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Vakgroep Informatietechnologie INTEC

ICT en de Kennismaatschappij

Paul Lagasse

Vakgroep Informatietechnologie

Vakgroep Informatietechnologie INTEC

5. Innovation

© Paul Lagasse 3 ICT en de Kennismaatschappij 2007

Innovation

“Seeing What’s Next”C.M. Christensen et al

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

Which are real opportunities and which are transient?

What would signal that the game is changing, meaning what was successful in the past would no longer guarantee success in the future?

What implication would that change have on the industry’s value chain?

Seeing What’s Next shows how to use the theories of innovation developed in The Innovator’s Dilemma and The Innovator’s Solution – and introduces some new ones as well – to answer these sort of questions


The Disruptive Innovation Theory

Existing companies have a high probability of beating entrant attackers when the contest is about sustaining innovations, which move companies along established improvement trajectories.

Established companies almost always lose to attackers armed with disruptive innovations, which introduce a new value proposition creating new markets or reshaping existing markets.

Simple, cheap, revolutionary

C. M. Christensen


The Disruptive Innovation Theory

Simple, cheap, revolutionaryC. M. Christensen


The Resources, Processes, and Values Theory

The building blocks of capabilities

C. M. Christensen

Resources Processes Values

Things or assets that organisations can buy or sell, build or destroy.

Examples: People Technology Products Equipment Information Cash Brand Distribution channels

Established ways companies turn resources into products or services.

Examples: Hiring and training Product development Manufacturing Planning and budgeting Information Market research Resource allocation

The criteria by which prioritization decisions are made.

Examples: Cost structure Income statement Customer demands Size of opportuniy Ethics


The Resources, Processes, and Values Theory

Resources, processes, and values collectively define an organisation’s strengths as well as its weaknesses and blind spots.

Organisations successfully tackle opportunities when they have resources to succeed, when their processes facilitate what needs to get done, and when their values allow them to give adequate priority to that particular opportunity in the face of all other demands that compete for the company’s resources.

The building blocks of capabilities

C. M. Christensen


The Value Chain Evolution Theory

Organisations ought to control any activity or combination of activities within the value chain that drive performance along dimensions that matter most to customers.

Organisations ought to outsource activities that don’t influence the characteristics of a product or service that customers deem (or will deem) most critical.

Integrate what is “not good enough” and outsource what is “more than good enough”.

Integrating to improve what is not good enough

C. M. Christensen


Process to predict industry change

Signals of changeAre there signs that someone

is capitalising on opportunities for change?

Competitive battlesWhat is the likely result of

head-to-head battles between industry combattants?

Strategic choicesAre firms making decisions

that increase or decrease their ultimate chances of success?

Applied to telecommunications industryC. M. Christensen


Signals of Change

How can we tell that the formula that led to success in the past might not work in the future, or that firms that were successful in the past might not be successful in the future?

What specific developments matter the most?

What customer groups should we watch to detect such developments?

How do contextual factors influence innovation?

Where are the opportunities ?

C. M. Christensen


Signals of Change

C. M. Christensen


Signals of Change

They introduce a relatively simple, affordable product or service that increases access and ability by making it easier for customers who historically lacked the money or skills to get important jobs done.

They help customers to do more easily and effectively what they were already trying to get done instead of forcing them to change behaviour or adopt new priorities.

Nonconsumers and opportunities for new-market disruptive growth

C. M. Christensen

Successful new-market disruptive innovations follow two patterns:


Signals of Change

Up-market innovations fall on a continuum between radical and incremental innovations.

Integrated companies tend to be good at both forms of up-market sustaining innovations.

The sustaining innovations that companies introduce to reach undershot customers are the means by which companies exploit their growth potential after they establish their initial foothold.

C. M. Christensen

Undershot consumers and opportunities for up-market sustaining innovations


Signals of Change

Low-end disruptions taking root among the most overshot customers.

Specialists entering and displacing integrated players.

Standards or rule developing that allow different types of providers to create products and services good enough to meet the minimum requirements of customers segments.

Overshot consumers and opportunities for low-end disruption, shifting profits, and emergence of rules

C. M. Christensen

Overshooting and the resultant changes in the basis of competition open the door for three different forms of industry change:


Signals of Change

Motivation is the market incentives to innovate.

Ability is the capability to obtain resources , craft them into products and services, and offer those products and services to customers.

A spectrum of nonmarket factors – industry standards, unions, cultural norms, the state of technological development, a country’s intellectual property infrastructure, and most important, government regulation – affect the motivation and ability to innovate.

The important nonmarket context for innovation

C. M. Christensen

Innovation flourishes when companies have both the motivation and ability to innovate.


Signals of Change

What jobs are customers in the industry trying to get done? Are customers not served, undershot, or overshot by current offerings? Along which dimension do firms compete for customers?

What improvements garnered premium prices in the past?

Do integrated or specialised business models currently prevail? Are interfaces specifiable, verifiable, and predictable? If so where is modularity occuring?

Where are new business models emerging? Is there growth in fringe markets?

What role does government or its regulatory bodies play in enhancing or inhibiting innovation?

