dynamic startegy

Disruptive innovation

Week 10 Workshop

MBA501 Dynamic Strategy and Disruptive Innovation

Blockbuster

Play Video

• Do you agree with Russian novelist

Fyodor Dostoyevsky when he says:

Small Group Discussion

Times of crisis, of disruption or constructive

change, are not only predictable, but

desirable. Taking a new step, uttering a new

word, is what people fear most.

Small Group Challenge California, US 1997

In groups, advise Reed what he should do about Blockbuster and their company policies.

Reed Hastings, math teacher and software company founder, has

a problem. The teenage clerk at his local Blockbuster store refuses

to allow him to rent any more DVDs until he pays a $40 late penalty

for failing to return Apollo 13 on time.

“C’mon,” begs Reed, “I was interstate and there was no way I could

get the DVD back to you guys.”

“Sorry, company policy,” the clerk replies.

Reed is angered by the lack of customer service, “The DVD’s only

worth 20 bucks. How is it fair that you’re making me pay twice that?”

The clerk shrugs.

“Sorry, company policy.”

Disruption

• Disruption is a process smaller organisations with fewer resources can use to successfully challenge established incumbent businesses

• As incumbents focus on improving their products and services for their most demanding (and usually most profitable) customers, they go beyond the needs of some customers and ignore others

Overlooked customers

• New market entrants begin by targeting customers overlooked by the incumbents

• They gain a foothold in the market by delivering more-suitable functionality and frequently at a lower price

• Incumbents, chasing higher profitability in higher-demand customer segments, tend not to respond vigorously

Moving upmarket

• New market entrants then move upmarket, delivering the performance that incumbents’ mainstream customers require, while preserving the advantages that drove their early success

• When mainstream customers start adopting the entrants’ offerings in volume, disruption has occurred

Disruptive innovation

Time

PRODUCT

PERFORMANCE

Lower

Higher

Netflix

• New entrant Netflix’s mail order service

wasn’t initially appealing to incumbent

Blockbuster’s mainstream customers,

who rented new DVDs on impulse

• Blockbuster chose to ignore Netflix

• But when Netflix shifted to streaming

content online mainstream customers

switched and Blockbuster collapsed

Xerox

Play Video

• What does Canadian entrepreneur

Elon Musk mean when he says:

Small Group Discussion

Starting a company is like eating glass

and staring into the abyss.

If you feel like you are up for that, then

start a company.

Small Group Challenge Tokyo, Japan 1977

Ryuzaburo Kaku, President of Japanese multinational corporation

Canon Inc, has a problem. American giant Xerox Corporation is

rapidly innovating photocopying technology and cornering the

mainstream market – large corporations prepared to pay high prices

for photocopying machines.

Although Canon, like Xerox, is also a large and highly profitable

corporation, it does not have the capabilities or resources to

compete head on in the photocopying machine market with Xerox.

Ryuzaburo’s granddaughter asks him for help with her class

assignment but he is too distracted to focus on the printed

instructions, cheaply duplicated with a mimeograph machine with

black ink smudges across the page that stains his fingers.

In groups, offer Ryuzaburo a suggestion on how he can enter the photocopier market dominated by the incumbent Xerox.

New market footholds

• A new market foothold is where

disrupters create a market where none

existed

• Put simply, they find a way to turn non-

consumers into consumers

Xerox

• Xerox’s sold photocopiers to large

corporations and charged high prices in

order to provide the performance that

those customers required

• Schools, sporting clubs, and other small

customers, priced out of the market,

made do with carbon paper or

mimeograph machines

Canon

• Then in the late 1970s, new challengers such as Canon introduced personal copiers, offering an affordable solution to individuals and small organisations - and a new market was created

• From this relatively modest beginning, personal photocopier makers gradually built a major position in the mainstream photocopier market that Xerox valued

Low end footholds

• A low end foothold is a market entry

point created when incumbents try to

provide their most profitable and

demanding customers with ever-

improving products and services and

pay less attention to less-demanding

customers

“Good enough” products

• The incumbents’ offerings also often

overshoot the performance

requirements of their low end customers

• This opens the door to a disrupter

focused (at first) on providing those low-

end customers with a “good enough”

product

Aldi

• Aldi supermarkets originally targeted

lower socio-economic groups who

wanted basic items at cheap prices

• By 2014, Aldi’s proportion of high

income shoppers had risen to 50%

• From its low end foothold 15 years ago,

Aldi is now posing a very real challenge

to incumbents Woolworths and Coles

• What does American businessman

Henry Ford mean when he says:

Small Group Discussion

If I had asked people what they

wanted, they would have said

faster horses.

