disruptive innovation · disruptive innovations entrants nearly always win incumbents nearly always...
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© Copyright 2012 Innosight LLC
Disruptive innovation
Akshay Mehra,
Principal, Innosight Consulting
E-mail: [email protected]
Topics
How do I recognize the patterns of disruption?
How should I respond to it?
What needs to change in my organization?
Topics
How do I recognize the patterns of disruption?
How should I respond to it?
What needs to change in my organization?
Innovation: Meaningful change that has an impact
Why do bad things happen to well-managed companies?
Pe
rfo
rman
ce
Time
Disruptive Innovations
Entrants nearly always win
Incumbents nearly always win
Influence or shape existing markets
A disruptive innovation transforms a market through simplicity, convenience, accessibility or affordability
Sustaining innovation!
Disruptive innovation!
1. Market stability
2. Early
warning
3. Impact
4. Replace
Patterns of disruption
Time 1 2 3 4
Sale
s vo
lum
e
To incumbents being disrupted, initially all looks well until it’s too late…
Time 1 2 3 4
Sale
s vo
lum
e
…and to disruptors, patience is needed until an inflection point is hit
Patterns seen across industries
© 2007 Innosight LLC 2
600
650
700
750
800
850
900
950
1,000
1997 1998 1999 2000 2001 2002 2003 2004 2005
-6.4% -8.9% -7.1% 2.8% -8.0%
How did this look to the music industry?
YOY Growth 12.5% 10.9% 0.4%
Total CD units shipped, U.S.Millions
Source: RIAA Web Site; Innosight Analysis
+25%
-25%
2,000
4,000
6,000
8,000
10,000
12,000
14,000
Mainframe Computer
Market
Minicomputer
Market
Sustained Revenue
Lead
Minicomputers Disrupt Mainframes
Dollars ($millions)
Phase I Phase II Phase III
Source: ITI, Industry Statistics Programs; U.S. Microcomputer, Committee Forecast, Data Analysis Group
First
Revenue
Lead
01965 1975 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001
2,000
4,000
6,000
8,000
10,000
12,000
14,000
Mainframe Computer
Market
Minicomputer
Market
Sustained Revenue
Lead
Minicomputers Disrupt Mainframes
Dollars ($millions)
Phase I Phase II Phase III
Source: ITI, Industry Statistics Programs; U.S. Microcomputer, Committee Forecast, Data Analysis Group
First
Revenue
Lead
01965 1975 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001
-3,000
-2,000
-1,000
0
1,000
2,000
3,000
1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996
Source: Fortune 500 Database; Innosight analysis
IBM PC introduced:1981
Apple II introduced: 1977 Compaq buys DEC:
1998
ProfitsUS $Millions
-3,000
-2,000
-1,000
0
1,000
2,000
3,000
1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996
Source: Fortune 500 Database; Innosight analysis
IBM PC introduced:1981
Apple II introduced: 1977 Compaq buys DEC:
1998
ProfitsUS $Millions
0
200
400
600
800
1,000
1,200
1,400
1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001
Source: United States Centers for Disease Control and Prevention National Hospital Discharge Survey; Innosight analysis
Estimated Inpatient Cardiovascular Procedures, 1979-2002000s of procedures
-
Balloon Angioplasty/
Stenting
Bypass
CAGR1995-2002
-1.51%
15.69%
2002
0
200
400
600
800
1,000
1,200
1,400
1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001
Source: United States Centers for Disease Control and Prevention National Hospital Discharge Survey; Innosight analysis
Estimated Inpatient Cardiovascular Procedures, 1979-2002000s of procedures
-
Balloon Angioplasty/
Stenting
Bypass
CAGR1995-2002
-1.51%
15.69%
2002
PCs vs Minicomputers MP3s vs CDs
Angioplasty vs. CABG Minicomputers vs. Mainframes
Seeing disruption in action
Successful disruptor = Discontinuous growth
If you had invested $100* on 1/1/ 2008:
Air Asia: +81% SQ: - 39%
Source: FT; includes dividends paid
Why can’t Singapore Airlines fight back?
Air Asia cost advantage
+68%
Source: IATA Cost performance, adjusted for different seat density and 1500KM distance
Disruptors win with a different business model
It is tough to fight against a business model
…because they innovate across multiple levers
Self-serve check-in
Faster turnaround
Smaller airports
Maintenance downtime
Shorter distance
Crew optimization
Younger crew
Less overnights
Loading/ unloading by crew
Consolidated contracts
Fewer meal choices
Anti-cyclical purchasing
E-ticketing
No fees for GDS
Reduce on-ground time
Quality is relative
Disruptors make trade-offs in
performance (to lower price)
Summary
• Disruption follows a predictable pattern
• Disruption can lead to discontinuous growth
• Disruptors compete with a different business model
• Quality is always relative
The future is already here –
it’s just not evenly
distributed
Current higher education model is open for disruption
Education
Colleges have conflated multiple business models
New Research
Course develop &
deployment
Student entry
Data management
& admin.
