L3

Question 1

Sustaining Innovation (Christensen)

Answer 1

Sustaining Innovation (Christensen) =

Better products, for higher prices, to attractive customers in existing markets

Question 2

Disruptive innovation =

Answer 2

Disruptive innovation =

Products with a novel mix of features performance and price attributes (e.g., simpler or more convenient products, for lower prices), appealing to new or unattractive customers.

Question 3

Disruptive Innovation

Features:

Answer 3

Disruptive Innovation

Features:
o Existing products Overshooting
o Novel mix of attributes (often inferior, simpler, more convenient, cheaper products)
o For new or unattractive customers
o Asymmetric motivations
o Technology as enabler of improvement trajectory

Disruptive Innovation introduces a different performance package, which is initially inferior to existing mainstream technologies and dominant product attributes that mainstream customers value.

It disturb the business models of ecosystem incumbents who are likely to resist and counter mobilize

A firm that offers a disruptive innovation must gain access to complementary assets lest its innovation remain confined to niche markets.

Over time, technological advancements and improvements to the disruptive innovation increase the attractiveness of performance packages to mainstream customers. As a result, disruptive innovation alters existing market positions and value networks and displaces established market leaders and their products.

Question 4

Disruptive Innovation

Explain its feature:
Asymmetric Motivations

Answer 4

Asymmetric Motivations =

Disruptive innovations (initially) do not score well on resource allocation criteria of large incumbent firms:
o Best customers do not want disruptive innovations
o Disruptive innovations do not offer profit margins that they seek
o Small markets do not solve growth needs of large companies
o Markets that don’t exist can’t be analyzed
o Financial investment tools are biased towards existing business

Question 5

Why New Entrants often win Disruptive Innovation?

Answer 5

New entrants often win with disruptive innovation
o Because ‘rational’ resource allocation mechanisms work against investment in disruptive innovation, until … it’s too late
o Not (only) because of managerial incompetence or lack of technological capabilities

Incumbents win with sustaining innovation

Question 6

Characteristics of Digital Technology that enable fast improvement trajectory

Answer 6

Characteristics of Digital Technology that enable fast improvement trajectory

o Low marginal costs (& low overhead)
o Moore’s law
o Network effects
o Distributed development (3rd party developers)
o Crowd-based improvement
o Machine learning

Question 7

Responses to Disruptive Innovation:

Answer 7

Responses to Disruptive Innovation

1. Racing
   o Defensive response
   o Fleeing to higher market segments
   o ‘cramming’
   o Alternative: legal battles
2. Offensive: Transition
   o Offensive response
   o When disrupted: fight, don’t flee
   o Frame as threat in resource allocation process
   o Separate from existing business (ambidexterity)
   - Might be acquisition or external venture
   o Frame as opportunity for this separated entity
3. Retreat
   o Defensive/offensive response
   o Retrenching in a revealed niche
   o Relocating to a different market

Question 8

Competitor =

Answer 8

Competitor = “A player is your competitor if customers value your product less when they have the other player’s product than when they have your product by itself.”

Question 9

Complementor =

Answer 9

Complementor = “A player is your complementor if customers value your product more when they have the other player’s product than when they have your product by itself.”

Question 10

Disruption dilemma =

Answer 10

Disruption dilemma: disruptors risk retaliation from incumbent firms potentially disrupted by the innovation, but may need support of the very incumbents to establish their innovation within existing innovation

Disruptive innovations are “double-edged swords” – innovations that are breakthroughs with the potential to spawn new markets also imply breaking apart existing ecosystem arrangements, and fuelling adverse reactions from incumbents

This dilemma is all the more difficult to resolve due to tensions generated by intertemporal, dyadic, and multilateral coopetition.

