1 From Luddites to Fruit Flies (Part 2 of 2) IEM5010 Summer 2003 Paul E. Rossler, Ph.D., P.E.

2 The Innovator’s Dilemma “…the logical, competent decisions of management that are critical to the success of their companies are also the reasons why they lose their positions of leadership.” (Christensen, p. xiii)

3 A technological mudslide? “…neither the pace nor the difficulty of technological change lay at the root of the leading firms’ failures. The technology mudslide hypothesis was wrong.” (Christensen, pp. 8-9)

4 “…ruled out poor management as a root cause (p. 97) “…sensible resource allocation processes were at the root of companies’ upward mobility and downward immobility…” (Christensen, p. 80) “…to expect the processes that accomplish these things also to do something like nurturing disruptive technologies…” (p. 98)

5 Disruptive technologies Result in worse product performance, at least in the near termResult in worse product performance, at least in the near term Bring different value propositionBring different value proposition Attributes that make them worthless in mainstream markets become strongest selling point in emerging marketsAttributes that make them worthless in mainstream markets become strongest selling point in emerging markets Tend to be simpler, cheaper, and more reliable and convenient than established productsTend to be simpler, cheaper, and more reliable and convenient than established products (Source: Christensen, p. xv, 190)

6 Sustaining technologies follow conventional technology S-curve Source: Christensen, p. 40

7 Disruptive technology S-curve defined by different y-axis Source: Christensen, p. 41

8 Different value propositions and therefore metrics of success “The performance of the first backhoes was measured differently from the performance of cable-actuated equipment.” (Christensen, pp ) “The organization was free to succeed along metrics of success that were relevant…” (p. 110) “…played havoc with the accustomed metrics…” (p. 111)

9 Response of established firms “[E]stablished firms confronted with disruptive technology typically viewed their primary development challenge as a technological one…” (Christensen, p. 191)

10 A tendency exists toward northeast migration Source: Christensen, p. 66

11 A different response by entrants “[T]he firms that were most successful in commercializing a disruptive technology were those framing their primary development challenge as a marketing one…” (Christensen, pp )

12 A basic problem for established firms: moving down-market “…the problem established firms seem unable to confront successfully is that of downward vision and mobility, in terms of the trajectory map.” (Christensen, p. 24)

13 Value networks affect perceptions of innovation Source: Christensen, p. 33

14 Three barriers to downmarket mobility “Three factors – the promise of upmarket margins, the simultaneous upmarket movement of a company’s customers, and the difficulty of cutting costs to move downmarket profitably – together create powerful barriers to downmarket mobility.” (Christensen, p. 87)

15 Along with pressure for quarterly results “Building such markets entails a process of mutual discovery by customers and manufacturers – and this simply takes time.” (Christensen, p. 131)

16 And management philosophies “Philosophies such as management by objective and management by exception often impede the discovery of new markets because of where they focus management attention.” (Christensen, p. 157)

17 Allocation & innovation: two sides of the same coin (p. 103) “…disruptive projects stalled when it came to allocating scarce resources among competing product and technology development proposals.” (Christensen, p. 42)

18 Increasing the level of difficulty “Every innovation is difficult. This difficulty is compounded immeasurably, however, when a project is embedded in an organization in which most people are continually questioning why the project is being done at all.” (Christensen, p. 134)

19 Matching innovation requirements to capabilities Christensen, p. 177

20 Senior managers may have less control than they think “…the organization’s middle managers play a critical but invisible role in screening these projects.” (Christensen, p. 82) “[I]n practice, it is a company’s customers who effectively control what it can and cannot do.” (p. 101)

21 Resources, processes, and values influence response “Yet, resource analysis clearly does not tell a sufficient story about capabilities.” (Christensen, p. 163) “This means that the very mechanisms through which organizations create value are intrinsically inimical to change.” (p. 164) “Clear, consistent, and broadly understood values, however, also define what an organization cannot do.” (p. 165)

22 Pressure to succeed influences decisions made “Projects that fail because technologists couldn’t deliver…often are not (necessarily) regarded as failures at all…But projects that fail because the market wasn’t there have far more serious implications for managers’ careers.” (Christensen, p. 82) “Rightly or wrongly, individual managers in most organizations believe they cannot fail.” (p. 155)

23 Core competence probably not the answer “In practice, however, most managers have found that the concept is sufficiently vague that some supposed ‘competence’ can be found to support a bewildering variety of innovation proposals.” (Christensen, p. 162)

24 Tried-and-true tools and techniques fall short “Markets that do not exist cannot be analyzed: Suppliers and customers must discover them together.” (Christensen, p. 143). “It is simply impossible to predict with any useful degree of precision how disruptive products will be used or how large their markets will be.” (p. 154)

25 The end result: Performance oversupply & attack from below Source: Christensen, p. 16

26 The basic pattern 1.Disruptive technology first developed within established firms 2.Marketing then sought reactions from lead customers 3.Established firms step up pace of sustaining technological development

27 4.New companies formed and markets for disruptive technologies found 5.The entrants moved upmarket 6.Established firms belatedly jumped on bandwagon to defend customer base (Christensen, pp )

28 Three potential strategies Christensen, p. 197

29 A priori, who knows for sure? “Experts lined up on both sides of the question, offering HP extensive advice on which technology would ultimately become the printer of choice…” (Christensen, p. 116) “… what is obvious in retrospect might not be at all obvious in the thick of battle.” (Christensen, p. 196)