Small Group Challenge Detroit, United States 1903

Henry Ford, Chief Engineer of the Edison Illuminating Company,

has a problem. The introduction of the first automobiles has failed to

substantially disrupt the market for transportation. Horse-drawn

vehicles remain the transportation of choice for most customers

while automobiles are generally regarded as expensive luxury items.

Although Henry’s boss, inventor and businessman Thomas Edison,

is impressed with Henry’s gasoline engine experiments, Henry

knows the cost of the parts required along with the extensive labour

necessary to assemble his engines and automobiles by hand means

that the end product will always carry a price tag beyond the reach of

middle America.

In groups, imagine you’re unaware of Henry Ford’s eventual success. In what ways would you advise him to think disruptively?

Model T

Play Video

Everyday problems

• Seek out everyday problems,

annoyances, roadblocks, or points of

confusion

• The founders of Uber saw the relatively

minor nuisance of waiting for taxis as a

problem worth solving

• What is an example of an everyday

problem you experienced lately?

Under-serviced markets

• Ask whether or not the problem is

shared by a large market that is being

ill-served by current incumbents

• Salesforce.com founders saw the

widespread problem of server

maintenance and so developed a cloud

based CRM subscription service

Unattractive markets

• Look also for sizable customer populations unattractive to incumbents

• These may be people or organisations who can’t afford existing products due to income levels but need the solution

• Moodle is a no cost open-source software learning management system used by schools, colleges, and universities for blended learning

Low tech

• Consider offering tech solutions that

somehow seem inferior to incumbents

striving to offer bigger, better, and faster

• Customers may be satisfied by smaller,

cheaper, and simpler

• Personal computers seemed inferior to

mainframes, smartphone cameras

seemed inferior to digital cameras

Virgin Blue

Play Video

• Do you agree with American scholar

Clayton Christensen when he says:

Small Group Discussion

Disruptive innovation can hurt if you are

not the one doing the disrupting.

Small Group Challenge Melbourne, Australia 2001

Geoff Dixon, CEO and managing director of incumbent airline

Qantas, has a problem. The fledgling disruptor Virgin Blue, founded

two years earlier by flamboyant entrepreneur Richard Branson, is

now Australia’s second largest airline.

Virgin Blue has grown rapidly by offering cheap flights to low-end

customers by eliminating costs such as included in-flight meals and

printed tickets in favour of selling food on-board and using telephone

and internet booking systems.

Although Qantas does not cater to the low-end market, Geoff

recognises that Virgin Blue is on a disruptive trajectory to the

mainstream and high-end market that Qantas does value.

In groups, discuss how you could identify an emerging disruptor before it irreparably disrupts your organisation.

Incumbent strategies

• When a new market entrant tackles

incumbent competitors head-on,

offering better products or services, the

incumbent can accelerate their

innovations to defend their business

• The incumbent can beat back the

entrant by offering even better products

or services at comparable prices

Managing disruption

• Incumbent companies do need to

respond to disruption if it’s occurring,

but they should not overreact by

dismantling a still-profitable business

• Instead, they should continue to

strengthen relationships with core

customers by investing in sustaining

innovations

Sustaining innovations

• Sustaining innovations make good

products better in the eyes of an

incumbent’s existing customers

• These improvements can be

incremental advances or major

breakthroughs, but they all enable

organisations to sell more products to

their most profitable customers

New businesses

• Incumbents can also create a new

division or subsidiary focused solely on

the growth opportunities that arise from

the disruption

• This means that for some time,

incumbents will find themselves

managing two very different operations

Jetstar

• In 2003, in response to the disruptive

threat posed by Richard Branson’s low-

cost airline Virgin Blue, Qantas created

a rival “value based” subsidiary

• Jetstar is part of Qantas' two brand

strategy of having Qantas Airways for

the premium full-service market and

Jetstar for the low-cost market

Small Group Discussion

Read the Sydney Morning Herald Article: Who won the war

between Qantas' Alan Joyce and Virgin's John Borghetti?