Question 11

Industry ecosystems =

Answer 11

Industry ecosystems = are business networks of interconnected firms that depend on one another for their mutual effectiveness and survival:
* Producers (including suppliers, competitors, and complementors)
* Distribution channels and consumers on the demand side
* Regulators from the institutional side

Question 12

Disruption
3 coopetitive tensions

Answer 12

How a disruptor has to gain cooperation from incumbent it disrupts with promises of benefits that might accrue only in an uncertain future. ‘chicken and egg problem’

1. intertemporal (short term vs long term)
   Intertemporal coopetition: a situation in which a newcomer’s innovation can offer ecosystem members benefits that might materialize only in the future, whereas disruptive effects are felt immediately. Incumbents are uncertain over how disruptors innovation will redistribute revenues and profits across ecosystem members.
2. dyadic (within dyadic relationship) (within two)
   Tension within dyadic lead to coopetitive tension to emerge and evolve as each party continues to pursue its interests
3. multilateral (across relationships spanning multiple dyads or multiple ecosystem ideas).
   a firm must manage relationships across a set of interdependent stakeholders, with changes to one relationship affecting another
   Illustration of multilateral coopetition: leads to dynamic switching to balance tension.

Question 13

Disruptive Innovation:

3 components

Answer 13

1. Overserving:
   the pace of innovation strips customers demand for high performing technologies. incumbents can over serve the market by producing more advanced, feature rich products that customers need. → leaving a gap at the bottom of the market
2. Distinction between technology and business model innovations can emerge
   - Sustaining innovations: (more common) improve products and services along dimensions of performance that mainstream customers care about and that have markets historically valued
   - Disruptive innovation: (rarer) when initially introduced, disruptive innovation is inferior to incumbent products on excepted performance dimension, but they offer a mix of attributes that appeals to fringe customer groups - at the bottom of the market (smaller, cheaper, more accessible, more convenient)
3. Existing customers and established profit models constrain established firms’ investment in new innovations
   –> so that disruptive innovation that promise lower margins or target smaller markets - are typically unmotivating to their firms

Question 14

Disruptive Innovation

How to Respond?

Answer 14

o an incumbent can create an autonomous organisational unit and task it with developing and commercialising the new innovation

o Incumbents may aggressively invest in existing capabilities to extend current performance improvement trajectories in order to slow or delay the onset of disruption.

o Retreat by proactively repositioning in profitable new niches

o Use of organisational ambidexterity: (enacting dual structures, processes, and subcultures, as well as a cognitively flexible executive team) to manage conflicts expected to arise from pursuing different types of innovation simultaneously,
–> Exploring and exploiting at the same time may resolve the innovators dilemma.

o Incumbents may seek to co-opt disruptive entrants once they start challenging incumbent market leadership (by partnering, licensing startups’ technology, or acquiring, or introducing a new platform)

o technology reemergence strategy: Incumbents that have been disrupted can redefine the meanings and values associated with their legacy technology, or refining market boundaries of the market they compete in.

Question 15

Hybrid offerings =

+

Pro’s & Cons:

Answer 15

Hybrid offerings = combines features of an emerging innovation with existing offerings to create something novel (for instance hybrid cars)

Pro’s:
hybrids can be a useful tool for learning about an uncertain future and bridging market transitions.

Christensen argues on hybrid:
Incumbents have the option of developing hybrid products to target new customers and application, but may tend to develop them as sustaining innovations in performance-enhancing applications for existing customers

Cons:
it is an embodiment of mismanaged technology adaption, target at existing customer that might never achieve commercial viability

Question 16

Overshooting the market

Answer 16

Overshooting the market
= the innovators performance improvement exceeds the rate of improvement that customer can absorb

Question 17

Extendable Core:

Answer 17

Extendable Core: a business model or underlying technology that enables new entrant to move up market and pursue more demanding customers without adding commensurate cost or without losing performance advantage (Airbnb)

Question 18

Adner and Kapoor:

The pace of technological substitution is shaped by the evolution of both the new and old technology, as well as the evolution of the ecosystems in which they are embedded

Why?

Answer 18

• Some firms slow the pace of substitution through ‘last gasp’ efforts to extend the value they can capture from the old technology.
• Other substitutions are slowed because the old technology benefits from ‘spillovers’ of R&D efforts for the new technology

Question 19

Coopetition =

Answer 19

Coopetition = The simultaneous pursuit of cooperation and competition with the intent to create joint value.
* viable strategy to help firms to respond collectively to technological change, and compete against disruptive innovation.

