Meeting the Challenge of
Disruptive Change
Clayton M. Christensen and Micheal Overdorf
Presented By: Group-4 Mahendra Pratap Singh (WMP6026)
Rakesh Thukral (WMP6036)
Ravi Prakash Chamria (WMP6038)
Rishabh Garg (WMP6039)
Contents
Where the Capabilities Reside
The migration of Capabilities2
Creating Capabilities to Cope with Change4
1
Sustaining versus Disruptive innovation3
Introduction
Why do so few established companies innovate successfully? Of hundreds of department stores, for instance, only DaytonHudson became a discount-retailing leader. And not one minicomputer company succeeded in the personal-computer business.
What’s going on?
It’s not that managers in big companies can’t see disruptive changes coming. Usually they can. Nor do they lack resources to confront them. Most big companies have talented managers and specialists, strong product portfolios,first-rate technological know-how, and deep pockets. What managers lack is a habit of thinking about their organization’s Capabilities as carefully as they think about individualpeople’s capabilities.
Where the Capabilities Reside
Resources
Processes Values
Where the Capabilities Reside
When they ask the question,“What can this company do?” the place most managers look for the answer is in its resources —
- Tangible - People, Equipment, Technologies, Cash
- Intangible - Product design, Information, Brands
But Resource analysis does not tell the whole story.
Resources Resources
Where the Capabilities Reside
- The Patterns of Interaction, Coordination, Communication, and Decision making that lead to the company’s output
One of the dilemmas of management is thatprocesses, by their very nature, are set up sothat employees perform tasks in a consistentway, time after time. They are meant not tochange or, if they must change, to changethrough tightly controlled procedures.
Process that creates the capability to execute one task concurrently defines disabilities in executing other tasks
ProcessesProcesses
Where the Capabilities Reside
- Organization's values not just ethical values but with broader meaning - as the standards by which you judge one order, one customer or market opportunity to be more important than another.
- First value – the way the company judges acceptable gross margin.
- Second value – how big a business opportunity has to be before it can be interesting
ValuesValues
Where the Capabilities Reside
- Toyota’s Case
Entered American market with Corona model for lower end of market. With competition, its margins eroded. To makeup, it developed Camry and Lexus for higher tiers. The subsequent overhead costs forced Toyota to exit the lower market.
Values (Example)Values (Example)
The migration of Capabilities
In the start-up stages of an organization, muchof what gets done is attributable to resources—people, in particular. The addition or departureof a few key people can profoundly influenceits success. Over time, however, the locusof the organization’s capabilities shifts towardits processes and values.
Hence, the factors that define an organization’scapabilities and disabilities evolve overtime—they start in resources; then move to visible,articulated processes and values; and migratefinally to culture.
The migration of Capabilities
Avid Technology, a producer of digital-editingsystems for television, is an apt case in point.On the back of its star product, Avid’s stock rose from$16 to $49 in 1995. However, the strains of being a one product company soon emerged as Avid faced a saturated market and increasing competition. Avid’s lack of effective processes for consistently developing new products and for controlling quality, delivery, and service Ultimately tripped the company.
Avid TechnologyAvid Technology
The migration of Capabilities
By contrast, at McKinsey & Company, the processes and values have become so powerful that it almost doesn’t matter which people get assigned to which project teams.
Hundreds of MBAs join the firm every year, and almost as many leave. But the company is able to crank out high quality work year after year because its core capabilitiesare rooted in its processes and valuesrather than in its resources.
McKinsey & CompanyMcKinsey & Company
Digital’s Dilemma
- Digital Equipment’s fall from grace was not the result of misreading the market.
- Digital was leader in mini-computers market. Clearly, Digital had the resources to succeed in personal computers. The company had plenty of cash, a great brand, good technology, and so on. - But it processes of in-house component development was not suitable for PC market.
- And its values of higher margins was not suitable for low margin PC Business
Sustaining Versus Disruptive innovation
- - Sustaining technologies are innovations that make a product or service perform better in ways that customers in the mainstream market already value.
Ex) Compaq’s early adoption of Intel’s 32-bit 386 microprocessor instead of the 16-bit 286 chip
Merrill Lynch’s introduction of its Cash Management Account, which allowed customers to write checks against their equity accounts.
