You may have noticed that what is new often behaves differently than what has become accepted over time, whether it is in a market, or a technology, or involves people and firms. Much research supports these general ideas, and this course builds on them to help you develop a perspective on managing innovation. That is, you will build your capability to lead and design your organization in effectively implementing innovation initiatives and achieving their strategic intent. To do this, you will learn a set of frameworks, tools, and concepts that can help you address several important challenges in managing innovation. The first challenge regards how to successfully implement innovation efforts within established firms and alongside established businesses. You then investigate the particulars of managing innovation when disruptive technologies are involved. Other topics include leadership of new product development teams, planning and evaluation of innovation initiatives, and management of innovation across organizational boundaries, as happens with alliances or virtual firms.
Responding to Disruptive Technologies
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Del curso dictado por University of Illinois at Urbana-Champaign
Strategic Innovation: Managing Innovation Initiatives
124 calificaciones
University of Illinois at Urbana-Champaign
124 calificaciones
Curso 2 de 7 en SpecializationInnovation: From Creativity to Entrepreneurship
De la lección
MODULE 2: Understanding & Responding to Different Types of Innovations
Conoce a los instructores
E. Geoffrey LoveAssociate Professor
Department of Business Administration, Gies College of Business
Hello, and welcome back to our course on Strategic Innovation.
We saw exactly how
disruptive technologies can do their disruptive work in the previous video.
And, you've seen that it's not just disruption,
as such, but a specific process that's been observed in many places.
In this video, we're going to go deeper into why
incumbent firms were not able to respond effectively.
We'll kind of see how insidious the issue is,
and how it's deeply buried or deeply embedded in how companies work,
and how they make their decisions.
And, we'll see what Christensen recommends so that firms can
respond effectively to disruptive technologies.
And as part of that, we'll compare it to our first module on ambidexterity.
So to start, let's discuss
why established firms responses to disruptive technology are often effective,
and some of this will reiterate what we had before,
but we're focusing down.
So, the first thing to remember is,
it's not a failure to recognize the technology or to explore it.
People at leading firms often develop,
and in fact, even champion the new technologies.
Engineers are often quite excited about the potential.
For example, in the disk drive market,
there were several technological generations, 14 inch,
8 inch, five inch,
three and a half, and it's continued.
And in every case,
at the large disk drive firms,
the leading disk drive firms in every generation,
the engineers put together the new disk drives with the new technology.
They were excited about it.
Okay, but for some reason the company didn't pursue that technology with vigor.
This is where we really start to
get some of the core insights that I think Christensen brings,
besides the idea of disruptive technology.
What keeps firms feet in cement, so to speak.
What's the underlying problem?
And the insight is that,
it is effective management, right?
It's the model of management that existed in these incumbent firms,
and those widespread across the world.
First thing from a marketing perspective,
there's a dictum that we should stay close to our customers,
and particularly, we should stay close to our big customers.
By doing that, what happened is,
we missed the potential early on of the new technology,
because our large customers didn't want it.
It didn't meet their needs. Our large customers tend
to be some of our more demanding customers.
And this new technology,
which might be a little bit crude,
it might not be particularly capable on the mainstream performance measures,
but it has something new.
The main cause are our large customers,
typically aren't going to be looking for that.
It's going to be other customers,
and we don't know where those customers are,
but we're focused, we're putting all our effort into the existing customers.
The second thing, and related to that,
second thing is resource allocation systems.
Where do we put our money? Where do we put our people?
Well, the new markets initially,
like any new market, they're small and they're uncertain.
And not only that, often they're fairly low margin.
So, planning systems are designed to find the largest,
most certain, highest margin markets.
And what we find is,
the planning system is going to kick out a result that says,
well this new technology,
in the case of the disk drive companies,
the eight inch disk drives, this one isn't attractive.
And from a top management point of view,
we're looking for markets where it's going to make a difference for a whole firm.
We have the imperative of growth,
that we're trying to fulfill.
These small markets, it's not clear how they're
going to generate enough growth to make a difference.
It will be better if we could do better in our mainstream markets.
So, this is a systematic perspective.
One of the things I want you to notice is,
it's not a structural or cognitive kind of problem,
exclusively, it's embedded in the systems and management processes of the firm.
