Summary

Large, established companies regularly fail as the S-curve theory of innovation dictates that disruptive innovation will usurp the value of sustaining innovation over time. Disruptive innovations are 1) simpler, cheaper, lower margin, 2) introduced in emerging markets, 3) not adoptable by large existing customers. To thrive, large companies should mimic small ones by developing autonomous organizations to tackle disruptive innovation. As a technology develops, follow it along the product lifecycle of functionality (disruptive) to reliability to convenience to price (commodity).

Key Takeaways

• S-curve theory of innovation
• Disruptive vs sustaining innovation: first mover vs follower
  • Simpler, cheaper, lower margins
  • First in small, emerging markets
  • Existing customers can’t/don’t use
• Upmarket vs downmarket: enterprise complexity vs simplifying for small market
• Like startup: match org size, fail, pivot
• Product lifecycle: functionality → reliability → convenience → price

Notes

1: Why great companies fail

1: How great companies fail

• Keeping close to customers should not be a blanket rule
• HDDs: 35% / year rate of improvement (2x every 2 years)
• S-curve theory of innovation
• Disruptive vs sustaining innovation
• Can’t trust customers to lead you towards disruptive innovation
• Reasons for not investing in disruptive tech:
  • Simpler, cheaper, lower margins
  • First commercialized in emerging markets
    • Harder to justify small market for large companies
  • Most profitable existing customers can’t use or don’t want to use
    • Switching cost?

2: Value networks

• Existing business structure colors what innovations are attractive to incumbents
• Value networks: the context within which a firm identifies and responds to customers needs, solves problems, procures inputs, reacts to competitors, and drives for profits
• Eg. nested commercial products for a big company

3: Disruptive technology

• Disruptive competitors attack the value networks above them

4: Upmarket vs down

• Logic, energy and impetus must also follow disruptive innovation
• Established firms are also captive to their organizational and financial structure
• Upmarket vs downmarket: enterprise complexity vs simplifying for small market

2: Managing disruptive change

5: Match orgs and value network

• Need separate orgs for separate value networks (when going downmarket)

6: Match org size to market size

• Better to be a leader or follower? Being a leader is better
• As established company, shield internal initiative from stock price, profitability concerns
• Match size of team / org to size of market to motivate, correctly frame
• Small emerging markets for disruptive innovations don’t meet the growth needs of large companies

7:  Discover new, emerging markets

• Market does not exist so can’t predict
• Need to be flexible, ready to pivot
• Initiatives need time and money to fail, pivot, find product market fit

8: Capabilities and disabilities

• RPV: resources, processes, values
• Could create new processes and values
• Acquisitions
• Fully autonomous
• Capabilities define disabilities

9: The product lifecycle

• Functionality → reliability → convenience → price
• Early adopters → early majority →
• Simpler cheaper, more reliable, and convenient
• Can leverage marketing to prevent performance oversupply
• Products tend to improve faster than market demands, demanding simpler solution

10: EV case study

• Look where tech is going, not where it is
• Find market matching need for initial capabilities

11: Summary

• Disruptive innovations: first mover, sustaining innovations: Follower