms to harness this principle.
Principle #2: Small Markets Don’t Solve the Growth Needs of Large Companies
the larger and more successful an organization becomes, the weaker the argument that emerging markets can remain useful engines for growth.
Small organizations can most easily respond to the opportunities for growth in a small market.
Principle #3: Markets that Don’t Exist Can’t Be Analyzed
Companies whose investment processes demand quantification of market sizes and financial returns before they can enter a market get paralyzed or make serious mistakes when faced with disruptive technologies.
Principle #4: An Organization’s Capabilities Define Its Disabilities
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.
Only those companies that carefully measure trends in how their mainstream customers use their products can catch the points at which the basis of competition will change in the markets they serve.
The innovator’s task is to ensure that this innovation—the disruptive technology that doesn’t make sense—is taken seriously within the company without putting at risk the needs of present customers who provide profit and growth.
Blindly following the maxim that good managers should keep close to their customers can sometimes be a fatal mistake.
the “technology mudslide hypothesis”: Coping with the relentless onslaught of technology change was akin to trying to climb a mudslide raging down a hill. You have to scramble with everything you’ve got to stay on top of it, and if you ever once stop to catch your breath, you get buried.
neither the pace nor the difficulty of technological change lay at the root of the leading firms’ failures. The technology mudslide hypothesis was wrong.
Technologies of the first sort sustained the industry’s rate of improvement in product performance
innovations of the second sort disrupted or redefined performance trajectories—and consistently resulted in the failure of the industry’s leading firms.
Henderson and Clark, 1 for example, conclude that companies’ organizational structures typically facilitate component-level innovations, because most product development organizations consist of subgroups that correspond to a product’s components.
when architectural technology change is required, this type of structure impedes innovations that require people and groups to communicate and work together in new ways.
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.
The notion is that the magnitude of the technological change relative to the companies’ capabilities will determine which firms triumph after a technology invades an industry.
Scholars who support this view find that established firms tend to be good at improving what they have long been good at doing, and that entrant firms seem better suited for exploiting radically new technologies, often because they import the technology into one industry from another, where they had already developed and practiced
The concept of the value network—the context within which a firm identifies and responds to customers’ needs, solves problems, procures input, reacts to competitors, and strives for profit—is
Within a value network, each firm’s competitive strategy, and particularly its past choices of markets, determines its perceptions of the economic value of a new technology. These perceptions, in turn, shape the rewards different firms expect to obtain through pursuit of sustaining and disruptive innovations.
Companies are embedded in value networks because their products generally are embedded, or nested hierarchically, as components within other products and eventually within end systems of use.
the nested physical architecture of a product system, it also implies the existence of a nested network of producers and markets through which the components at each level are made and sold to integrators at the next higher level in the system.
hedonic regression analysis expresses the total price of a product as the sum of individual so-called shadow prices (some positive, others negative) that the market places on each of the product’s characteristics.
the vertical axis for a disruptive innovation, by definition, must measure different attributes of performance than those relevant in established value networks.
Disruptive technologies emerge and progress on their own, uniquely defined trajectories, in a home value network.
Good managers do what makes sense, and what makes sense is primarily shaped by their value network.
Step 1: Disruptive Technologies Were First Developed within Established Firms
Step 2: Marketing Personnel Then Sought Reactions from Their Lead Customers
The marketing organization, using its habitual procedure for testing the market appeal of new drives, showed the prototypes to lead customers of the existing product line, asking them for an evaluation.
