L08 Disruptive Technology

Lecture L08 DISRUPTIVE TECHNOLOGY

Why do start-ups exits?

Technology is one of the major factors in

change

Opportunity Threat

Example: Digital Photography

Media companies

Tech Has No Feelings:Gary Vaynerchuk Crushes Old Media

The World is Changing

Technology has no feeling

Is this Good or Bad?

Kranzberg’s1. law of technology

1. Technology is neither good nor bad; nor is it neutral

Adjacent PossibleWhen in one room someone

will open the next door

Western Union Telegraph Business

Bell offered the telephone patent for $100.000

Western Union turned Bell down

Bell went into business himself, founding AT&T

In 1900

AT&T had over million users AT&T revenues were $13 million while Western Union’s revenues were $6 million

Why would Western Union make such short-sighted decision?

We tend to view technology based on

past usages but not the future potential

"This 'telephone' has too many shortcomings to be seriously considered as a means of

communication. The device is inherently of no value to us."

- Western Union internal memo, 1876.

Telephone (1876)

“What use could this company make of an electrical toy?”

- Western Union president William Orton.

Telephone (1876)

„Well informed people know it is impossible to transmit the voice over wires and that were it possible to do so, the thing would

be of no practical value.“ - Editorial in the Boston Post.

Telephone (1876)

„Thus the telephone, by bringing music and ministers into every house, will empty the

concert halls and the churches…“ - “The Telephone”, The New York Times, March 22, 1876

Telephone (1876)

“Rail travel at high speed is not possible because the passengers,

unable to breathe, would die of asphyxia”

- Dr. Dionysus Lardner, Professor of Natural Philosophy and Astronomy at University College,

London

Railroads (1815)

Cars (1885) “The horse is here to stay, but the automobile is only a novelty – a fad”

- The president of the Michigan Savings Bank to advised Henry Ford's lawyer Horace Rackham not to

invest in the Ford Motor company

Image from http://www.huffreport.com/

Airplanes (1903)"Heavier-than-air flying machines are impossible." - Lord Kelvin, president, Royal Society, 1895.

“The wireless music box has no imaginable commercial value. Who would pay for a message sent to nobody in particular?" - David Sarnoff's associates in response to his urgings for investment in the radio in the 1920s

Radio (1905)

“For God’s sake go down to the reception and get rid of a lunatic who’s down there. He says he’s got a machine for seeing by

wireless!” - Editor of the Daily Express in response to a prospective

visit by John Logie Baird, 1925

Television (1926)

"I think there is a world market for maybe five computers.“

- Thomas Watson, chairman of IBM, 1943

Computers (1943)

"There is no reason for any individual to have a computer in their home.” - Kenneth Olsen, president and founder of

Digital Equipment Corp., 1977

Personal Computers (1977)

“The Internet is a shallow and unreliable electronic repository of dirty pictures, inaccurate rumors, bad spelling and worse grammar, inhabited largely by people with no demonstrable social skills.” - Chronicle of Higher Education, 1997

Internet (1970)

I don't think that digital photography is romantic yet. It's not sympathetic the way that film is - Matthew Modine

Digital Cameras (1991)

"The knowledge transition was much more rapid for those learning from printed material...” - The E-book skeptic

Digital books (1992)

Picture from Amazon.com

How will this innovation change an industry, and what impact does this have on the firms I care

about?

Nordic Marketing Conference of Lottery Companies, Mývatn, September 1995

Gradual ImprovementsFoster improved product performanceEach year new and improved products are offered

Sustaining Innovations

Source: (Christensen, 2000)

Mature Leading CompaniesExisting companies, incumbents, have a high probability of beating entrant attackers when the contest is about sustaining innovations

Red Ocean Industry Bloody Competition

Well know industry boundaries Rules are established, sustained Innovation

Commodities

D i s r u p t i o n

Blue Ocean

Value Innovation Align innovation with utility,

price, and cost position

New Technology, new markets

The product performance is good enough and affordable to fulfil a unfilled need in the market

Disruptive Technology


The Disruptive Innovation Theory

New organisation can use relatively simple, convenient, low-cost innovations to create growth and triumph over powerful incumbents



Low EndCan occur when existing products and services are “too good” and hence overpriced relative to the value existing customer can use – Value Innovation


New MarketOccur when characteristics of existing products limit the number of potential consumers or force consumption to take place in inconvenient, centralised settings

Source: Christensen et. al. Seeing what’s next

The Disruptive Innovation Theory


The Innovator’s Dilemma

Firms that succeed in one generation of innovation almost inevitable become hamstrung by their own success and thus doomed to lose out in the next wave of innovation

Disruptive changes in Business Environment

Opportunity/Pitfall to Make/Lose Money

Force Majeure Legal/Regulatory

Competitor Strategy

Popular opinion or fashion

Political

Financial

Technology

Source: Yang, Harvard

Disruption and Innovation


Resources, Processes and Values Theory

R e s o u rc e s (what a firm has), P ro c e s s e s (how a firm does it´s work), and Va l u e s (what a firm wants to do) collectively defines an organization’s strengths as well as weaknesses and blind spots


The RPV Theory


The RPV Theory

Organisations successfully tackle opportunities

When they have the resources to succeed, when their processes facilitate what needs to get done, and then their values allow them

to give adequate priority to that particular opportunity in face of all other demands that compete for the company’s resources

The RPV Theory

Possible consequences

Source: Christensen et. al. Seeing what’s next


1. The telephone was a new-market disruptive innovation

2. Western Union’s resources, processes, and values meant that what ultimately became the right course appeared to be unattractive at the outset

3. Western Union saw entrants improving. However, investment in the core business kept trumping investment in the new business

4. By the time the right course was clear, it was too late

Western Union was in the telegraph business, not the

communication business

The Disruptive Innovation Theory The Innovators Dilemma Resources, Processes and Values Theory

Key Concepts

Economist article: The last Kodak moment?

Kodak is at death’s door; Fujifilm, its old rival, is thriving. Why?

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