disruptive technology - why large companies often fail to innovate
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by Norman Hiob
DISRUPTIVETECHNOLOGYWHY LARGE COMPANIES OFTEN FAIL TO INNOVATE
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WHY DO LARGE COMPANIES
OFTEN FAIL TO INNOVATE?
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5 REASONS
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1 COMPANIES DEPEND ON CUSTOMERSAND INVESTORS FOR RESOURCES
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GOOD MANAGERSDO WHATMAKESSENSE
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WHAT MAKES SENSE IS PRIMARILY SHAPED BY THEIR VALUE NETWORK
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VALUE NETWORK =ECONOMIC ECOSYSTEM
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COMPANIES MUST SATISFY…
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CUSTOMERS
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INVESTORS
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WITH PRODUCTS, SERVICES AND PROFITS THAT THEY REQUIRE
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WHICH LEADS TO
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RESOURCE DEPENDENCE
COMPANIES FREEDOM OF ACTION IS LIMITED TO SATISFYING THE NEEDS OF EXTERNAL ENTITIES
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IN OTHER WORDS
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IT DRIVES THE ALLOCATION
OF RESOURCES
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TOWARDS SUSTAINING TECHNOLOGIES
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AND AWAY FROM DISRUPTIVE ONES
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2 MARKETS THAT DON’T EXIST CAN’T BE ANALYSED
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THE TECHNOLOGY S-CURVEPr
oduc
t per
form
ance
Time or engineering effort Richard N. Foster: „Innovation: The attacker's advantage“, New York, Summit Book, 1986
OFTEN USED TO PREDICT NEW TECHNOLOGIES
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THE TECHNOLOGY S-CURVEPr
oduc
t per
form
ance
Time or engineering effort Richard N. Foster: „Innovation: The attacker's advantage“, New York, Summit Book, 1986
DECREASING RATE OF IMPROVEMENT INDICATES THAT A NEW TECHNOLOGY MAY EMERGE
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USEFUL FOR SUSTAINING
TECHNOLOGIES
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#1 Sustaining technologies
IMPROVESPRODUCT PERFORMANCE
Prod
uct p
erfo
rman
ce
Time or engineering effort
Technology #1
Technology #2
Technology #3
Clayton M. Christensen: „Exploring the Limits of the Technology S-Curve“, Productions and Operations Management 1, no. 4, 1992
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BUT NOT FOR DISRUPTIVE
TECHNOLOGIES
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#2 Disruptive technologies
Technology #1
Technology #2
Technology #2
Application (Market) „A“
Application (Market) „B“
Time or engineering effort
Prod
uct p
erfo
rman
ce
DISRUPTS OR REDEFINES PERFORMANCE TRAJECTORIES
Clayton M. Christensen: “The Innovators Dilemma“, Harper Business, New York, 2011, p. 10, 47
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PROBLEM
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MOST MANAGERSLEARN ABOUT INNOVATION IN A SUSTAINING
CONTEXT
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Sustaining innovations
MARKETS: KNOWN
CUSTOMERS:UNDERSTOOD
MARKETRESEARCH
GOOD PLANNING
EXECUTION ACCORDINGTO PLAN
+ +
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MARKETRESEARCH
GOOD PLANNING
EXECUTION ACCORDINGTO PLAN
+ +
Disruptive innovations
MARKETS: UNKNOWN
CUSTOMERS:UNKNOWN
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MARKETS
THAT DON’TEXIST CAN’TBE ANALYSED
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APPLICATIONS
FOR DISRUPTIVE TECHNOLOGIES
ARE UNKNOWABLE
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3 SMALL MARKETS DON’T SOLVETHE GROWTH NEEDS OF LARGE COMPANIES
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SUCCESSFUL COMPANIES
NEED TO GROW© NORMAN HIOB
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WHY?
