disruptive technology - why large companies often fail to innovate

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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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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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

[email protected]

mailto:[email protected]?subject=

https://www.xing.com/profile/Norman_Hiob

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disruptive technology - why large companies often fail to innovate

Leadership & Management