Support & publication
Student experience
Assessment & learning
Solution shop
Value addition
Facilitated network
Credentialing Industry
interaction Student
interaction
Disruptors are innovating in different parts of the business model
New Research
Course develop & deployment
Student entry Credentialing
Support & publication
Data and admin.
Student experience
Assessment & learning
Industry interaction
Solution shop
Value addition
Facilitated network
Student interaction
Disruptive trends in education
From To
Inputs-based measures Learning Outcomes
Discipline-based silo Student personalization
Selective enrollment Democratize quality
Skills-based Rules-based
Disruption could fundamentally alter the current education model
From To
Inputs-based measures Learning Outcomes
Discipline-based silo Student personalization
Selective enrollment Democratize quality
Skills-based Rules-based
Implication
Should funding be linked to assessments?
How should the college be structured?
What is the proposition for the non-“Harvards”?
Do teacher credentials matters?
Topics
How do I recognize the patterns of disruption?
How should I respond to it?
What needs to change in my organization?
Look for non-consumers
Look for your non-consumers
Eliminate usage barriers:
• Cost
• Access
• Capability
• Time
What really are customers buying?
What? Why?
When?
What type of milkshake would you ‘hire’
On the way to the work For your kid’s afternoon snack
VS
“Give me a reliable transport”
FUNCTIONAL
“I am cool even if I am parent!”
SOCIAL
“Ensure my family is safe”
EMOTIONAL
Why do you need this car?
Job: Why is the customer
hiring you?
When do you need it?
Safety Quick access
Lots of Space
With kids
Shopping
To work
Jobs to be done
Cir
cum
stan
ces What you are
competing against?
Existing solutions don’t satisfy the jobs Student Jobs Teacher Jobs Existing Solutions
• I want to be engaged by school
• I want to learn the skills required for a successful career
• I want to engage with my friends while I learn
• I want to use technology in the classroom, just as I will be expected to in the workplace
• I want to engage every student in my classroom
• I want all my students to be successful
• I want to focus my time on teaching, not dealing with administrivia
• I want to learn and compare notes with other teachers
× × × ×
+ ≠
“We’re now questioning the rational for textbook purchases” – Superintendent
Build a business model wrapped around the Job
How do you Create value
How do Capture value
How do you Deliver value
Build a business model wrapped around the Job
I want a fast, cheap hair trim
Build a business model wrapped around the Job
Create value Limited service
Deliver value Redesigned processes
Capture value “Seat utilization”
More than 90% of successful new ventures start off
following the wrong strategy
Test early, and learn fast to manage risk
Flawed Strategy
Successful Strategy
Points of Learning and Adjustment
“For every one of our failures, we had spreadsheets that looked awesome”
Scott Cook, Intuit
Your first idea is always wrong!
• Talk to the non-consumers
• Understand the Jobs and Circumstances
• Build the business model around the Job
• Test early, fail cheap, and learn fast!
To build a successful business model…
Topics
How do I recognize the patterns of disruption?
How should I respond to it?
What needs to change in my organization?
Traps that prevent successful innovations
New wine, old bottle Disconnected dots Curse of Perfection
Break silos! What’s the Job? Good enough is OK!
Define what you aspire to be
Today +1-3 +7-10 +4-6
Bu
sin
ess a
s u
sua
l
Inert
ia
Today +1-3 +7-10 +4-6
Bu
sin
ess a
s u
sua
l
Inert
ia
Present-forward strategic planning processes typically succumb to inertia
Future-back processes substantially widen the consideration set
Which capabilities make YOUR organization special?
Deeply understand what makes you special
Does it MATTER?
Would Customers
Agree?
Is it BETTER?
Would Competitors
Agree?
Is it UNIQUE?
Would Entrepreneurs
Agree?
“We believe that the Procter &
Gamble Company has a time-
tested business model. It involves
superior products, based on
superior consumer insight. It
involves the five strengths of the
company, branding, go-to
market, scale, innovation,
consumer knowledge. We think
those are enduring just like we
think the purpose of the company
is enduring.”
Provide resources that allow teams
to test and fail
Prevent “infection” from the Core
Create a safe harbor
Summary
• Define (and make choices) on what you want to be
• Understand what are you truly good at
• Protect your innovators!
The only solution to disruption is to join it