the innovator's dilemma
TRANSCRIPT
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The innovator’s dilemmaWhen New Technologies Cause Great Firms to Fail
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Clayton M. ChristensenProfessor of Business AdministrationHarvard Business School
About the Author:
Global Business Book Award The best business book of the year (1997)
The Innovator’s Dilemma
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Li WeiTechnology commercialization managerExploit Technologies Pte Ltd (ETPL)Agency for Science, Technology and Research (A*STAR, Singapore)
Summary and presentation by
B. Eng & Ph.d (Engineering)Nanyang Technological University Singapore
M.B.A.INSEADFontainebleau, France
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This is John
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Say ”Hi”, John Hi˜
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John is a product engineer in a well established technology company
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His company has been the leader in this market for decades
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But one day ...
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John’s company went out of business, and he lost his job
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In the past one year, his company lost almost all their customers to a competitor with a disruptive innovation
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John is really sad because his company didn’t do anything wrong, somehow, they lost the competition so badly
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But John doesn’t know that his company failed because
THEY DID EVERYTHING RIGHT
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To understand the reason, John must know two types of innovation
Sustaining Innovation
Disruptive InnovationVS
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improves product’s performance based on the features valued by mainstream customers
Sustaining Innovation
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It is aiming at moving upward along certain performance metrics
Speed
power
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often involved lower performancein many product features
Disruptive innovation
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born in the niche market that’s neglectedby current market offering
It is for niche market
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Sustaining innovationis driven by existing
market demand
But it canultimately failthe company
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Disruptive innovation is an unproven
opportunity
But it can be the future of the
company
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This is the core of the innovator’s dilemma
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Why did John’s company, the market leader, miss the opportunity for the disruptive innovation?
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Let’s find out what happened to John’s company
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John had many ideas for new products and improvements
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With the marketing department, the project team gathered feedback from their lead customers anddid the market analysis
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They chose the best project for the product or improvement their leader customers want
Big market sizeBest profit marginCustomer validation
best project
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They did everything right
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Meanwhile, the competitor with disruptive innovation …
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Their product was not valued by main stream market, but they found a niche market by trial and error
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As their product improving, the competitor managed to grow the niche market and encroach the customer base of John’s company
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John’s company belatedly jumped on the bandwagon to defend customer base
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However, in the newly developed market, John’s company hadn’t developed any competitive advantage and they are too late
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In the history, the same story happened to many great companies
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They failed because the very management practices that made them market leader also make it extremely difficult for them to develop the disruptive innovation
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To understand the difficulties, we need to firstly understand the concept of Value Network
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The context within which a organization is established to get what it values
Value Network
revenue from The lead customers
For a established company, this is the value they are after
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The highest performing company has a well-developed system tailored to capture the value from its lead customers
Structure Capability
Operation
Culture
Partnership Management The lead customers
Value network
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Within a value network, the system and its past choices of markets, determines its perceptions of the
value of an innovation
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It drives resource allocation towards sustaining innovation that is valued by the current lead customers
Funding
Manpower
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And, it is extremely difficult to keep resources for a disruptive innovation for a unproven market
? Funding
Manpower
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This pattern of resource allocation accounts for the well-run companies’ leadership in the sustaining innovation and their
dismal performance in the disruptive one
sustaining innovation disruptive innovation
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If we can turn the time backwards, can John’s company do something different to better manage the disruptive innovation?
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There are five principles of disruptive innovation
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The managers can harness these principle to their advantage
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1Customers effectively control the patterns of resource allocation in well-run companies
Lead customers
Well-run company
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Lead customers
Well-run company
A spin-off organization
niche market
Give responsibility for disruptive innovation to organizations whose customers need them
disruptive innovation
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2Small markets don’t solve the growth needs of large companies
Large company
Larger and larger and larger
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Place disruptive innovation projects in organizations small enough to get excited about small market
Small organization
disruptive innovation
Small market
This is good enough for me
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3Markets of disruptive innovation may not exist and can’t be analyzed
Do these before you talk to me again
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Plan to fail early and inexpensively in the search for the market for disruptive innovation
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4The existing process and values define the organizations’ disabilities when confronted with disruption
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Utilize the resources of the mainstream organization to address disruption, but not its processes and values
I don’t need a oil truck, butI need the petrol in its tank
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5Technology supply may not equal marketdemand It is not good enough, Let’s
improve its technology
When disruptiveinnovation is presented
Established firms take it asa technical challenge
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Disruptive innovation is a marketing challenge
When disruptiveinnovation is presented
Disruption company take itas a marketing challenge
It isn’t valued by mainstream,Let’s find people who like it
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Hi, John. Could you please give us asummary?
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Hi, John. Could you please give us asummary?
OK !
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Why great company can fail
The business exists in a value network that shapes leaders’ decisions. It couldblind them to the disruptive innovationand lose the future opportunity
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To manage the disruptive innovation
1. Have a spin-off2. Match its size with its market3. Plan to failure4. Use the resource only5. It is a marketing challenge
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Although John’s company failed, he isnot such a person who gives up easily.
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He joins a start-up with a disruptiveinnovation
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In a niche market, they don’t need to worrytoo much about their larger competitors
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This gives them more time to fine tunetheir technology and develop a futuremass market
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Like many other start-ups andentrepreneurs, they willsurprise the much largercompetitors in difference