Chapter 6 (Disruptive Innovation)

Chapter 6 [Disruptive Technologies: Understanding the Giant Killers & Tactics for Avoiding Extinction] [6.1 Introduction] CHARACTERISTICS OF DISRUPTIVE TECHNOLOGIES (Clayton Christensen’s Theory on Disruptive Technologies)  True disruptive technologies have 2 characteristics that make them so threatening: 1. They come to market with a set of performance attributes that existing customers don’t value 2. Over time, the performance attributes improve to the point where they invade established markets (From Analog to Digital)    Many of the digital innovations performed poorly when they first started (e.g. Digital cameras had bad quality photos) However, today, these same digital innovations eventually had a market disrupting impact These changes were enabled by fast & cheap technology Definitions: Disruptive Technologies – Technologies that come to the market with performance attributes not demanded by existing customers, BUT improve over time until the innovation can invade established markets (NOTE: Disruptive innovation don’t need to perform better than incumbents; they simply need to perform well enough to appeal to the customers of the incumbents (and often done so at lower prices)) WHY BIG FIRMS FAIL   Big firms often focus on working on cash-offerings rather than new stuff when questionable upstarts (who often start out poorly) begin - Most disruptive technologies often have worse margins than the incumbents, and since these new markets don’t look attractive, big firms don’t dedicate resources to developing the potential technology or nurturing the needs of a new customer base Early customers for a disruptive technology are part of a different “value network” than anything address by incumbent market leaders HOW CAN A FIRM RECOGNIZE POTENTIALLY DISRUPTIVE INNOVATIONS?  Paying attention to the trajectory of fast/cheap technology advancement & new/emerging technologies is critical (Where you can get such information)      Having conversations with those outside the firm working on the experimental edge of advancements is key Top-tier scientific researchers and venture capitalists can be particularly good sources for information on new trends Increasing conversations across product groups and between managers & technologists can also be helpful It’s common for many firms to regularly rotate staff to improve idea sharing and innovation Many disruptive firms were started by former employees of disrupted giants - Employees who feel so passionately about a trajectory for future technology that they are willing to leave the firm and risk it all on a new endeavor may be a signal that a development is worth paying attention to POTENTIAL DISRUPTOR SPOTTED: NOW WHAT? (Clayton Christensen’s Few Tactics) 1. A firm can build a portfolio of options on emerging technologies, investing in firms, start-ups, or internal efforts that can focus solely on what may or may not turn out to be the next big thing (Creosote Bush Effect)  Managers can act like the rival-killing creosote bush, pulling high-quality engineers off emerging projects of a firm’s top offerings need staff or other resources to grow (Effects of a Disruptive Technology)  When disruptive technologies emerge and eventually take market share away from a firm’s higher margin incumbent offerings, the result of the transition can lead to: 1. Lower profits 2. Incur Losses 3. Contract Corporate Revenues (Obstacles for Nurturing New Technology In-House)   Top tech talent will often never be assigned to experimental products Or they may be pulled off emerging efforts to work on the firm’s most lucrative offerings if the next version of a major product is delayed or in need of staff [6.2 From Bitcoin to Blockchain and Beyond: A Disruptive Innovation for Money and More?] Definitions: Bitcoin – An open-source, decentralized payment system that operates in a peer-to-peer environment, without bank or central authority Blockchain – A highly secure transaction recording mechanism that has been adapted for all sorts of uses HOW IT WORKS 1. Bitcoins are transferred from person to person like cash 2. Transactions are recorded in a public ledger (blockchain) instead of using a bank as a middleman 3. Transactions are verified by a pool of users called miners - Miners get an incentive for being involved: they can donate their computer power in exchange for the opportunity to earn additional bitcoin, and sometimes they can earn modest transaction fees 4. While the ledger records transactions, no one can use your bitcoins without a special password (private key, usually stories in what is referred to as a user’s bitcoin wallet, which is really just an encrypted holding place) - Passwords are virtually impossible to guess, and verification makes sure no one spends the same bitcoins in two places at once BENEFITS    Much of bitcoin’s appeal comes from the fact that bitcoins are transferred from person to person like cash, rather than using an intermediary like banks or credit card companies GetÝng rid of card companies cuts out transaction fees Bitcoin also opens up the possibility of micropayments (small digital payments) that are not impractical because of fees (Bitcoin Benefit: Boon for International Commerce)   Can be a boon for international commerce, especially cross-border remittance and in expanding e-commerce in emerging markets - E.g. Family members abroad send funds home via services like Western Union, etc. The cache is that the services can cost a fee and take up some time to clear - Bitcoin Benefit: Bitcoin transfers can be immediate and could theoretically eliminate all transaction fees (In this case, bitcoin is less about the currency and more about the transfer of ownership) Bitcoin might also lubricate the wheels of commerce between nations where credit card companies and firms like PayPal don’t operate, and where internationally accepted cards are tough to obtain (Transparency & Privacy)  Bitcoin straddles the line between transparency and privacy: - Transactions are recorded in the open, via blockchains, but individuals can be anonymous CONCERNS (Several Challenges Bitcoin needs to Overcome Before Going Mainstream) 1. Consumer Benefit Needs to be Stronger – Most of the population isn’t impacted by the bitcoin market, even though international remittance customers and those left out of the banking & credit card system are 2. DifÏcult to Understand/Use While Offering Little Benefit 3. Reputation Problem – Bitcoin is embraced by criminals (e.g. Dark Web), and it doesn’t help that bitcoin was created by a mysterious, unknown entity referred to as Satoshi Nakamoto 4. Security Concerns – While bitcoin software is considered to be solid, it is not a guarantee that other entities are as secure - Wallets that hold your private key are potentially vulnerable - Screwed if a virus wipes out your computer and you haven’t written down your password or saved a backup copy in another secure and accessible location - Hackers with stolen passwords effectively have access to anything in your bitcoin wallet 5. Volatility – The value can change 6. Transaction Volume – Bitcoin’s daily transaction volume is miniscule compared to established companies (e.g. Visa) ICOs: INITIAL COIN OFFERINGS AS A NEW WAY FOR STARTUPS TO RAISE CASH Definitions: ICO – A coin or token that represents some form of value Liquid – An asset which is liquid can be easily turned into cash (Benefits of ICOs)   For Issuing Firms – Can raise capital with limited to no regulation For Consumers – A token can be instantly traded with anyone