What is the fallout when companies over-compete with each

other?

Playtime

Week 11 Workshop

MBA501 Dynamic Strategy and Disruptive Innovation

Jackie is exasperated.

‘I don’t get it!’ she throws her hands in the air, ‘Spark is a legitimate threat

to InFocus, not just some fledgling wannabe.’

‘I take it your meeting with the senior management team didn’t go so well,’

you say.

‘They don’t listen. The only ideas they care about are their own ideas.’

‘And what are their ideas for handling Spark?’

Jackie shakes her head, ‘Nothing. Their brilliant idea for handling Spark is

to do absolutely nothing. They’re certain we have nothing to worry about.’

‘But you’re certain we do?’

She places an empty bottle of Spark Revitalise on her desk.

‘Wanna guess where I found this?’ she asks.

You shrug your shoulders.

‘In my daughter’s school bag. Spark are targeting teenagers. The same

market segment we had stitched up until we started loading everything with

vitamins and herbal extracts and charging twice as much.’

‘Except InFocus Vitamin C Plus.’

‘What?’ she asks.

‘Except InFocus Vitamin C Plus. We didn’t load that one with anything.’

Jackie’s face softens and then she bursts out laughing.

‘Look,’ you say, ‘Dustin has a pretty good read on the senior management

team. If you can get me into the next board meeting I could deliver a

presentation on disruptive innovation and get the directors across what

Spark is trying to do.’

‘Now that is a great idea,’ Jackie smiles, ‘So do you want the good news or

the bad news first?’

Her question surprises you, ‘I dunno, the good news, I guess.’

‘I can get you into the next board meeting.’

‘And the bad news?’

Jackie glances at her wristwatch, ‘It starts in twenty minutes.’

Group One

In your group, prepare a presentation on disruptive

innovation for the InFocus board

Focus on the following:

• Explain the concept of disruption

• Discuss the strategy by which new entrants disrupt

markets

• Provide three examples of a new market entrant

that dethroned an incumbent using disruptive

innovation

Group Two

In your group, prepare a presentation on disruptive

innovation for the InFocus board

Focus on the following:

• Explain how “good enough” products can disrupt

markets

• Discuss the difference between a new market

foothold and a low end foothold

• Provide three examples of a new market entrant

that gained a low end foothold using “good enough”

products

Group Three

In your group, prepare a presentation on disruptive

innovation for the InFocus board

Focus on the following:

• Explain the concept of low tech customer solutions

• Discuss the difference between an unattractive

market and an under-serviced market

• Provide three examples of potential market

segments that are either unattractive to or under-

serviced by current incumbents

Group Four

In your group, prepare a presentation on disruptive

innovation for the InFocus board

Focus on the following:

• Explain how incumbents traditionally manage

competition from new market entrants

• Discuss the difference between a disruptive

innovation and a sustaining innovation

• Provide three examples of incumbents that created

or purchased new businesses to compete with

disruptors

Group One Group Two

Group Three Group Four

Deliver your presentation on disruptive innovation to the board of

directors.

Twenty minutes later you enter the boardroom with your hastily prepared

presentation notes.

Dustin and the other directors welcome you back once again and are

curious about why you have come.

‘I apologise for interrupting your board meeting agenda this morning,’ you

begin as you place the empty bottle of Spark Revitalise on the board table,

‘But my disruptive behaviour is nothing compared to the disruption these

guys have in store for InFocus.’

The directors appear confused.

‘Let me explain…’

Dustin thanks you for your presentation and addresses the directors.

‘It seems clear to me that InFocus cannot afford to ignore the perhaps not

glaringly obvious but very real threat that new market entrants such as this

Spark company pose to our current position in the market. It is equally

obvious to me that we as a company need to better position ourselves so we

too may successfully implement our own disruptive strategies.’

The other directors nod in agreement. Dustin turns to you.

‘Fortunately for this board we have one of the brightest and most gifted

strategists I have ever worked with in my fifteen odd years as a director. We

need from you now, as our Strategy and Planning Advisor, a series of your

very best strategic recommendations to help us mitigate the risks and seize

the opportunities presented by disruptive innovation. Will you do this for us?’

‘Of course I will,’ you reply.