Innovator’s Dilemma final

8/2/2019 Innovators Dilemma final

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InnovatorsDilemma

By Clayton

M. Christensen

Presented By

Rutu Shah

Khushboo Kothari


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InnovationThe word innovation derives from the Latin word innovatus, which is the

noun form of innovare to renew or change.

Innovation is the creation of better or more effective products, processes,

services, technologies, or ideas that are accepted by markets, governments, and

society.

Innovation differs from invention in that innovation refers to the use of a new

idea or method, whereas invention refers more directly to the creation of

the idea or method itself.

The act of introducing something new (the american heritage dictionary)

A new idea, method or device (Webster online)

Change that creates a new dimension ofperformance (Peter Drucker)


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InnovationThe ability to deliver new value to a customer (Jose Campos)

Innovation is the way of transforming the resources of an enterprise through

the creativity of people into new resources and wealth (Paul Schumann)

Seminal researcher Gabriel Tarde defined the innovation-decision process as a

series of steps that includes:

First knowledge

Forming an attitude

A decision to adopt or reject

Implementation and use

Confirmation of the decision


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Types of InnovationSustaining Innovation

An innovation that does not affect existing markets.

Evolutionary Innovation

An innovation that improves a product in an existing market in ways that

customers are expecting. (E.g., fuel injection)

Revolutionary Innovation - (discontinuous, radical)

An innovation that is unexpected, but nevertheless does not affect existing

markets. (E.g., the automobile)

Disruptive Innovation

An innovation that creates a new market by applying a different set of values,

which ultimately (and unexpectedly) overtakes an existing market. (E.g., the

lower priced Ford Model T)


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Disruptive InnovationChristensen argues that disruptive innovations can hurt successful, well

managed companies that are responsive to their customers and have excellentresearch and development. These companies tend to ignore the markets most

susceptible to disruptive innovations, because the markets have very tight

profit margins and are too small to provide a good growth rate to and

established (sizable) firm. Thus disruptive technology provides an example of

when the common business-world advice to "focus on the customer" ("stay

close to the customer", "listen to the customer") can sometimes be strategically

counterproductive.

Christensen distinguishes between "low-end disruption" which targetscustomers who do not need the full performance valued by customers at the

high end of the market and "new-market disruption" which targets customers

who have needs that were previously unserved by existing incumbents.


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Disruptive InnovationLow-End Disruption

At the low end of the market, are the customers who would want topurchase a product with less, but good enough, performance if they could

pay a lower price?

Can a business model be created which allows for attractive profits at the

price needed to win the business of these customers?

New-Market Disruption

Is there a large group of potential customers who have not historically had

the resources to do this thing for themselves and have gone without it or

have needed to pay someone else to provide it to them?

To use the current product or service, do customers need to go to aninconvenient, centralized location?

l d di i


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How low end disruption occurs over

time

H l d di i


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time"Low-end disruption" occurs when the rate at which products improve exceeds

the rate at which customers can adopt the new performance. Therefore, atsome point the performance of the product overshoots the needs of certain

customer segments. At this point, a disruptive technology may enter the market

and provide a product which has lower performance than the incumbent but

which exceeds the requirements of certain segments, thereby gaining a

foothold in the market.

In low-end disruption, the disruptor is focused initially on serving the least

profitable customer, who is happy with a good enough product. This type of

customer is not willing to pay premium for enhancements in productfunctionality. Once the disruptor has gained foot hold in this customer

segment, it seeks to improve its profit margin. To get higher profit margins, the

disruptor needs to enter the segment where the customer is willing to pay a

little more for higher quality.


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time

To ensure this quality in its product, the disruptor needs to innovate. Theincumbent will not do much to retain its share in a not so profitable segment,

and will move up-market and focus on its more attractive customers. After a

number of such encounters, the incumbent is squeezed into smaller markets

than it was previously serving. And then finally the disruptive technology

meets the demands of the most profitable segment and drives the established

company out of the market.

"New market disruption" occurs when a product fits a new or emerging market

segment that is not being served by existing incumbents in the industry.


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ExampleInnovation Disrupted

Market

Notes

8 inch

floppy disk

drive

5.25 inch

floppy disk

drive

3.5 inch

floppy disk

drive

CDs and

USB flash

drives

14 inch

floppy

disk drive

8 inch

floppy

disk drive

5.25 inch

floppy

disk drive

3.5 inch

floppy

disk drive

The floppy disk drive market has had unusually large

changes in market share over the past fifty years.

