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From Luddites to Fruit Flies From Luddites to Fruit Flies (Part 2 of 2)(Part 2 of 2)

IEM5010 Summer 2003IEM5010 Summer 2003

Paul E. Rossler, Ph.D., P.E.Paul E. Rossler, Ph.D., P.E.

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The Innovator’s DilemmaThe Innovator’s Dilemma

“…“…the logical, competent decisions of the logical, competent decisions of management that are critical to the success of management that are critical to the success of their companies are also the reasons why they their companies are also the reasons why they lose their positions of leadership.” lose their positions of leadership.” (Christensen, p. xiii)(Christensen, p. xiii)

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A technological mudslide?A technological mudslide?

“…“…neither the pace nor the difficulty of neither the pace nor the difficulty of technological change lay at the root of the technological change lay at the root of the leading firms’ failures. The technology leading firms’ failures. The technology mudslide hypothesis was wrong.” mudslide hypothesis was wrong.” (Christensen, pp. 8-9)(Christensen, pp. 8-9)

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“…“…ruled out poor management as ruled out poor management as a root cause (p. 97)a root cause (p. 97)

“…“…sensible resource allocation processes sensible resource allocation processes were at the root of companies’ upward were at the root of companies’ upward mobility and downward immobility…” mobility and downward immobility…” (Christensen, p. 80)(Christensen, p. 80)

“…“…to expect the processes that accomplish to expect the processes that accomplish these things also to do something like these things also to do something like nurturing disruptive technologies…” (p. 98)nurturing disruptive technologies…” (p. 98)

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Disruptive technologiesDisruptive technologies

• Result in worse product performance, at Result in worse product performance, at least in the near termleast in the near term

• Bring different value propositionBring different value proposition• Attributes that make them worthless in Attributes that make them worthless in

mainstream markets become strongest mainstream markets become strongest selling point in emerging marketsselling point in emerging markets

• Tend to be simpler, cheaper, and more Tend to be simpler, cheaper, and more reliable and convenient than established reliable and convenient than established productsproducts

(Source: Christensen, p. xv, 190)(Source: Christensen, p. xv, 190)

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Sustaining technologies follow Sustaining technologies follow conventional technology S-curveconventional technology S-curve

Source: Christensen, p. 40Source: Christensen, p. 40

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Disruptive technology S-curve Disruptive technology S-curve defined by different y-axis defined by different y-axis

Source: Christensen, p. 41Source: Christensen, p. 41

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Different value propositions and Different value propositions and therefore metrics of successtherefore metrics of success

““The performance of the first backhoes was The performance of the first backhoes was measured differently from the performance of measured differently from the performance of cable-actuated equipment.” (Christensen, pp. cable-actuated equipment.” (Christensen, pp. 66-67)66-67)““The organization was free to succeed along The organization was free to succeed along metrics of success that were relevant…” (p. metrics of success that were relevant…” (p. 110)110)“…“…played havoc with the accustomed played havoc with the accustomed metrics…” (p. 111)metrics…” (p. 111)

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Response of established firmsResponse of established firms

““[E]stablished firms confronted with [E]stablished firms confronted with disruptive technology typically viewed their disruptive technology typically viewed their primary development challenge as a primary development challenge as a technologicaltechnological one…” (Christensen, p. 191) one…” (Christensen, p. 191)

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A tendency exists toward A tendency exists toward northeast migrationnortheast migration

Source: Christensen, p. 66Source: Christensen, p. 66

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A different response by entrantsA different response by entrants

““[T]he firms that were most successful in [T]he firms that were most successful in commercializing a disruptive technology were commercializing a disruptive technology were those framing their primary development those framing their primary development challenge as a challenge as a marketingmarketing one…” one…” (Christensen, pp. 191-192)(Christensen, pp. 191-192)

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A basic problem for established A basic problem for established firms: moving down-marketfirms: moving down-market

“…“…the problem established firms seem unable the problem established firms seem unable to confront successfully is that of to confront successfully is that of downwarddownward vision and mobility, in terms of the trajectory vision and mobility, in terms of the trajectory map.” (Christensen, p. 24)map.” (Christensen, p. 24)

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Value networks affect Value networks affect perceptions of innovationperceptions of innovation

Source: Christensen, p. 33Source: Christensen, p. 33

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Three barriers to downmarket Three barriers to downmarket mobilitymobility

““Three factors – the promise of upmarket Three factors – the promise of upmarket margins, the simultaneous upmarket margins, the simultaneous upmarket movement of a company’s customers, and the movement of a company’s customers, and the difficulty of cutting costs to move difficulty of cutting costs to move downmarket profitably – together create downmarket profitably – together create powerful barriers to downmarket mobility.” powerful barriers to downmarket mobility.” (Christensen, p. 87)(Christensen, p. 87)

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Along with pressure for quarterly Along with pressure for quarterly resultsresults

““Building such markets entails a process of Building such markets entails a process of mutual discovery by customers and mutual discovery by customers and manufacturers – and this simply takes time.” manufacturers – and this simply takes time.” (Christensen, p. 131)(Christensen, p. 131)

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And management philosophiesAnd management philosophies

