Disruptive innovation

KAUSTJune 21, 2013

This presentation was created and given by Ziya Boyacigiller who was leading Angel Investor and a loved mentor to many young entrepreneurs in Turkey. We have shared it on the web for everyone’s benefit. It is free to use but please cite Ziya Boyacigiller as the source when you use any part of this presentation. For more about Ziya Boyacigiller’s contributions to the start-up Ecosystem of Turkey, please go to www.ziyaboyacigiller.com

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Ziya Boyacigiller“Karakol”

21 June 2013

KAUST

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MEANING

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Evolution of Knowledge

http://files.posterous.com/jaysteele Roger L. Martin

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Sun Tzu says re winning…“Now an army may be likened to water, for just as flowing water avoids the heights and hastens to the lowlands, so an army avoids strengths and strikes weakness.”

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…asymmetric motivation…

Industry leaders are always motivated to go up-market, and almost never motivated to defend the new- or low-end markets that the disruptors (entrepreneurs) find attractive.

This asymmetric motivation is at the core of innovator’s dilemma and its solution.

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Resource Allocation Decisions Result in Allowing Disruption

• Company upper-management allocate their resources first to support their most important customers.

• Also, middle managers minimize career risk by developing products for existing and important customers (as opposed to nonconsuming or unattractive customers).

• Therefore, companies develop better (next generation, improved) products for these important customers – allocate their resources to these projects.

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What Good is Disruptive Innovation?

Few technologies or business ideas are intrinsically sustaining or disruptive in character.

Their disruptive impact must be molded into strategy as entrepreneurs shape the idea into a plan and then implement them.

Point: Learn disruption and use it !

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How Incumbent Companies T h i n k…

(e.g. PC, desk top copiers, cell phones)

flee..

not attractive..

what our customers want…

(e.g. Southwest Airlines, Japanese cars)

Why?

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Cell-Phones vs Home-Phones• 1987 – Cell Phones are bulky, work in cars

only, quality of voice not good, coverage is spotty.

• 2010 – Almost everyone has a cell-phone, many people are choosing not to get a home-phone. Even at home, many use cell-phones although its “air-time” costs more than home-phones.

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Litmus Tests for Disruptive Ideas

1. Can the idea become a new-market disruption?

• Is there a large population of people who historically have not had the money, equipment, or skill to do this thing for themselves, and as a result have gone without it altogether or have needed to pay someone with more expertise to do it for them?

• To use the product or service, do customers need to go to an inconvenient, centralized location?

Example: Personal Computer / Cell Phones

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Litmus Tests for Disruptive Ideas

2. Is there low-end disruption potential?

• Are there customers at the low end of the market who would be happy to purchase a product with less (but good enough) performance if they could get it at a lower price?

• Can we create a business model that enables us to earn attractive profits at the discount prices required to win the business of these over-served customers at the low end?

Example: Internet telephones (Skype) / Honda

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Litmus Tests for Disruptive Ideas

3. Is the innovation disruptive to all of the significant incumbent firms in the industry?

If it appears to be a sustaining innovation to one or more significant players in the industry, then the odds will be stacked in that firm’s favor and the entrant is unlikely to win.

Example: Internet Banks vs Incumbent Banks, Internet grocery shopping

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DIVERSITY BREEDS CREATIVITY

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GLOBALIZED