Sustaining InnovationsSustaining Innovations
Sustaining Versus Disruptive innovation
- Disruptive innovation, a term of art coined by Clayton Christensen, describes a process by which a product or service takes root initially in simple applications at the bottom of a market and then relentlessly moves ‘up market’, eventually displacing established competitors.
Ex) Early personal computers were a disruptive innovation relative to mainframes and minicomputers.
Disruptive InnovationsDisruptive Innovations
Sustaining Versus Disruptive innovation
Disruptive InnovationsDisruptive Innovations
Creating Capabilities to Cope with Change
Creating New Capabilities Internally
Creating Capabilities Through a Spinout Organization
Creating Capabilities Through Acquisitions
- Create new organizational structures within corporate boundaries in which new processes can be developed
- Managers need to Pull the relevant people out of the existing organization and drawing a boundary around the new group (Heavy Weight Teams)
Creating New Capabilities InternallyCreating New Capabilities Internally
Creating Capabilities to Cope with Change
- Chrysler (Component -> automobile platform) At Chrysler, for example, the boundaries of the groups within its product development organization historically had been defined by components — power train, electrical systems, and so on. But to accelerate auto development, Chrysler needed to focus not on components but on automobile platforms—the minivan, small car, Jeep, and truck, for example—so it created heavyweight teams.
- HP’s Kitty Hawk 1.3 inch disk drive We were basically a startup business with the speed and flexibility of entrepreneurs but with also the financial and technical backing of a successful high-tech company – Team member with Bruce Spenner
Creating New Capabilities Internally(Ex)Creating New Capabilities Internally(Ex)
Creating Capabilities to Cope with Change
- When a disruptive innovation requires a different cost structure in order to be profitable and competitive, or when the current size of the opportunity is insignificant relative to the growth needs of the mainstream organization, then — and only then—is a spinout organization required.
Ex)
Creating Capabilities Through a Spinout OrganizationCreating Capabilities Through a Spinout Organization
Creating Capabilities to Cope with Change
Hewlett-Packard
Laser Printer
Ink - JetProcesses to develop both printers same but different values due to margins.
Acquiring managers begin by asking,“What created the value that I just paid for? Did I justify the price because of the acquisition’s resources or is it processes and values?”
If the capabilities being purchased are embeddedin an acquired company’s processes and values, then the last thing the acquiring manager should do is integrate the acquisition into the parent organization.
If, however, the acquired company’s resources were the reason, then integrating it into the parent can make a lot of sense.
Creating Capabilities Through AcquisitionsCreating Capabilities Through Acquisitions
Creating Capabilities to Cope with Change
Ex)
- IBM + Rolm ( Failed ) IBM’s acquired telecommunications company Rolm in 1984.
It was Rolm’s processes for developing and finding new markets for PBX products that mattered. In 1987, when IBM integrated Rolm into its corporate structure, Rolm’s core processes and values were destroyed.
- Cisco System + StrataCom ( Success ) Cisco let StrataCom stand alone and infused Cisco’s substantial resources into StrataCom’s organization to help it grow more rapidly.
Creating Capabilities Through AcquisitionsCreating Capabilities Through Acquisitions
Creating Capabilities to Cope with Change
Fitting The Tool To The Task
BUse a heavyweight team within the existing organi-zation
CUse a heavyweight team in a separate spinout organi-zation
AUse a lightweight or func-tional team within the ex-isting organization
DDevelopment may occur in-house through a heavy-weight team, but commer-cialization almost always requires a spinout
Poor
Good
Good Poor(sustaining innovation) (disruptive innovation)
Fit
wit
h O
rgan
izat
ion
’s P
roce
sses
Fit with Organization’s Values
SELECTING THE RIGHT STRUCTURE FOR YOUR INNOVATION
SELECTING THE RIGHT STRUCTURE FOR YOUR INNOVATION
Managers whose organizations are confrontingchange must ask two questions – 1. Does the organization have the resources
required to succeed? 2. Does the organization have the processes
and values it needs to succeed in this new situation?
What we hope this framework introduces into managers’ thinking is the idea that the very capabilities that make their organizations effective also define their disabilities.
Conclusion
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