Key questions

C. M. Christensen


Competititve Battles

C. M. Christensen


Competititve battles

Does a firm have or can it marshal the resources required to attack an opportunity?

Do the firm’s processes effectively and efficiently facilitate it doing what needs to be done?

Do the firm’s values allow it to prioritize one opportunity over other options on its plate?

Evaluating strengths and weaknesses

C. M. Christensen




C. M. Christensen



Indentifying visible and invisible resources.

Identifying processes by looking for the tough problem.

Identifying values by looking at income statements and past investment decisions.


C. M. Christensen



How asymmetries propel disruptive entrants.

Identifying the firm with the sword and the shield of asymmetries.

Circumstances in which high-potential disruptive development will prove disappointing.

Asymmetry of skills occur when one firm’s strength is another firm’s weakness.

C. M. Christensen



Step 1: Entrants enter behind a shield of asymmetric motivation; early incumbent response leads to cramming.

How asymmetries propel disruptive entrants

C. M. Christensen



Cramming

C. M. Christensen



Step 1: Entrants enter behind a shield of asymmetric motivation; early incumbent response leads to cramming.

Step 2: entrants grow and improve; incumbents choose flight.

Step 3: entrants use sword of asymmetric skills.

How asymmetries propel disruptive entrants

C. M. Christensen



Identifying asymmetries of motivation and skills

C. M. Christensen



Industry context in which flight is unpalatable.

Lack of fully developed asymmetries make co-option a natural choice.

Principle of relativity.

Circumstances in which high-potential disruptive development will prove disappointing

C. M. Christensen



Identifying incumbent response strategies

C. M. Christensen


Competitive battles

What are industry players’ business models? What are their motivations? What are their skills?

How do industry players compare to one another? How do they compare to the needs of the market? Where are there symmetries? Where are there asymmetries?

Do the asymmetries tilt in favor of the attacker or the incumbent?

Does the innovation naturally fit its target market? Is there evidence of cramming?

Are there signs that a company is ceding a low-end market and trying to move it up? Is there an “up” to move to? For how long?

Key questions

C. M. Christensen


Strategic choices

Is disruption inevitable?

What are the important decisions facing entrants?

What initial market should they target?

How should they design their organisations?

What factors influence these sort of decisions?

How can an outsider observe them?

What response strategies allow incumbents to fend off legitimate disruptive attacks?

How can we evaluate the likely success of these response strategies?

C. M. Christensen


Strategic choices

Identifying which choices matter

C. M. Christensen


Strategic choices

The wrong preparation regimens often lead to wrong footholds

C. M. Christensen


Strategic choices

Discovering the right emergent strategy.

Checking schools of experience.

Finding the right funding sources.

C. M. Christensen

The wrong preparation regimens often lead to wrong footholds


Strategic choices

Discovering the right emergent strategy.

Ways for incumbents to earn their disruptive black belts.

C. M. Christensen

Overlapping value networks can facilitate incumbent co-option

Creating spinout organisations to drive disruptions.

Developing the capability to build a disruptive growth engine.


Strategic choices

Is the company in a situation in which the right strategy needs to emerge? Is the firm giving itself the freedom to encourage emergent forces? Have managers wrestled with problems they are likely to face again? Have they shown the capacity to learn?

Are investor values aligned with company needs? If the investor is a corporation, has growth stalled?

Do value networks overlap? If they do, what are the degrees of overlap? Do they make it impossible to create a business model that has asymmetries?

Is this an appropriate situation for a spinout? Is the company giving the spinout the freedom to do what is necessary?

Key questions

C. M. Christensen


How nonmarket forces affect innovation

What are the true drivers of innovation?

How do nonmarket forces affect these drivers?

What action can nonmarket players take to increase the pace of innovation?

What actions are likely to impede innovation?

Which will have no effect?

How can we identify circumstances in which no intervention is necessary, in which proper intervention can be successful, and in wich intervention is likely to have no impact?

C. M. Christensen


The motivation / ability framework

C. M. Christensen



Hotbed: innovation abounds.

Looking for a target: barriers but possibilities.

Looking for the money: innovation is possible but not likely.

The dilemma: lack of innovation

C. M. Christensen




Creating the right kind of motivation is hard because noise can be mistaken for signal, and root causes can be difficult ot address.

Creating ability is hard because granting legal ability does not necessarily create operational or technical ability.

Legislating out of the dilemma is extremely difficult.

C. M. Christensen


Likely impact of government policy


C. M. Christensen


Intent and result of 1996 telecommunications reform act


C. M. Christensen




Nonmarket players must take the correct action to target

the barrier to innovation. Sometimes that action is

politically unpalatable (ex. short term price increase).

Unfortunately, in these situations the politically palatable

action can exacerbate the problem.

Government’s best bet is to encourage disruptive

innovators to form a new value network that can

ultimately change the seemingly unchangeable industry.

C. M. Christensen


Likely impact of government policy

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Documents

innovation slide

christensen slide

values theory resources

theories of innovation

companys resources

established companies

christensen et

organisations strengths