• The voluntary exchange of diverse and complementary resources improves firms’ innovativeness,
• While expanded market access and jointly facilitated market or business model development improves firms’ value appropriation.
• Enables firms (or coopetitors) to pursue difficult yet highly rewarding opportunities that cannot be attained individually.
• Cooperation drives value creation: it enables firms to overcome knowledge and resource asymmetries and instils a commitment to joint action that stimulates resource sharing and complementarity.
• This simultaneous pursuit of contradictory goals –> creates coopetitive tensions

Question 20

Multilateral coopetition =

Answer 20

Multilateral coopetition = coopetition between multiple horizontal and vertical competitors involves a greater number and variety of actors, which introduces, greater complexity to manage the coopetition entity.

Likely that coopetitors differ in their contributions, competencies, needs and roles –> may lead to disagreements

Question 21

Multilateral coopetition for response to disruptive innovation

Why risky?

Answer 21

Difficuct and risky as it:
- Implies permanent changes to incumbents’ value networks and business models,
- Involves high uncertainty during the development and commercialization stage of the disruptive innovation and
- Presents a much greater risk of freeriding than dyadic coopetition.

Question 22

Multilateral coopetition

two tensions:

Answer 22

1. generalist–specialist contribution tension: where coopetitors contribute different sets of resources:
   * Specialists contribute a few resources in a concentrated effort often at one point in time
   * Generalists contribute a range of resources and capabilities through efforts dispersed over time.
2. value creation-capture tension
   Coopetitors need to balance their need for joint value creation and individual value capture through a mix of cooperation- and competition-inducing mechanisms, as well as respond to redirecting external events.

• As coopetitors actively manage the generalist–specialist contribution tension via these coalition formations, we find the value creation–capture tension resurfaces.

Coopetitors initiate a number of formal and informal coalitions to address the tensions.
1) Formal coalitions: establish concrete tasks and agree respective contributions towards its goal. Formal clarification of roles and responsibilities, tasks and contributions represents a COOPERATION-INDUCING MACHANISM
-inducing mechanism because it allows competitors to feel that there is equal and equitable value creation and capture among the member firms.
2) Informal coalitions as a COMPETITION-INDUCING MACHANISM: We find that the formation of informal coalitions diminishes cooperation and increases competition-dominant behaviour in the entity.

Question 23

Multilateral Coopetition

Formal coalition

+

Informal coaltion

Answer 23

Coopetitors initiate a number of formal and informal coalitions to address the tensions.

1) Formal coalitions: establish concrete tasks and agree respective contributions towards its goal. Formal clarification of roles and responsibilities, tasks and contributions
represents a COOPERATION-INDUCING MACHANISM
-inducing mechanism because it allows competitors to feel that there is equal and equitable value creation and capture among the member firms.

2) Informal coalitions as a COMPETITION-INDUCING MACHANISM: We find that the formation of informal coalitions diminishes cooperation and increases competition-dominant behaviour in the entity.

Question 24

Returning from competition-dominant to cooperation- dominant behaviour:

Answer 24

Returning from competition-dominant to cooperation- dominant behaviour

–> requires ‘redirecting events’, such as the shrinking of the traditional market or industry- spanning negotiations – another reason to come together to counter looming disruption.

Question 25

Management of the generalist–specialist contribution tension in multilateral coopetition is much more complex because:

subgroup formations not only facilitate coopetition but also destabilize it.

Answer 25

Management of the generalist–specialist contribution tension in multilateral coopetition is much more complex because…

… subgroup formations not only facilitate coopetition but also destabilize it.

As individual coopetitors experience the generalist–specialist contribution tension, they seek informal coalitions with similar coopetitors to rectify – or ‘counter’ – the perceived ‘imbalance’ between their contributions relative to others. These informal coalitions are intended to leverage individual coopetitors’ power and steer the development to secure ‘private’ benefits as a sub-group from the coopetition.
- Such informal coalitions are specific to multilateral coopetition and may threaten the stability of the coopetition entity by fostering competition-dominant behaviours.