Assignment 3 harsha

Innovation Management

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Models of Innovation

Static Models

• Christensen’s Theory

• Abernathy-Clark Model

• Henderson-Clark Model

• Innovation Value-added Chain

• Roberts and Berry Model

Innovation Management

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• Christensen’s Theory

– Xerox vs. Canon

– Sears vs. Wal-mart

Why great firms fail when confronted with radical innovation?

– They listen to their customers carefully

– They track competitor’s actions carefully

– They invest resources to design and built higher

performance, higher quality products that will yield better

profits

Christensen Theory

Innovation Management

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• Sustaining Technologies

– Give customers something new or better in the attributes of a product they already value

– Established markets, loyal customers who are willing to pay premiums

– Stay close to customers

– Profit margins are high (cheap to retain loyal customers, ex: Nike shoes)

– Risk is relatively low

– Fast response time

– Minimal change in production processes

Christensen Theory

Innovation Management

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• Disruptive Technologies

– Existing customers do not value performance attributes of

the product

– They perform worse on certain attributes

– Financially unattractive: small markets, low profit margins

– Difficult to predict the growth rate of the market

– Requires new manufacturing processes

Christensen Theory

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Christensen Theory

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• The slope of the technology trajectory is steeper than

the slope of the trajectory of customer need.

– How much time customer have to learn the new technology?

– Regulations

– Life styles

Christensen Theory

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• Why incumbents fail to develop disruptive technologies?

– Rigid business model

– High ends of the market promise more profits

(ex: DuPont’s Kevlar, HP’s Kittyhawk)

– As companies grow big they become risk averse

– Managers short term oriented (stakeholder wealth)

– Habitual methods lead to new ideas similar to old ones

Christensen Theory

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• Successful incumbents..

– To develop disruptive technologies they create small

companies

– They plan to fail early and inexpensively

– They develop new markets for disruptive technologies rather

than introducing it to established markets.

Christensen Theory

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• Basis of Competition

– Definition: product attribute for which customers will most readily pay a price premium

Functionality  Reliability  Convenience  Price

Functionality Reliability Convenience Price

Apple iPOD

Ear implants from

Medtronic

Robot floor vacuum

Web browsers

Utility services

Insulin Pens

Xerox copiers

Cell phones

Pacemaker

DVD players

CD players

3M Post it notes

Christensen Theory

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• Capabilities of a company

– New entrants: reside in human resources

– As company moves toward sustaining technologies

capabilities reside in processes and procedures

Christensen Theory

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• Abernathy-Clark Model

– Incumbents may outperform new entrants with “radical innovation”

• Two kinds of knowledge that underpins technology: Technological and market knowledge

Regular Revolutionary

Niche Architectural

Preserved Destroyed

Preserved

Destroyed

Technical Capabilities

Market

Capabilities

Abernathy-Clark Model

Innovation Management

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Incremental Architectural

Modular Radical

Enhanced Destroyed

Enhanced

Destroyed

Architectural knowledge

Component

knowledge

Henderson-Clark Model Why some incumbents have difficulty innovating “incremental

innovation”? •Component knowledge and architectural knowledge (tacit knowledge)

Henderson-Clark Model

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Innovation Value-Added Chain • What the innovation does to firm’s supplier, customer, and

complementary innovators

Value-Added Model

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Roberts and Berry model

– Familiarity matrix

• If technology and market are familiar to a firm (sustaining

technology) then the firm is better off developing the innovation

internally (has the capability)

• If both technology and market are new and unfamiliar (disruptive

technology) then the firm should look outside of its boundaries for

help (venture capitalism)

Roberts and Berry Model

Innovation Management

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Familiarity Matrix

Roberts and Berry Model