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Strategy and Innovation

Jonny HolmströmE-Mail: jonny.holmstrom@informatik.umu.seTwitter: @jonnyholmstrom

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Today’s Main Issues

Key trends in today’s society Disruptive innovations in the

network economy Some possible strategic

responses to disruptive innovations: from product and services to solutions and experiences

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The big trends in the 21st Century?

Smart Phones

The big trends in the 21st Century?

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Tablets

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Social Web

The big trends in the 21st Century?

Result: Disruption

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Disruptive innovation

A disruptive innovation is an innovation that helps create a new market and value network, and eventually disrupts an existing market and value network (over a few years or decades), displacing an earlier technology. (Wikipedia)

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According to Clayton Christensen, professor at HBS, high-performing firms can do everything right and still loose their market leaderhip

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The fast track of innovation

Because of increased competition in a globalized world innovation is speeding up. But while new products are

launched in an increasing pace, consumers are having a hard time catching up…

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The comfort zone of society

Society does not change as fast as technological innovations are. People much rather stay within their ‘comfort zone’ and keep living their lives they way they are used to living them.

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Technological possibilities and the pace of innovation is way ahead of people’s needs. We must remind ourselves that the

real meaning of innovation is in the use.

The real meaning is in the use

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Disruptive Innovations

Clayton Christensen – Innovators Dilemma and Innovator’s Solution

Sustaining Innovation – make better products that can be sold for more money to attractive customers – incumbents prevail

Disruptive Innovations – commercialize a simpler, more convenient product that sells for less money and appeals to a new or unattractive customers – new entrants beat incumbents

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Sustaining vs Disruptive Innovations

Sustaining innovation targets demanding customers with ‘better performance’ than what was previously available

Disruptive innovations do not attempt to bring better products to established customers in existing markets – rather they introduce products/services that are (maybe) not as good as those currently available but they are simpler and less expensive and appeal to customers

Disruption occurs as the rate of technological improvements are higher than customers can utilize

The disruptive products and services may eventually become acceptable to high-end customers

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The customer is not always right: Why high performing companies fail

‘The highest performing companies ... have well developed systems for killing ideas that their customers don’t want. As a result, these companies find it very difficult to invest adequate resources in disruptive technologies – lower margin opportunities their customers don’t want – until [those same customers decided that they] want them. And by then it is too late.’

- This is the Innovator’s Dilemma

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Two Types of Disruptions

New Market Disruptions – compete with non-consumption as they are so cheap and simple they attract new customers previously don’t use the products and services

Low End Disruptions – simple low cost business models to pick off the least attractive of the established firms’ markets and progress upwards

Disruptive vs. Sustaining Technologies

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How to initiate an innovation

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Examples

Low cost airlines – British Airways and KLM under attack from Ryanair - full service, hub-and-spoke strategy versus low cost, point to point, no-frills strategies

Barnes & Noble vs Amazon.com The attackers utilize strategies that are both

different from and in conflict with the strategies of the incumbent firms – Disruptive strategic innovations

Incumbent firms struggle in competing because of conflict with mainstream strategy and established way of working

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Possible responses to disruptive innovations

Focus on and invest in the traditional business – the disruptive innovation will not grow indefinitely (10-20%) and won’t capture 100% of the market

Ignore the innovation – it is not your business – different customers, value propositions and require different skills and competences

Attack back – disrupt the disruptive innovation – create an even newer game

Playing both games simultaneously – via a separate unit

Charitou, C & C Markides (2003) Responses to Disruptive Strategic Innovations. Sloan Management Review Winter 2003: 55-63

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Strategic Re-Orientations: From Products and Services to Solutions and Experiences

Two strategic re-orientations in recent years: In a world of standardized products, companies

are turning to service offering for growth - often in the name of business solutions

‘What the customer buys and considers value is never a product. It is always utility – that is, what a product does for him’ – Peter Drucker

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Example: GM

General Motors – Automotive services - sales, repairs, financing, parts

and accessories; roadside assistance; insurance OnStar – travel, emergencies, satellite radio services;

vehicle monitoring services; car phone and data services, personal concierge services …

Home services (GMAC) – home sales, mortgage, relocation, monitoring, insurance, satellite TV etc

Underpinned by strong brand, an ICTs platform and a community of users and suppliers

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Example: MacGregor Cranes

MacGregor Cranes Manufacturer of shipboard cranes Core – Manufacturing of cranes based on

engineering skills Threat from low-wage countries From product to services – from cranes to

“the service of lifting stuff…” Give the crane for free, charge the

customer for using it Role of sensor technologies

Summing up

Disruptive innovation is a key force in today’s society

Innovation strategies must be in place both for incumbent firms and start-ups

“The customer is always right” is not correct anymore

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