Lecture 4:

INNOVATION

& DISRUPTIVE TECHNOLOGY

BIT Team, SBMF, UTM, Sep 2014

Learning Outcomes

• Innovation

• Types of Technologies

• Sustaining Technology

• Disruptive Technology

• Disruptive Technologies

• Case Studies

“Technology is like a fish.

The longer it stays on the shelf, the less desirable it becomes”

~ Andrew Heller, CEO Heller Associates; lead IBM RS6000 team

Management Information Systems

ENVIRONMENTS AND ORGANIZATIONS HAVE A RECIPROCAL RELATIONSHIP

Environments shape what organizations can do, but organizations can influence their environments and decide to change environments altogether. Information technology plays a critical role in helping organizations perceive environmental change and in helping organizations act on their environment.

FIGURE

© Prentice Hall 2011 4

Discovery Invention Disclosure

Provisional Patent Decision

Technical Feasibility

Concept Investigation

Market Feasibility

Commercialization Decision

Prototype/ Application

Development

License Start-up

Acquisition

Market Launch

Bringing New Technology to Market

Patent Portfolio Management

Technological Change

Entrepreneur

Emerging Customer Segments

Unsatisfied Existing Needs

New Customer Needs

New Methods of Manufacture &

Distribution

Technological Change

Higher Productivity &

Economic Growth

Source: The New Environment for Tech Commercialization by Kathleen Allen Ph.D.

Technology Adoption Lifecycle Curve

The curve divided into 5 segment: Innovators, Early Adopters, Early Majority, Late Majority and lastly Laggards.

-The more mature the technology, the higher the user expectations. - Laggards : most difficult customers requiring the most resources

“Crossing the Chasm”, Geoff Moore

Factors Inhibiting Innovation • Organizations are designed to focus on and protect existing practices than pay attention to

developing new ideas.

• The more successful an organization the more difficult this is.

• Innovation transforms the structure and practices of an organization.

• The problem is creating an infrastructure conducive to innovation.

Source: Van De Ven, Andrew H. “Central Problems in the Management of Innovation”

Kinds of technologies • Sustaining technology gives the customer the same

that they already have and value, but with better attributes.

– Established firms often choose to develop sustaining

technologies, because it gives them guaranteed profits.

• Disruptive technology offers just another set of attributes, and may be even worse that mainstream technology, by the set of parameters, that customer values today. – Disruptive technologies usually are developed by entrant

companies aimed firstly on emerging markets.

Sustaining Technologies • Produces an improved product customers are eager to buy

• Sustaining technologies foster improved product performance.

– They can be discontinuous or radical, or they can be incremental

– Always improve performance of established products along dimensions valued by mainstream customers in major markets

• Organizational structures and resource allocation remain (relatively) unchanged

• Steady, linear improvement of existing technology

• Sustaining technologies – meet the needs of customers today and the ones who are paying

Sustaining Innovation

• “Doing it Better”

• Way For Products to Change

• Does Not Create New Growth

Disruptive Innovation

“… new organizations can use relatively simple, convenient, low-cost innovations to create growth and triumph over powerful incumbents…”

"Disruptive" does not have a negative connotation here but simply is descriptive of the type of change that results from the innovation.

Disruptive technology

• Disruptive technology is a term coined by Harvard Business School Professor Clayton to describe a new technology that unexpectedly displaces an established technology.

Disruption

- Is a process, not an event - What is disruptive for one organization

may be sustaining to another - Is not limited to technology - Can occur in any service market - A new way of doing things that initially

does not meet the needs of existing customers

Disruptive Innovation

• Innovative product or service initially underperforms established market

• Customers pay a premium for improvements

• Disruptive technologies often do not meet functional needs of high-end customers

• Overshot customers will pay premium for improvements

• Many no longer pay premium for improvements because of competition

• Organizations marketing to overshot customers are vulnerable to disruption

Disruptive Technologies – Technology that brings about sweeping change to

businesses, industries, markets

– Examples: personal computers, word processing software, the Internet, …

– First movers and fast followers

• First movers – inventors of disruptive technologies

• Fast followers – firms with the size and resources to capitalize on that technology

– come from innovators who keep improving the product performance till it comes "from below" and starts hurting the entrenched incumbents

• Introduction of completely new approaches that have the potential to create a new industry or transform an existing one, e.g

E-Business strategies

– Revolutionary – radical innovations

• digital photography, microbots, high-temperature superconductors

– Evolutionary – formed by the convergence of previously separate research areas • MRI imaging, faxing, electronic banking

Characteristics of Disruptive Technology

• Less profitable in the early years

• Need mass market acceptance to achieve full value

• Cheaper, smaller, simpler, more convenient

• Display poor performance

Disruptive Vs. Sustaining Technology

Challenges

Dilemmas of Disruptive Technology

performance demanded at the high end of the market

New performance trajectory

Disruptive technology

PER

FOR

MA

NC

E

TIME

performance demanded at the low end of the market or in a new emerging market

• The sustaining technologies are on the blue line e.g., incremental engineering advances that all good companies are able to grind out.

