innovation - the role of innovation in a business's life cycle

8/3/2019 Innovation - The Role of Innovation in a Business's Life Cycle

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Innovation

The Role of Innovation in a Company’s Life Cycle



2

Introduction

Rarely does an idea for a new-growth product or business emerge fully formed in

an creative person‟s mind

No matter how well articulated a concept or insight might be, it must be shaped and

modified, often significantly, as it gets fleshed out into a business plan to win

funding

A dearth of good ideas is rarely the core problem in a company that struggles to

launch exciting new-growth businesses The problem is in the shaping process. Potentially innovative new ideas seem

inexorably to be recast in attempts to make existing customers happier while

missing opportunities to acquire new customers

Ideas that emerge from this shaping process most often result in me-too innovations

that could just as readily be reshaped into business plans that created trulydisruptive growth



3

Two Primary Types of Innovation

SUSTAINING INNOVATION

Improve performance of established products

Meet demands of mainstream

customers in major markets

Vary in difficulty, cost, time, etc.

Established firms dominate

DISRUPTIVE INNOVATION

Generally underperform established products in mainstream markets

Have new features that fringe / new

customers value

Cheaper, simpler, smaller, more

convenient to use

Entrant firms dominate



4

Sustaining Innovation

Improves the performance of established products along dimensions of

performance that mainstream customers in major markets have historically valued

Customer relationships, cost structures, and organizational dynamics are unchanged

Does the same, for the same people, only better in ways these people understand

Sustaining innovation can be improvements that are incremental or breakthrough in

character

Sustaining innovation is the most common type of innovation

While sustaining innovation is important, all companies are susceptible to

disruptive innovation



5

Sustaining Innovation

TIME

M E A S U R

E O F P E R F O R M A N C E

Range of

performance that

customers canutilize



6

Disruptive Innovation Theory

Disruptive Innovation, a term of art coined by Harvard Business School associate

professor Clayton Christensen in his 1997 book “The Innovator‟s Dilemma”,

describes a process which a product or service takes root initially in simpleapplications at the bottom of a market and then relentlessly moves „up market‟,

eventually displacing established competitors

“The theory holds that existing companies have a high probability of beating

entrant attackers when the contest is about sustaining innovations. But established

companies almost always lose to attackers armed with disruptive innovations.”



Market Need vs. Technology Improvement

Time

P e r f o r m a n

c e

Technologies can progress faster than demand

Suppliers eventually give customers more than they need or are willing to pay

Allows room for underperforming disruptive technologies

Undershot

Customers

OvershotCustomers



Disruptive Innovation

Bring a different value proposition to the market

Initially under performs established products in mainstream market But, the products improve at a rapid rate

Superior in ways that are not valued by the established market – more reliable,

easier to use, or cheaper

Disruptive innovation creates high growth for the entrant disruptor

Disruptive innovation results in declining growth for the disruptee



DISRUPTIVE

TECHNOLOGIES

TIME

M E A S U R E O F P E R F O R M A N C E

Range of

performance

that customers

can utilize

Sustaining Innovation vs. Disruptive Innovation



Disruptive Innovation Case Study One: Steel Industry

Historically, most of the world‟s steel has come from massive integrated steel mills that do

everything from reacting iron ore, coke, and limestone in blast furnaces to rolling finished

products. It costs about $8 billion to build a new integrated mill Mini-mills, in contrast, melt scrap steel in electric arc furnaces, which are small and energy

efficient compared to blast furnaces used in integrated mills

Using straightforward technology, mini-mills can make steel for 20 percent less than

integrated mills

Initially in the mid-1960‟s mini-mills could only produce the lowest quality steel productwhich is rebar

Low quality steel products such as rebar also have the lowest profit margin, so incumbent

integrated steel producers offered little resistance and gave up their least valued customers to

mini-mills. The integrated mill were happy to be rid of that commodity business

By leveraging the foothold established in the rebar market, mini-mills reinvested in R&D toadvance technology which allowed them to produce higher quality steel products.

Eventually mini-mills, such as Nucor, became increasingly able to produce higher and higher

quality steel products, and at higher profit margins possible with integrated mills

Nucor‟s market capitalization now dwarfs that of the largest integrated steel company, US

Steel. Bethlehem Steel went bankrupt



Disruptive Innovation Case Study One: Steel Industry

The Up-Market Migration of Steel Mini-mills

1975 1980 1985 1990

% of Total

SteelProduction

55%

22%

8%

4%

Time

S t e e l Q u a l i t y

7%

Gross Margins

12%

Gross Margins

18%

Gross Margins

25 - 30%

Gross Margins



Case Study Two: Angioplasty Disrupts Cardiac Bypass Surgery

Prior to the early 1980‟s, the only people with heart disease who could receive interventional

therapy were those who were at high and immediate risk of death. Most people who suffered

from heart disease simply went untreated Angioplasty enabled a new group of providers, cardiologists, to treat coronary artery disease

by threading a catheter into a partially clogged artery and puffing up a balloon

Angioplasty was often ineffective with half of the patients suffering a reclogging of the artery

within a year

But because the procedure was simple and inexpensive, more patients with partially occludedarteries could begin receiving treatment

The cardiologists benefited too, because even without being trained in surgery they could

keep the fees for themselves, and had to refer fewer patients to the heart surgeons

Angioplasty thereby created a huge new growth market in cardiac care

As cardiologists pursued the high profits that came from better services they discovered they

could insert stents (eventually medicine coated) to prop open even difficult-to-open arteries

This disruption has been underway for three decades and now that the disruption is apparent,

there is little that the surgeons can do



Case Study Two: Angioplasty Disrupts Cardiac Bypass Surgery

Number of Angioplasty and Cardiac Bypass Surgery Procedures

Balloon Angioplasty

Bypass P r o c e d u

r e s ( 0 0 0 s )



Companies and Products Whose Roots Were in Disruption

Kodak Beef processing Department stores

Bell Telephone (Swift, Armour) (Marshall Field’s, Macy’s)

Merrill Lynch Ford Catalog retailing

(Sears, JC Penney, Montgomery Ward)Plastics

(DuPont, Dow, etc.)

Sony Honda motorcycles

Minicomputers McDonald’s

IDEC, etc.) Xerox Black & Decker Discount department stores

Toyota, Nissan consumer power tools (Kmart, Wal-Mart, Target)

Ultrasound soft Japanese steel companies

Endoscopic surgery Southwest Airlines Credit scoring in consumer lendingFlat-panel displays Fidelity (self-service Charles Schwab Vanguard index mutual funds

investment management)

Blended plastics Barnes & GE Capital

Personal computers Community colleges Seiko Noble

Kodak Funsaver Portable diabetes digital watches

single-use camera glucose meters University of MCI, Sprint Toys ‘R Us

Phoenix Sun Circuit City

Microsoft Bloomberg Microsystems Home Depot

Wireless telephony Oracle Canon photocopiers Dell Staples

Cisco Intuit Quickbooks (accounting) Computer Best Buy

and Turbo Tax software MBNAInk-jet printers Quartz microwave ovens Digital animation (Pixar et al) Hyundai, Kia

Veritas, Network Appliance & air conditioners E-mail

eBay Unmanned military aircraft Microsoft SQL database software ECNs

Palm Pilot, RIM Blackberry Concord School of Law Google Linux Amazon.com

Digital printing Online On-line

Salesforce.com 802.11 stockbrokers travel agents JetBlue

1870

1950

1960

1980

2000

New Market Low End

H i s t o r

y

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