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TWO REASONS
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1 CREATE INTERNAL OPPORTUNITIES FOR EMPLOYEES
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2 MAINTAIN OR INCREASE SHARE PRICE
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GROWTH RATE
SHARE PRICE =
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PROBLEMSMALL MARKETS OF
DISRUPTIVE TECHNOLOGIES DON’T SERVE THE NEAR-TERM GROWTH OF LARGE
COMPANIES
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REVENUE 2016
GROWTHRATE
ADDITIONAL REVENUE
$40M 20 % $8M
$400M 20 % $80M
$4G 20 % $800M
Clayton M. Christensen: “The Innovators Dilemma“, Harper Business, New York, 2011, p. 147-148
SMALL COMPANY
LARGE COMPANY
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RESULT
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LARGE COMPANIES
LOSE THE CAPABILITY TO ENTER SMALL
EMERGING MARKETS
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THEY OFTEN FAIL, BECAUSE THEY WAIT TOO LONG UNTIL THEMARKET IS ESTABLISHED
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0 %
10 %
20 %
30 %
40 %
ESTABLISHED MARKET EMERGING MARKETClayton M. Christensen: “The Innovators Dilemma“, Harper Business, New York, 2011, p. 143-146
FIRMS REACHING $100M WITHIN TWO YEAR OF ENTERING THE MARKET
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FIRMS
THAT ENTERED SMALL, EMERGING
MARKETS CAPTURED
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20 TIMES THE REVENUE
Clayton M. Christensen: “The Innovators Dilemma“, Harper Business, New York, 2011, p. 143-146Clayton M. Christensen: “The Innovators Dilemma“, Harper Business, New York, 2011, p. 143-146
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THAN FIRMS THAT ENTERED ESTABLISHED
MARKETS
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0
500.000.000
1.000.000.000
1.500.000.000
2.000.000.000
ESTABLISHED MARKET EMERGING MARKETClayton M. Christensen: “The Innovators Dilemma“, Harper Business, New York, 2011, p. 143-146
AVERAGE REVENUE CAPTURED PER FIRMS WITHIN TWO YEAR OF ENTERING THE MARKET
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4 COMPANIES CAPABILITIES RESIDE IN THEIR PROCESSES AND VALUES
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TWO COMPANIES
BA
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SAME RECOURSES
=A B
… …
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DIFFERENT OUTPUTS
≠A B
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WHY?
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PROCESSES AND VALUES
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PROCESSES
FORMAL INFORMAL CULTURAL
Clayton M. Christensen: “The Innovators Dilemma“, Harper Business, New York, 2011, p. 185-196 © NORMAN HIOB
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ESTABLISHED TO PERFORM TASKS IN A CONSISTENT WAY (= VALUE CREATING MECHANISMS)
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PROBLEM
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EMERGING MARKETS
REQUIRE A DEGREE OF
AGILITY
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BUT…
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PROCESSES
ARE INIMICAL TO CHANGE
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VALUES
CRITERIA BY WHICH DECISIONS ABOUT PRIORITIES ARE MADE
Clayton M. Christensen: “The Innovators Dilemma“, Harper Business, New York, 2011, p. 185-196 © NORMAN HIOB
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COMPANIES THAT FOCUS ON HIGH-MARGIN PRODUCTS
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CAN NOT
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SIMULTANEOUSLY
FOCUS PRIORITIES ON LOW-MARGIN
PRODUCTS*
* EMERGING MARKET
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5 TECHNOLOGY SUPPLY MAY NOT EQUAL MARKET DEMAND
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INITIALLY
USE OF DISRUPTIVE TECHNOLOGIES IN SMALL MARKETS
ONLY
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TECHNOLOGY SUPPLY
MARKET DEMAND
≠
* MAINSTREAM MARKET
*
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BUT…
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DISRUPTIVETECHNOLOGIES
EVOLVE FASTER THAN MAINSTREAM
MARKETS
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TOMORROW, THEY MAY BECOME
COMPETITIVE IN MAINSTREAM
MARKETS
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LET’S SUMMARISE
WHY LARGE COMPANIES FAIL
TO INNOVATE
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12345 TECHNOLOGY UNDERSUPPLY
RESOURCE DEPENDENCE
UNKNOWN MARKETS
GROWTH NEEDS
PROCESSES AND VALUES
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WHAT TO DO?
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GIVE AWAY RESPONSIBILITY
TO FIRMS WHOSE CUSTOMERS NEED THE TECHNOLOGY
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SO RESOURCES WILL FLOWTO THEM
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CHECK INNOVATION REQUIREMENTS
FIT WITH PROCESSES AND VALUES
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SET UP SEPARATE ORGANISATION
SMALL ENOUGH TO GET EXCITED BY SMALL GAINS
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1SPINS-OFF
CREATE AN ORGANISATION WHOSE SIZE MATCHES THE OPPORTUNITY
Clayton M. Christensen: “The Innovators Dilemma“, Harper Business, New York, 2011, p. 154-155
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2INCUBATE
ACQUIRE A SMALL COMPANY WHOSE STRUCTURE MATCHES THE OPPORTUNITY
Clayton M. Christensen: “The Innovators Dilemma“, Harper Business, New York, 2011, p. 154-155
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DISCOVERYDRIVEN LEARNING
TEST MARKET ASSUMPTIONS
Clayton M. Christensen: “The Innovators Dilemma“, Harper Business, New York, 2011, p. 180-182
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PLANS FOR EXECUTION
PLANS FOR LEARNING
Clayton M. Christensen: “The Innovators Dilemma“, Harper Business, New York, 2011, p. 180-182
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PLAN FORFAILURE
DON’T RUN OUT OF RESOURCES OR CREDIBILITY
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12345 PLAN FOR FAILURE
FIND NEW CUSTOMERS
CHECK PROCESSES AND VALUES
SET UP SEPARATE ORGANISATION
CREATE PLANS FOR LEARNING
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ARE YOU READY TO INNOVATE?
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GET IN TOUCH!
Norman Hiob Olivaer Platz 17 10707 Berlin
normanhiob@me.com
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