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Disruptive Innovation

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PIONEERS

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Creative Destruction

Joseph SchumpeterIn capitalism, innovative entry by entrepreneurs was the force that sustained long-term economic growth, even as it destroyed the value of established companies that enjoyed some degree of monopoly power. 8 February 1883 – 8 January 1950

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Creative DestructionSuccessful innovation is normally a source of temporary market power, eroding the profits and position of old firms, yet ultimately succumbing to the pressure of new inventions commercialised by competing entrants.

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The Use of Knowledge in SocietyFriedrich von HayekTwo types of knowledge: scientific knowledge, “knowledge of the particular circumstances of time and place”

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The Use of Knowledge in SocietyPractically every individual has some advantage over all others in that he possesses unique information of which beneficial use might be made”

8 May 1899 – 23 March 1992

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The Use of Knowledge in Society

because every individual only processes a small piece of the puzzle, no central planner can ever run the economy efficiently.

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The Use of Knowledge in SocietyMarket mechanisms serve "to share and synchronize local and personal knowledge, allowing society's members to achieve diverse, complicated ends through a principle of spontaneous self-organization."

8 May 1899 – 23 March 1992

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The greatest danger to liberty today comes from the men who are most needed and most powerful in modern government, namely, the efficient expert administrators exclusively concerned with what they regard as the public good.

Hayek and Taiwan (and China)

inefficient

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• 海耶克先生說，「考試，不應該！」

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Paradigm Shift

• Thomas Kuhn (July 18, 1922 – June 17, 1996)• A scientific revolution occurs when scientists

encounter anomalies which cannot be explained by the universally accepted paradigm.

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Paradigm Shift

• When enough significant anomalies have accrued against a current paradigm, the scientific discipline is thrown into a state of crisis, according to Kuhn.

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Paradigm Shift

• for early 20th century physics, the transition between the Maxwellian electromagnetic worldview and the Einsteinian Relativistic worldview was neither instantaneous nor calm.

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Paradigm Shift

"a new scientific truth does not triumph by convincing its opponents and making them see the light, but rather because its opponents eventually die, and a new generation grows up that is familiar with it.“Thomas Kuhn quoting Max Planck

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Wikipedia

One can't understand my ideas about Wikipedia without understanding Hayek.When information is dispersed (as it always is), decisions are best left to those with the most local knowledge

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Jimbo Wales• Altruism is evil.

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Age of Discontinuity

In an “age of discontinuity,” as Drucker called the current era, entrepreneurs could find significant opportunities to create or transform organizations if they were willing to get ahead of societal changes.

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Age of Discontinuity

Drucker said that the best way to predict the future is to invent it. Discontinuities provided gaps in society that could be filled with creativity.

Innovators should be attuned to unmet needs that did not yet show up in market research.

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Михаил Александрович Бакунин

• Mikhail Alexandrovich Bakunin• The passion for destruction is also a creative

passion.

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Karl Marx

Infrastructure determines superstructure

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Infra/super-structure

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Karl Marx

Quantitative shifts lead to qualitative shifts

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Hagel’s Dialect

Thesis

Synthesis

Antithesis

Thesis Antithesis

SynthesisThesis

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易經的正反合 Dialectics of I-Ching (Yijing)

乾 Qian 坤 Kun

…

既濟

未濟

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Chuang-tze (Zhuangzi)

道術將為天下裂The system of Dao was about to be torn in fragments all under a the sky.

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Chairman Mao???

革命無罪 造反有理

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EXAMPLESAlexander Graham Bell’s Telephone in 1875

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Shanzhai in ChinaClick Me!

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Camera Industry Click Me!

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A SIMPLE VIEW OF DISRUPTIVE INNOVATION

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DISRUPTIVE INNOVATION MODELS

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AB

Basic DI Model

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Incumbent

Dynamic DI Model

35Non-consu

mers

New market disruption

Sustaining strategy

Low-end disruption

Perf

orm

ance

Perf

orm

ance

Time

Time

New Market DI Model

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SHAPING IDEAS TO BECOME DISRUPTIVE (HOW TO BEAT OUR MOST POWERFUL COMPETITORS)

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Explore whether the idea can become a new market disruption

• Is there a large population of people who historically have not had the money, equipment, or skill to do this thing for themselves, and

• as a result have gone without it altogether or have needed to pay someone with more expertise to do it for them?

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Explores the potential for a low-end disruption

• Are there customers at the low end of the market who would be happy to purchase a product with less (but good enough) performance if they could get it at a lower price?

• Can we create a business model that enables us to earn attractive profits at the discount prices required to win the business of these over-served customers at the low end?

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Is the innovation disruptive to all of the significant incumbent firms in the industry?

• If it (the innovation) appears to be sustaining to one or more significant players in the industry, then the odds will be stacked in that firm’s favor, and the entrant is unlikely to win.

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COMPETING AGAINST NON-CONSUMERS

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Competing Against Non-consumption

• The logic of competing against non-consumption as the means for creating new-growth markets seems obvious.

• Despite this, established companies repeatedly do just the opposite.

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What Makes Competing Against Non-consumption So Hard?

• Not see disruption coming in. Even if,• Threat rigidity - Threat elicits more intense

and energetic response than opportunity, and then focus on countering the threat to survive.

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How to Avoid Hard Non-Consumption Competition

• First, get top-level commitment by framing a threat as an innovation during the resource allocation process. ex. Newspapers embraced online editions to give existing customers additional choice

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How to Avoid Hard Non-Consumption Competition

• Later, shift responsibility for the project to an autonomous organization that can frame it as an opportunity.ex. Place the responsibility to commercialize the disruption in an independent unit for which the innovation represents pure opportunity – newspaper’s online group

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Immelt’s approach

• Shift power to where the growth is.• Build new offerings from the ground up.• Customize objectives, targets, and metrics.• Build the DI unit from the ground up, like new

companies. • Have the DI unit report to someone high in the

organization.

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WHY DI IS EVEN MORE IMPORTANT TODAY?

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Two Articles from HBR

• The world is in constant disruption – new technologies create new platforms– John Hagel III, John Seely Brown, and Lang Davison, “Shaping Strategy in a

World of Constant Disruption,” Harvard Business Review, October 2008.

• The big emerging markets provide good chance for disruptive technologies– Jeffrey R. Immelt, Vijay Govindarajan, and Chris Trimble, “How GE Is Disrupting

Itself?” Harvard Busness Review, October 2009.