Debrief and Discussion on Value Creation

Technological innovation and the diffusion of innovations cause transitions • Incremental innovation Performance involves relatively Incremental minor changes innovation • Radical Incremental innovation is innovation Ferment based on Dominant different Radical design innovation engineering and scientific Ferment principles Time Incremental and radical innovations have very different competitive consequences Incremental innovation Radical innovation • Introduces relatively minor changes • Happens once dominant design has been established • Typically drives rapid performance improvement • Exploits the potential of the established design • Typically reinforces position of incumbents • Based on a different set of engineering principles • May open up whole new markets and potential applications • Often creates great difficulties for incumbent firms • Can be basis for successful entry by insurgents But sometimes, “…apparently modest changes…” have dramatic consequences Xerox and Canon in small copiers Sony and RCA in portable radios • Pioneers plain paper copiers • In 1970’s competitors win share with much smaller, more reliable copiers • Little new scientific or engineering knowledge • But Xerox takes ~8 years to launch competitive product • …and it loses 50% of its market share • Mid-1950’s RCA develops prototype portable radio • Sony- small new insurgent uses transistorized radio to enter US market • Sony’s radios produced with technology licensed from RCA • But RCA doomed as a follower, can’t match Sony Two different sorts of knowledge: component or modular; architectural or integrative Component Architectural • Knowledge about each of the core design concepts • How they are implemented in a particular component within a product • Specialized and focused, can be mastered by an individual or a small team • Constant focus once dominant design established • Radical change obvious • Knowledge about ways in which components link together into coherent whole and are interdependent • Tends to become embedded as tacit knowledge • Communication channels, information filters and problem-solving strategies • Shift may not be apparent A framework for thinking about different types of innovation and the resulting transitions Changed Modular Innovation Radical Innovation Incremental Innovation Architectural Innovation Reinforced Overturned Linkages and interdependencies amongst core concepts and components Unchanged Core concepts Architectural innovation and the consequences of transitions in semiconductor capital equipment Generation Firm 1 2 3 Contact Proximity Scanner 4 5 Step and Step and Repeat (1) Repeat (2) Nikon 70 GCA Perkin-Elmer Canon 67 Kasper 17 Cobilt 44 8 55 12 78 10 <1 21 9 Difficult transitions also happen when technological innovation outstrips the demand opportunity Performance y t o ry c e raj og e t hnol c n c ma nt te r o rf se ers Pe pre ing custom d n a m e d tf s Mo o Disruptive technology N ew per m for anc ra et jec y east-demandin tor L Time } g customers Performance that customers in the main-stream market can absorb Disruptive technologies have two key characteristics • Products and services that embody these technologies in their early stages have attributes that make them unattractive to incumbents’ current mainstream customers, and typically appeal only to small and emerging markets or segments, and offer inferior returns BUT • These technologies have the potential for rapid innovation along trajectories that will in future enable products and services that are attractive to incumbents’ mainstream customers, allowing insurgents to later invade established markets and displace the incumbent Three things are needed for these technologies to empower insurgents and threaten incumbents Investment Innovation trajectory • Even though products and services that • The innovation trajectory embody these for these technologies technologies are evolves in the right unattractive to direction and fast enough incumbents’ current to meet the evolving mainstream requirements of the customers at the incumbents’ current outset, insurgents mainstream customers perceive sufficient demand opportunity to fuel investment and innovation Indifference • The demand opportunity represented by incumbents’ mainstream customers is evolving along a different trajectory than can best continue to be met using incumbents’ sustaining technologies Disruptive innovations in disk drives How Disk-Drive Performance Met Market Needs 4000 1000 700 500 400 200 " 14 in ed d i v es pro riv y ity r d ded b users ac este eman r p city d -compute a p Ca inch a C ame W mainfr 100 70 50 40 C A 7 5 4 ed and by rs use dem d ed e d and id de em ov es an ty dusers m pr driv i c e d rs Capa by ty ci 5" ty se pa 5.2 aci y u C Ca in ap b ity pac Ca 20 10 cit a ap d ide ov r yp es riv "d 8 in C in apa 3. cit 5" y dr pro iv vi es de d 2000 Hard-Disk Capacity (MB) • An alternative explanation – could have mastered the architectural transition – but novel technologies did not meet needs of current customers • Response to transition depends on technical knowledge and on the perceived demand opportunity, business model and capabilities C Point at which hard-disk drives invade minicomputer B market Point at which hard-disk drives invade personal-computer market Point at which hard-disk drives invade portable-computer market 2 1 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 Year Each of these generations involved innovation along a new and different trajectory Generation 1 2 3 4 5 14” 8” 5.25” 3.5” 2.5” Demand MiniDesktop Portable Mainframe opportunity computers computers computers