According to Clayton M. Christensen's research, the

cause of this instability was a repeating pattern of

disruptive innovations. For example, in 1981, the old

8 inch drives (used in mini computers) were "vastly

superior" to the new 5.25 inch drives (used in desktop

computers).However, 8 inch drives were not affordable

for the new desktop machines. The simple 5.25 inch

drive, assembled from technologically inferior "off-the-

shelf" components, was an "innovation" only in the sensethat it was new. However, as this market grew and the

drives improved, the companies that manufactured them

eventually triumphed while many of the existing

manufacturers of eight inch drives fell behind.

i i h l h h


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A Disruptive Technology Change : The

5.25 inch Winchester Disk Drive

(1981)Attribute 8Inch Drives

(Minicomputer Market)

5.25Inch Drives

(Desktop Computer

Market)

Capacity (Megabytes) 60 10

Physical Volume (cubic

inches)

566 150

Weight (pounds) 21 6

Access Time

(milliseconds)

30 160

Cost per megabyte $50 $200

Unit Cost $3000 $2000


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ExamplesEstablished Technology Disruptive Technology

Wireline Telephony Mobile Telephony

Standard textbooks Custom-assembled, modular digital

textbooks

Open Surgery Arthroscopic and endoscopic surgery

Cardiac surgery Angioplasty

Offset printing Digital PRINTING

Printed greeting cards Free greeting cards, downloadable over

the internet

Graduate school of management Corporate universities and in-house

management training programs

Classroom and campus-based

instruction

Distance education, typically enabled by

the internet


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Examples

Established Technology Disruptive Technology

Analogue Radio Transistor Radio

Desktop Calculators Pocket Calculators

Cathod Ray Tube (CRT) LCD TV

Integrated Steel Mills Minimills

(The minimill technology used scrap,put it in a furnace and made new steel.

This was cheap and low quality steel.

The integrated steel companies were

more than happy to get rid of this low

margin business and instead focus on

high end. So they did, but slowly and

steadily, the minimill technology

offered better steel quality and captured

segment after segment. Eventually

integrated steel mills started to suffer

badly.)


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Principles of Disruptive TechnologyCompanies depend on customers and investors for resources

In order to survive, companies must provide customers and investors with the

products, services and the profit that require. The highest performing

companies, therefore, have well-developed systems for killing ideas that their

customers dont want. As a result, these companies find it very difficult to

invest adequate resources in disruptive technologieslower margin

opportunities that their customers dont wantuntil their customers want

them. And by then it is too late.

Markets that dont exist cant be analyzed

Sound market research and good planning followed by execution according toplan are the hallmarks of good management. But companies whose investment

processes demand quantification of market size and financial returns before

they can enter a market get paralyzed when faced with disruptive technologies

because they demand data on markets that dont yet exist


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Principles of Disruptive TechnologyTechnology supply may not equal market demand

Although disruptive technologies can initially be used only in small markets,

they eventually become competitive in mainstream markets. This is because

the pace of technological progress often exceeds the rate of improvement that

mainstream customers want or can absorb. As a result the products that are

currently in the mainstream eventually will overshoot the performance that

mainstream markets demand, while the disruptive technologies that

underperform relative to customer expectations in the mainstream market

today may become directly competitive tomorrow. Once two or more products

are offering adequate performance, customers will find another criteria for

choosing. There criteria tend to move toward reliability, convenience, andprice, all of which are areas in which the newer technologies often have

advantages.


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Principles of Disruptive TechnologySmall markets dont solve the growth needs of large companies

To maintain share prices and create internal opportunities for their employees,

successful companies need to grow. It isnt necessary that they increase their

growth rates, but they must maintain them. And as they get larger, they need

increasing amounts of new revenue just to maintain the same growth rate.

Therefore, it becomes progressively more difficult for them to enter the newer,

smaller markets that are destined to become the large markets of the future. To

maintain their growth rates, they must focus on large markets.

Ad i t f d ith


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Advice to managers faced with

disruptive technologiesGive responsibility for disruptive technologies to organizations whose

customers need them so that resources flow with them.

Set up a separate organization small enough to get excited by small gains.

Plan for failure. Dont bet all your resources on being right the first time.Think of your initial efforts at commercializing disruptive technology as

learning opportunities. Make revisions as you gather data.

Dont count on breakthroughs. Move ahead early and find the market for the

current attributes of the technology. You will find it outside the current

mainstream market. You will also find that the attributes that make disruptive

technologies unattractive to mainstream markets are the attributes on which the

new markets will be built

Innovator’s Dilemma final

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