• The downward yellow arrow, a disruptive technology, is something that brings to the market a product or service that is not as good as what historically had been available, and therefore it can't be valued or used by customers in the mainstream of the market. Yet it takes root in a different application.

• The green line represents the new performance trajectory - it slopes upward faster than the sustaining technology and intersects with the customers needs and the mainstream.

• Well-established companies have problems dealing with disruptive technologies because they aren't prepared to handle the changes they bring on. – Christensen: "simple, convenient-to-use innovations that

initially are used by only unsophisticated customers at the low end of markets."

• Large companies tend not to pay attention to these disruptive technologies because they don't satisfy the demands of high-end users. – But because these radical innovations initially emerge in small

markets, they can, and often do, become full-blown competitors for already established products

– If a company is prepared to deal only with "sustaining technologies," or technologies that improve product performance, and not disruptive technologies, it can fail.

Disruptive Innovation

• Helps Create New Markets

• Disrupts an Existing Market and Value Network

– Can Take a Few Years or Even Decades

• Displaces an Earlier Technology

• Unpredictable

• Designed for a Different Set of Consumers in a New Market

• Lowers Prices in Existing Market

Principles of Disruptive Innovation

1. Companies depend on customers and investors for resources

2. Small markets don’t solve the growth needs of large companies

3. Markets that don’t exist can’t be analyzed

4. Technology supply may not equal market demand

Elements of Disruptive Innovation

SOURCE: Christensen et al (2009) p. xx

1. Determine whether the technology is disruptive or sustaining

2. Define strategic influence of disruptive

3. Locate the initial market for disruptive technology

4. House the disruptive technology in an independent entity –not worthwhile for established product

Managing Disruptive Technology

29

Breakthroughs needed

30

Breakthrough 1: From connectivity to take up

“A crucial condition for more economic growth

is a broad deployment and use of ICT by enterprises and public institutions. …

Special attention is needed for SMEs.”

31

Breakthrough 2: Standardise ICT

to trigger and enable new business

“Standardization is a prerequisite

for a broad deployment and use of ICT,

and will trigger and enable new business.

Pan-European interoperable solutions

for electronic authentication,

electronic payments, etc. …

are needed to boost innovation and

economic growth significantly.”

32

Breakthrough 3: Accelerate the introduction of

disruptive technologies “The speed

with which new technologies

are accepted and put to work

has a serious impact on economic growth.

The EU needs to play a key role

by accelerating the introduction

of new (disruptive) technologies,

like smart tags (RFID) and Voice-over IP.”

33

Breakthrough 5: Global platform leadership

in the ICT industry

“An excellent and competitive

European ICT industry is a crucial condition for economic growth and employment. The EU needs to define a

strategy

towards global leadership in specific areas,

for example by stimulating

a (new) European standards policy

(in cooperation with the market)

and making an explicit choice for e.g.

the future of 3G mobile telecom in Europe.”

34

Breakthrough 5: Global platform leadership

in the ICT industry

• Mobile and wireless

• Web services

• Service Oriented Architectures (SOA)

• Example: EU Grid computing initiative “Europe must think of a fruitful environment for the

ICT sector or certain segments of the sector to flourish. This has to be supported by a proactive

industry policy, but we need to refrain from protectionist policies”

35

Breakthrough 7: Remove barriers for the development of an

innovating European electronic communications sector

“The electronic communications sector

is a proven source

for economic growth and employment.

The EU needs to anticipate

in an early stage

the barriers for investments

In next generation networks”

36

Breakthrough 8: Move to a new and flexible

model of spectrum allocation

“Spectrum is a major battlefield for innovation and new business.