““Philosophies such as Philosophies such as management by management by objectiveobjective and and management by exceptionmanagement by exception often often impede the discovery of new markets because impede the discovery of new markets because of where they focus management attention.” of where they focus management attention.” (Christensen, p. 157)(Christensen, p. 157)

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Allocation & innovation: two Allocation & innovation: two sides of the same coin (p. 103)sides of the same coin (p. 103)

“…“…disruptive projects stalled when it came to disruptive projects stalled when it came to allocating scarce resources among competing allocating scarce resources among competing product and technology development product and technology development proposals.” (Christensen, p. 42)proposals.” (Christensen, p. 42)

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Increasing the level of difficultyIncreasing the level of difficulty

““Every innovation is difficult. This difficulty Every innovation is difficult. This difficulty is compounded immeasurably, however, is compounded immeasurably, however, when a project is embedded in an when a project is embedded in an organization in which most people are organization in which most people are continually questioning why the project is continually questioning why the project is being done at all.” (Christensen, p. 134)being done at all.” (Christensen, p. 134)

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Matching innovation Matching innovation requirements to capabilitiesrequirements to capabilities

Christensen, p. 177Christensen, p. 177

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Senior managers may have less Senior managers may have less control than they thinkcontrol than they think

“…“…the organization’s middle managers play a the organization’s middle managers play a critical but invisible role in screening these critical but invisible role in screening these projects.” (Christensen, p. 82)projects.” (Christensen, p. 82)

““[I]n practice, it is a company’s [I]n practice, it is a company’s customers customers who effectively control what it can and cannot who effectively control what it can and cannot do.” (p. 101)do.” (p. 101)

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Resources, processes, and values Resources, processes, and values influence responseinfluence response

““Yet, resource analysis clearly does not tell a Yet, resource analysis clearly does not tell a sufficient story about capabilities.” (Christensen, sufficient story about capabilities.” (Christensen, p. 163)p. 163)

““This means that the very mechanisms through This means that the very mechanisms through which organizations create value are intrinsically which organizations create value are intrinsically inimical to change.”inimical to change.” (p. 164) (p. 164)

““Clear, consistent, and broadly understood values , Clear, consistent, and broadly understood values , however, also define what an organization cannot however, also define what an organization cannot do.” (p. 165)do.” (p. 165)

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Pressure to succeed influences Pressure to succeed influences decisions madedecisions made

““Projects that fail because technologists Projects that fail because technologists couldn’t deliver…often are not (necessarily) couldn’t deliver…often are not (necessarily) regarded as failures at all…But projects that fail regarded as failures at all…But projects that fail because the market wasn’t there have far more because the market wasn’t there have far more serious implications for managers’ careers.” serious implications for managers’ careers.” (Christensen, p. 82)(Christensen, p. 82)

““Rightly or wrongly, individual managers in Rightly or wrongly, individual managers in most organizations believe they most organizations believe they cannotcannot fail.” (p. fail.” (p. 155)155)

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Core competence probably not Core competence probably not the answerthe answer

““In practice, however, most managers have In practice, however, most managers have found that the concept is sufficiently vague found that the concept is sufficiently vague that some supposed ‘competence’ can be that some supposed ‘competence’ can be found to support a bewildering variety of found to support a bewildering variety of innovation proposals.” (Christensen, p. 162)innovation proposals.” (Christensen, p. 162)

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Tried-and-true tools and Tried-and-true tools and techniques fall shorttechniques fall short

““Markets that do not exist cannot be analyzed: Markets that do not exist cannot be analyzed: Suppliers and customers must discover them Suppliers and customers must discover them together.” (Christensen, p. 143).together.” (Christensen, p. 143).

““It is simply impossible to predict with any It is simply impossible to predict with any useful degree of precision how disruptive useful degree of precision how disruptive products will be used or how large their products will be used or how large their markets will be.” (p. 154)markets will be.” (p. 154)

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The end result: Performance The end result: Performance oversupply & attack from belowoversupply & attack from below

Source: Christensen, p. 16Source: Christensen, p. 16

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The basic patternThe basic pattern

1.1. Disruptive technology first developed Disruptive technology first developed within established firmswithin established firms

2.2. Marketing then sought reactions from lead Marketing then sought reactions from lead customerscustomers

3.3. Established firms step up pace of Established firms step up pace of sustaining technological developmentsustaining technological development

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4.4. New companies formed and markets for New companies formed and markets for disruptive technologies founddisruptive technologies found

5.5. The entrants moved upmarketThe entrants moved upmarket

6.6. Established firms belatedly jumped on Established firms belatedly jumped on bandwagon to defend customer basebandwagon to defend customer base

(Christensen, pp. 43-48)(Christensen, pp. 43-48)

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Three potential strategiesThree potential strategies

Christensen, p. 197Christensen, p. 197

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A priori, who knows for sure?A priori, who knows for sure?

““Experts lined up on both sides of the Experts lined up on both sides of the question, offering HP extensive advice on question, offering HP extensive advice on which technology would ultimately become which technology would ultimately become the printer of choice…” (Christensen, p. 116)the printer of choice…” (Christensen, p. 116)

“… “… what is obvious in retrospect might not be what is obvious in retrospect might not be at all obvious in the thick of battle.” at all obvious in the thick of battle.” (Christensen, p. 196)(Christensen, p. 196)