Leader(s) New attributes CDC Shugart Internal power supplies Smaller Seagate iPods Conner Quantum Higher Rugged density Lightweight Lower unit Low-power cost Tiny Even where incumbents pursue radical innovations, cognitive limitations may doom them • Polaroid was the leader in instant photography • Technology-driven company – long-term, large-scale research • Believed in consumables – “What’s the business model? It’s the razor/blade … so we make money with the film” • Commits to digital imaging – ‘86 Microelectronics Lab – by ‘89, 42% of budget – superior imaging technology • Did not invest in other areas – low cost electronics manufacturing – rapid product development – new marketing and sales • Takes long time, capabilities erode, people leave The evolution of capabilities and beliefs at Polaroid 1980 Instant film technology Manufacturing: Thin film coating and precision electronics Mass market distribution Pre-1980 Instant camera product and process innovation 1990 Instant film technology Manufacturing: Thin film coating and precision electronics Mass market distribution Leading edge digital imaging technologies - microelectronics - lasers 1981-1990 Instant camera product and process innovation Large investments in exploring digital imaging technologies "Printer in the Field" digital camera development Helios medical imaging system Image recorders and scanners 1980 Technology-driven product development Value of large-scale invention Value of an instant print Value of "photographic" quality Razor/blade business model 1990 Market-driven product development Value of large-scale invention Value of an instant print Value of "photographic" quality Razor/blade business model 1998 Instant film technology Manufacturing: Thin film coating and precision electronics Mass market distribution Diminshed digital imaging technological capability 1991-1998 Instant camera product and process innovation Smaller investments in exploring DI technologies - sale of microelectronics lab & Helios Digital camera (without printer) development Image recorders and scanners 1998 Market-driven product development No value in large-scale invention Value of an instant print Value of "photographic" quality Razor/blade business model Innovation and transitions • Incremental versus radical – minor changes within established dominant design – different set of engineering or scientific principles • Modular versus architectural – component knowledge, localized – architectural knowledge, about interdependence amongst concepts and components, often tacit and embedded within organization • Sustaining versus disruptive – fits customers, business model and capabilities – does not fit well with current customers, business model or capabilities, initially irrelevant but eclipses Some terminology for timelines and transitions Epoch applies Era Era to the beginning of a new period Epoch Epoch marked by radical changes Episode Episode and new developments while era Event applies to the Event entire period Time Era Era Epoch Epoch Episode Episode Event Event Episode Episode Era 1. a period of time marked by distinctive character, events and so on1 2. the period of time to which anything belongs or is to be assigned1 3. a period of time as reckoned from a specific date serving as the basis of its chronological system2 Epoch 1. a period of time marked by distinctive character, events and so on 2. the beginning of a distinctive period in the history of anything1 3. a point of time distinguished by a particular event or state of affairs 4. a notable event that marks the beginning of a period of history, especially one considered remarkable or noteworthy Episode 1. a portion of a narrative that relates an event or a series of connected events and forms a coherent story in anf of itself 2. an incident in the course of a series of events Organization response to transition ultimately depends on four key factors Demand opportunity who your customers are and what they want Business ecosystem your chosen niche, its business model and hence how you make money Technological infrastructure explicit and tacit component and architectural knowledge Your mental models - beliefs about the future, about how to make money, communication channels, information filters and problemsolving strategies Domains, players and pattern recognition • Digital displays: E Ink • USB flash: Lexar Media, SanDisk, msystems and Sony • Digital photography: Kodak, Polaroid, Sony, Canon and Nikon • Portable radios: Sony and RCA • Semiconductor capital equipment: Cobilt, Canon, Perkin Elmer and Nikon • Disk drives: CDC, Fujitsu, IBM, Seagate, Conner and Quantum • Technologies and innovation trajectories • Demand opportunity, adoption and diffusion • Life cycles, transitions and disruption Nine key concepts 9 Technological infrastructure, technologies, innovation, parameters and trajectories 9 Demand opportunity, adoption and diffusion 3 Business ecosystems, niches and co-opetition 9 Co-evolution, life-cycles, epochs and transitions 5 Value creation, value capture and inimitability 6 Systems, architecture, modules, interfaces, standards, platforms, portfolios and pipelines 7 Activities, tasks, competences and capabilities 8 Ambiguity and scenarios, uncertainty and real options 9 Simple rules, prepared mind, active waiting, overload A roadmap for the course A B C D Introduction Patterns of Capturing Deciding change Value and Delivering Demand opportunity Business ecosystems, niches and co-opetition Technological infrastructure Co-evolution, life-cycles, epochs and transitions Value creation, value capture and inimitability Ambiguity and scenarios, uncertainty and real options