Modernization of spectrum policies will have a large economic impact. Therefore,

we urgently need to make

The spectrum allocation model flexible”

Harnessing Disruptive Innovation

• Can be a good thing for organisations

• Organisations to recognise it as:

–As source of advancement

–A potential threat

Barriers to Disruptive Technologies

1. Strategic importance of disruptive innovation is not understood

2. Inability to generate disruptive concepts

3. in approriate funding

4. Product development routine for continuous innovation

12 Economically Disruptive Technologies

Mobile Internet

• Increasingly inexpensive and capable mobile computing devices and Internet connectivity

• The mobile Internet has applications across businesses and the public sector, enabling more efficient delivery of many services and creating opportunities to increase workforce productivity.

Automation of knowledge work • Intelligent software systems that can perform

knowledge work tasks involving unstructured commands and subtle judgments such as AI, Expert Systems, KMS

• This opens up possibilities for sweeping change in how knowledge work is organized and performed.

• Sophisticated analytics tools can be used to augment the talents of highly skilled employees,

• As more knowledge worker tasks can be done by machine, it is also possible that some types of jobs could become fully automated.

The Internet of Things

• Networks of low-cost sensors and actuators for data collection, monitoring, decision making, and process optimization

• The Internet of Things allows businesses and public-sector organizations to manage assets, optimize performance, and create new business models.

Cloud technology • Use of computer hardware and software resources delivered

over a network or the Internet, often as a service

• With cloud technology, any computer application or service can be delivered over a network or the Internet, with minimal or no local software or processing power required.

• The cloud is enabling the explosive growth of Internet-based services, from search to streaming media to offline storage of personal data AND the background processing capabilities that enable mobile Internet devices to do things like respond to spoken commands to ask for directions.

• The cloud can enable entirely new business models, including all kinds of pay-as-you-go service models.

Advanced robotics

• Increasingly capable robots with enhanced senses, dexterity, and intelligence used to automate tasks or augment humans

• More advanced robots are gaining enhanced senses, dexterity, and intelligence, thanks to accelerating advancements in machine vision, artificial intelligence, machine-to-machine communication, sensors, and actuators industry.

Autonomous and near-autonomous vehicles

• Vehicles that can navigate and operate with reduced or no human intervention

• The potential benefits of autonomous cars and trucks include increased safety

• more leisure or work time for motorists (with hands-off driving), and increased productivity in the industry.

Next-generation genomics • Fast, low-cost gene sequencing, advanced big data

analytics, and synthetic biology (“writing” DNA)

• Next-generation genomics marries advances in the science of sequencing and modifying genetic material with the latest big data analytics capabilities industry and error.

• The next step is synthetic biology—the ability to precisely customize organisms by “writing” DNA.

• These advances in the power and availability of genetic science could have profound impact on medicine, agriculture, and even the production of high-value substances such as biofuels—as well as speed up the process of industry.

Energy storage • Devices or systems that store energy for later use, including

batteries

• Energy storage technology includes batteries and other systems that store energy for later use.

• Advances in energy storage technology could make electric vehicles (hybrids, plug-in hybrids, and all-electrics) cost competitive with vehicles based on internal-combustion engines.

• Advanced battery storage systems can help with the integration of solar and wind power, improve quality by controlling frequency variations, handle peak loads, and reduce costs by enabling utilities to postpone infrastructure expansion.

3D printing • Additive manufacturing techniques to create

objects by printing layers of material based on digital models

• With 3D printing, an idea can go directly from a 3D design file to a finished part or product, potentially skipping many traditional manufacturing steps.

• 3D printing can also reduce the amount of material wasted in manufacturing and create objects that are difficult or impossible to produce with traditional techniques.

Advanced materials

• Materials designed to have superior characteristics (e.g., strength, weight, conductivity) or functionality

• Nanomaterials in particular stand out in terms of their high rate of improvement, broad potential applicability, and long-term potential to drive massive economic impact.

• At nanoscale (less than 100 nanometers), ordinary substances take on new properties—greater reactivity, unusual electrical properties, enormous strength per unit of weight—that can enable new types of medicine, super-slick coatings, stronger composites, and other improvements.

Advanced oil and gas exploration and recovery

• Exploration and recovery techniques that make extraction of unconventional oil and gas economical

• The ability to extract so-called unconventional oil and gas reserves from shale rock formations is a technology revolution that has been gathering force for nearly 4 decades.

• The combination of horizontal drilling and hydraulic fracturing makes it possible to reach oil and gas deposits that were known to exist in the US and other places but that were not economically accessible by conventional drilling methods.

Renewable energy

• Generation of electricity from renewable sources with reduced harmful climate impact

• Renewable energy sources such as solar, wind, hydro-electric, and ocean wave hold the promise of an endless source of power without stripping resources, contributing to climate change, or worrying about competition for fossil fuels.

