Session 16 (Industry Evolution and Innovation) Flashcards
(19 cards)
Creative Destruction
Industries constantly evolve as new technologies replace the old.
Innovation Process
Idea: Abstract concepts or research findings
Invention: Transformation of an idea into a product; The modification and recombination of products
Innovation: Commercialization of an invention
Imitation: Copying a successful innovation
Sources of Innovation
Existing firms: Transferring their resources and capabilities from other industries
Prior employees: Exposure to new ideas while working for existing firms (Examples: “Fairchildren” in the semiconductor industry)
Academic scientists: Quest for fundamental understanding of knowledge
Users: Deep understanding of their own needs (Examples: snowboards by sport fans, medical devices by doctors)
Five Phases of an Industry Lifecycle
- Introduction
- Growth
- Shakeout
- Maturity
- Decline
- Supply and demand changes as industries age
- Each stage requires different competencies
Causes of Rapid Tech Diffusion and Adoption
Initial innovations are foundational for other rapid
innovation.
New business models make innovation possible.
- Ex: Dell’s direct to consumer model
Satellite and cable distribution systems
- Enable mass media such as radio and TV
The emergence of the internet
- Social networking
- Viral messaging
Describe the Introduction Stage
Core competency: R&D
Strategic objective: market acceptance & future growth
Capital-intensive
- Designing a unique product
- Trying new ideas to attract customers
- Producing small quantities
Describe the Growth Stage
Demand increases rapidly.
- First-time buyers rush to purchase.
- Proof of concept has been demonstrated
Product / service standards emerge
- A common set of features and design choices
Product innovation
- New / recombined aspects of a product
Process innovation
- New ways to produce a product
Describe the Shakeout Stage
The rate of growth declines.
Firms begin to intensely compete.
- Weaker firms forced out
- Industry consolidation
- Only the strongest competitors survive.
Price is an important competitive weapon.
Describe the Maturity Stage
Only a few large firms remain.
- They enjoy economies of scale.
- Process innovation has reached a maximum
Demand: replacement or repeat purchases
Market has reached maximum size.
- Industry growth is zero or negative
Describe the Decline Stage
Demand falls rapidly.
- Innovation efforts cease
- Strong pressure on prices
Four strategic options to pursue.
1. Exit: bankruptcy / liquidation
2. Harvest: reduce further investments
3. Maintain: support at a given level
4. Consolidate: buy rivals
Why do Incumbents Fail?
Obsolescence of key capabilities
Fail to recognize the threat of new technology
- Cognitive biases in disruptive technologies
Limited by their current commitments
- Current capabilities create rigidities in decision making
Choose not to invest
Bad management
What is a sustaining technology?
Improves the performance of existing products along dimensions valued by mainstream customers
- Example: Blockbuster’s DVD and game trading service “Game Rush” (2004)
Incumbents are at a competitive advantage
What is a disruptive technology?
Brings worse performance, and appeals (initially) only to fringe or low-end customers.
- Example: Netflix’s DVD-by-mail rental service
New entrants are at a competitive advantage
What is demand side disruption?
Dilemma comes from an incumbent’s core customers having no need for low-end product
- entry of a low-quality product or product with fringe appeal
- Example: Digital cameras vs Kodak
What is supply side disruption?
Dilemma comes from shifts in architecture (i.e., business model) that brings greater inefficiency.
- Change in organizational structure, processes, incentives
- Example: Spirit’s pay as you go business model
Disruption Theory
Disruption is what a firm faces when the choices that once drove a firm’s success now might destroy its future
How to Respond to Disruptive Innovation?
Continue to innovate
- Stay ahead of the competition
Guard against disruptive innovation
- Protect the low end of the market
Disrupt yourself
- Don’t wait for others to disrupt you- “reverse innovation”
Do Nothing
How to avoid disruption?
Be paranoid: Monitor technologies serving
undesirable/low-end customers
Long term view: De-emphasize short-term performance
and focus on long-term goals (e.g., Amazon, Google)
Experiment: Fail early and often (e.g., rapid prototyping)
Where does disruption typically happen?
At the low end
Makes it hard for incumbents to respond
