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Copyright © 2015 Skool of Happiness Pte Ltd. All Rights Reserved. readingraphics.com ReadinGraphics ReadinGraphics The management principles that lead a company to success can be the same reasons for their demise in the event of unexpected competition. The book explains this dilemma and the solution for CEOs, entrepreneurs & managers. How Can Great Firms Fail? Established firms tend to lead in “sustaining technology” but lose their positions when faced with “disruptive technology”. Improve performance of established products Meet demands of mainstream customers in major markets Led by established firms, who have the resources and setup to constantly invest in innovations. Sustaining Technology Underperform compared to established products Can’t serve mainstream markets but have new features that are valued by new/fringe customers Cheaper, simpler, smaller, more convenient to use Led by entrant firms Disruptive Technology Impact of Value Networks: A firm’s competitive context shapes its perceptions & decisions: Experience/ choice of markets Competitive Strategy Organizational capabilities & disabilities Perception of what’s profitable Constant upward mobility: As established firms move up-market, it creates a vacuum in the lower-end markets that attract new entrants with disruptive technologies to enter. Established firms face 3 barriers to downward mobility: Current cost structure Resource allocation models (favour current strategy & highest returns) Customers moving upmarket THE INNOVATOR’S DILEMMA Because established firms consciously (a) listen to the needs of their best customers and (b) focus their investments on innovations with the highest returns, they tend not to commit to disruptive technologies until it is too late. How Great Firms Fail in Face of Disruptive Innovation Leading firms drive technological improvements using sustaining innovation 1 Pace of technological growth exceeds pace of demand growth, i.e. there’s “performance oversupply” 2 New firms slowly move upmarket & eventually dominate mainstream markets when they meet performance requirements 4 3 New firms enter with disruptive technology & start a new trajectory • Underperform in traditional areas of value; can’t serve mainstream markets • Provide new features of value to fringe customers; open new markets Time Performance/Value #1 Resources are controlled by customers & investors. Free up managers to create a different value network & success metrics for the new market Challenge: Good resource allocation processes will focus on key customers’ needs & highest returns on investments, weeding out disruptive technologies Create an independent organization responsible for the disruptive technologies & the new/emerging customers #2 Big companies need big markets for growth. Be nimble and develop first-mover advantages, yet have a large enough market to excite the new organization’s managers. Challenge: Although disruptive technologies usually create new markets, these markets are initially not attractive enough to large companies. Match the size of the organization to the size of the market #4 An organization’s capabilities define its disabilities. Firms usually have the right resources, but not the right processes and/or values for disruptive innovations. Build new capabilities thru’ acquisition, internal creation or new organizations. Select the right commercial & team structure using the framework provided. Challenge: To succeed in disruptive technologies, organizations must have the right Resources, Processes and Values (RPV). Appraise your organization's capabilities & disabilities #5 Technologies can progress faster than market demand Challenge: Large firms tend to move up-market too quickly, over-satisfying the needs of their original customers. It creates a vacuum at the lower price points and attracts competitors. Manage the evolution of product competition + Learn to spot disruptive threats & opportunities To identify a potentially disruptive technology, ask: If the technology works on fundamentally different value assumptions from mainstream markets; but Could one day improve to be competitive 3 strategies to manage the evolution of product competition: Push upmarket toward higher-end customers (sustaining innovation); Stay with customers (Match their needs directly); or Change the market’s demand for functionality (thru’ marketing) #3 Markets that don’t exist can’t be analyzed. Assume your forecasts & strategies are wrong, focus on learning what needs to be known (initially thru’ trial & error), and set aside resources to make revisions as you learn. Challenge: There’s no existing data for the new markets, and past data/projections are irrelevant. Use discovery-based planning for new & emerging markets Resolving the Dilemma: Using the 5 Laws of Disruptive Technology THE INNOVATOR’S DILEMMA CLAYTON M. CHRISTENSEN REVOLUTIONARY THINKING THAT WILL CHANGE THE WAY YOU DO BUSINESS