1. PIE (AIT)1 Principle of Innovation and Entrepreneurship Charatpong Chotigavanich charatc@alum.mit.edu And Patiwat Panuraj

2. PIE (AIT)2 Today… –Hand-in Assignment from last week –Blue Ocean / Red Ocean

3. Breaking orthodoxies When you flip orthodoxies, do your competitors quickly copy you? If so, that means the orthodoxy isn’t a strong and deeply-held belief. For a strong and deeply-held belief, even if you are successful, the competitor will not copy you because it runs counter to their world view. –“Great idea, but if we do that we’ll lose our best customers” –“Great idea, but if we do that we’ll confuse our customers” –“Great idea, but if we do that we’ll compete against our profitable products” –“Great idea, but why don’t we do what we’re good at” –Etc. PIE (AIT)3

4. Orthodoxy Competition Don’t compete. And don’t do something that will cause competition. What to do: Go with Blue Ocean! PIE (AIT)4

5. What do you think when you see this? PIE (AIT)5

6. ??? PIE (AIT)6

7. A blood bath PIE (AIT)7

8. Wine Industry Orthodoxies PIE (AIT)8

9. Frustrations and Unmet Needs of Wine Drinkers (and non-drinkers) “In my parents generation, people would have a bottle of wine for lunch and a nap afterward… I can’t do that!” “I can’t finish a bottle wine by myself, so I often don’t drink wine. But beer makes me fat and I don’t want water!” “Wine makes me drunk… I drink Coke because it refreshes me!” “I really can’t taste a big difference between really expensive wine and budget wine” “I’m having a burger for lunch… wine just won’t go with it!” PIE (AIT)9

10. Traditional Wine Image PIE (AIT)10

11. What’s Most Popular Outthere? PIE (AIT)11

12. And this PIE (AIT)12

13. Introducing New Kind of Wine PIE (AIT)13

14. Blue Ocean Strategy: Eliminate, Raise, Reduce, Create PIE (AIT)14

15. PIE (AIT)15

16. Signs of a Blue Ocean Product Focus –Not the best at everything, but having just a few strong points Divergence –Different from competitors, and not trying to beat competitors at their strong points Makes sense –Strong points complement each other in the eyes of the customer PIE (AIT)16

17. Red Ocean PIE (AIT)17

18. Want to go for a swim in a blue ocean? PIE (AIT)18

19. Wintel Computer PIE (AIT)19

20. Processor Speed Dominates the Industry for decades PIE (AIT)20

21. MacBook PIE (AIT)21

22. Compared with Wintel Laptop PIE (AIT)22

23. Why the gap? Because most customers can’t actually use all that performance Because actually utilization of the product’s performance is constrained –By battery life –By heat and heat management –By internet speed –… Yet the industry leader (and those that follow them) keep on increasing performance beyond the needs of most customers PIE (AIT)23

24. Why does the industry leader bother increasing performance so much? Some high-end customers pay for it… and they usually pay well As long as alternatives don’t exist, most customers are accustomed to buying advances in performance greater than what they actually need It’s an orthodoxy: produce for the high-end, and high-end will pay lots for it… and eventually the low-end will also buy it PIE (AIT)24

25. Now come… PIE (AIT)25

26. Apple A5 Slow (compared to an Intel laptop/netbook processor)… But fast enough for a tablet Consumes MUCH LESS power than an Intel laptop/netbook processor PIE (AIT)26

27. iPad on the graph PIE (AIT)27

28. Initially, does Intel care? It doesn’t have to… Sales of high-end PC chips are still high. They care more about performance than battery life. These chips are very profitable. Tablet chips are still nowhere near as powerful as high-end PC chips. Sales of some low-end PC chips might fall. But these had low profitability. So the end result is an improvement in Intel’s profitability! Intel has a financial incentive to WELCOME the growth of tablet innovations… this is called the “innovator’s dilemma.” PIE (AIT)28

29. Now.. iPad 2… getting better PIE (AIT)29

30. A look at another industry We talk a lot about film… PIE (AIT)30

31. This disrupts film camera PIE (AIT)31

32. Canon S20… the very first digital camera PIE (AIT)32

33. Innovation of digital camera But as time goes by, digital cameras are getting better… And digital camera becomes the next orthodoxy PIE (AIT)33

34. Now comes a new innovation Which is…. PIE (AIT)34

35. Phone Cameras PIE (AIT)35

36. Summary of Blue Ocean and Disruptive Innovation Most industries have a standard set of product attributes that firms compete in. Most firms have an orthodoxy of competing hard to be better in all attributes. –They compete in a bloody “red ocean” A firm creating compelling new product attributes doesn’t have to be better in all the other attributes. In fact, it can be worse than competitors in some attributes. –This firm is in an uncompetitive “blue ocean” In most industries, most firms have an orthodoxy of improving product performance faster than can be appreciated by most customers. Firms do this because their best customers appreciate it. –These are “sustaining innovations” A firm with a compelling new product attribute can afford to have worse performance than its competitors, and gain low-end customers or new customers. –This firm is a “disruptive innovator.” Sustainers will ignore it (at first). PIE (AIT)36

37. Limitation PIE (AIT)37

38. Conclusion (from Wikipedia) Red Oceans are all the industries in existence today – the known market space. In the red oceans, industry boundaries are defined and accepted, and the competitive rules of the game are known. Here companies try to outperform their rivals to grab a greater share of product or service demand. As the market space gets crowded, prospects for profits and growth are reduced. Products become commodities or niche, and cutthroat competition turns the ocean bloody. Hence, the term red oceans. Blue oceans, in contrast, denote all the industries not in existence today – the unknown market space, untainted by competition. In blue oceans, demand is created rather than fought over. There is ample opportunity for growth that is both profitable and rapid. In blue oceans, competition is irrelevant because the rules of the game are waiting to be set. Blue ocean is an analogy to describe the wider, deeper potential of market space that is not yet explored PIE (AIT)38

39. So? Why swim in a red ocean full of sharks when you can swim in a blue ocean! PIE (AIT)39

40. PIE (AIT)40 Question? Question ?