CASES

The Internet

Management Information Systems

• The Internet’s impact on competitive advantage

– Transformation, destruction, threat to some industries

• E.g. travel agency, printed encyclopedia, newspaper

– Competitive forces still at work, but rivalry more intense

– Universal standards allow new rivals, entrants to market

– New opportunities for building brands and loyal customer bases

© Prentice Hall 2011 60

The Internet & WWW The Ultimate Business Disruptors

• One of the biggest forces changing business is the Internet – A massive network that connects computers all over the world and allows them to communicate with one another

• Organizations must be able to transform as markets, economic environments, and technologies change

• Focusing on the unexpected allows an organization to capitalize on the opportunity for new business growth from a disruptive technology

Reasons for Growth of the WWW

– Microcomputer revolution

– Advancements in networking

– Easy browser software

– Speed, convenience, and low cost of email

– Web pages easy to create and flexible

WEB 1.0 – THE CATALYST FOR EBUSINESS

• Web 1.0 – A term to refer to the WWW during its first few years of operation between 1991 and 2003

• Ecommerce – Buying and selling of goods and services over the Internet

• Ebusiness – Includes ecommerce along with all activities related to internal and external business operations

Ecommerce Strategies • Brick-and-mortar

• Traditional, physical companies

• Click-only (“virtual”) companies • Online only

• Click-and-mortar (or “Brick & Click”) • Both physical and virtual

– Challenge: increased IS complexity

WEB 1.0 – THE CATALYST FOR EBUSINESS

• The Internet has had an impact on almost every industry including

– Travel

– Entertainment

– Electronics

– Financial services

– Retail

– Automobiles

– Education and training

• The Internet’s impact on information

– Easy to compile

– Increased richness

– Increased reach

– Improved content

Advantages Of Ebusiness

Ebusiness Models

WEB 2.0: ADVANTAGES OF BUSINESS 2.0

• Web 2.0 – The next generation of Internet use – a more mature, distinctive communications platform characterized by 3 qualities

– Collaboration

– Sharing

– Free

Characteristics of Business 2.0

c Content sharing through open sourcing User-contributed content Collaboration inside the organization Collaboration outside the organization

Collaboration Inside The Organization

• Collaboration system – Set of tools that supports the work of teams or groups by facilitating the sharing and flow of information

• Collective intelligence – Collaborating and tapping into the core knowledge of all employees, partners, and customers

• Knowledge management - Involves capturing, classifying, evaluating, retrieving, and sharing information assets in a way that provides context for effective decisions and actions

WEB 3.0 The Next Generation

• Web 3.0 – Based on “intelligent” Web applications using natural language processing, machine-based learning and reasoning, and intelligence applications

• Semantic Web – A component of Web 2.0 that describes things in a way that computers can understand

• Integration of legacy devices, open technologies for integration, worldwide online database …

Group Working Session

1. Evaluate the impact of the iPad using Porter’s competitive forces model.

2. What makes the iPad a disruptive technology? Who are likely to be the winners and losers if the iPad becomes a hit? Why?

3. What effects will the iPad have on the business models of Apple, content creators, and distributors?

IS THE IPAD A DISRUPTIVE TECHNOLOGY?

References • Clayton Christensen’s Book, The Innovator’s Dilemma

• Laudon, Management Information Systems, Chapter 3 – IS, Organisations and Strategy © Prentice Hall

2011

• Dr. Timothy Bishop, “You don’t know when the transition period will start. The idea is to

understand that it will…and become prepared for it”, Future Studies, University of Houston

• Information systems for Business, Lecture 6, http://www.csun.edu/

• Nirvikar Singh, The Innovator’s Dilemma Revisited, Professor of Economics, University of California,

Santa Cruz, Management of Technology Seminar, November 5, 2003

• Technology and Innovation: The Librarian's Dilemma, Eric Schnell Associate Professor

Head, Information Technology, Prior Health Sciences Library, http://ericschnell.blogspot.com

schnell.9@osu.edu

• Summary of “Disruptive Technologies: Catching the Wave” (by Joseph L. Bower and Clayton M.

Christensen), by Maria Teplykh and Tatyana Mikhailova

• E-Teams for Commercialization Success, Marshall School of Business , School of Engineering , Keck

School of Medicine

• Kathleen Allen, kallen@marshall.usc.edu www.usc.edu/techalliance

• The role of standards in the EU ICT (Information and Communications Technologies) agenda

• McKinsey Global Institute, Disruptive technologies: Advances that will transform life, business, and the global economy,

May 2013