So, when we look at what ends up happening now,
I think the best way to describe it is,
you start to get a downward spiral.
And we've already talked about the fact that,
the incumbent companies when faced with a disruptive technology,
tend to introduce products late and the new competitors are well established.
And the essential fact there is that,
when the firm saw the market wasn't initially attractive,
they didn't just abandon their efforts,
they continued them at a low rate.
They developed the disk drives,
but to a certain extent,
the model in their mind was that, look,
we're going to wait for the market to develop,
we're going to wait to see what happens,
we're going to have that disk drive on the shelf.
The incumbent firms, when they see the new technology entering their mainstream market,
they have some strategic choices.
They can go ahead and take the disruptors head on,
they can go ahead and compete,
even in typically at the low end of their market,
they can compete at that low end and take the disruptors head to head.
What's happened though, is the margins there have been
compressed because of the new technology.
The whole idea is, the new technology is addressing market needs at a lower price point.
Turns out, when we work it through
those same systems that we just talked about, what happens is,
the incumbent firms are pushed to move upmarket,
to compete in the marketplace where
the disruptive technology hasn't yet reached the capability.
And of course, the market is always advancing,
so that high end is always there to a certain extent.
But what you end up with,
you can imagine what happens here,
is that over time,
the market position of those incumbent firms gets eroded,
because the new disruptive technology continues to develop, not every time.
For example, if we think about steel and mini mills,
they have not eaten completely into the traditional steel making,
but it gets up pretty far,
r in the case of the computer industry,
the new disk drives every time,
pretty much took over the main marketplace,
leaving the incumbent firms with only niche markets at the high end.
That's the downward spiral that you see, and in the end,
it's not a pretty picture at all, is it?
How can a firm get ahead of this dynamic?
You see it's embedded in multiple ways in how the firm looks at new technologies.
Well, the first thing is to adopt a new perspective.
Adopt a new perspective on how we evaluate technologies.
Recognize the possibility that technologies that are being developed could be disruptive.
So, to do that,
the last thing you want to do is go and talk to your customers.
What you want to do is talk to your engineers.
The last thing you want to do is go and run the financial model on the market right now.
Talk to the engineers,
talk to the technologists,
see where that technology is going,
recognize that it's uncertain,
but take that seriously.
So, take the idea of
the technology trajectory that may intersect a market trajectory seriously.
Second point related is, Christensen says, "Look,
what you want to be looking for is feasible market technology intersections."
One of the things that held the companies back in
his study is that they would look at the technology trajectories.
Remember how the eight inch technology trajectory was always under the 14 inch one.
So it seemed like, well, a 14 inch one is always going to be better.
Christensen's insight is, you've got to shift your perspective
on how the technologies work in a company,
in a marketplace and say the key is where are
those market technology intersections going to come from.
Don't look at your existing customers views right now,
look at where they're going to be.
One of the analogies that Christensen uses later on,
he attributes to Wayne Gretzky, the great hockey player,
and he says, "You know, the trick is that you don't skate to where the puck is.
You skate to where the puck is going to be."
He actually uses that analogy in a little bit different situation,
but it fits here as well.
The third thing that he recommends is,
look hard for an initial market.
So, don't use your traditional means,
don't use the means you already have established.
He talks about skunk works, startups.
And I think here,
the key message is to be creative,
to look to the left, look to the right,
look to places that may seem less attractive,
not very good markets right now because those are
the ones perhaps where the technology is going to develop.
And if you enter into them now,
you're going to be able to participate in that and be ready
when the technology disrupts your main marketplace.
Because you've got to remember, you're not doing this
just to participate in that initial marketplace.
You're doing it to be up to speed on
that initial marketplace and to be up to speed on everything that's
going in with that technology so that if
and when it does enter your mainstream marketplace,
you're fully ready as opposed to having to say,
"Well, where on the shelf is that disk drive?
Let's get it let's get going."
That's the last place you want to be.
Now structurally, you don't just adopt a new perspective.
This requires a structural choice.
And Christensen, I think this is his most well-known recommendation,
which is to form an independent organization.
Take a small group of people,
often people who are pretty experienced,
who may well be in more responsible positions in terms of number of people right now.
Move them over. It can be just in a different floor of
the same building as what we've seen,
but the point is, you make them an independent organization,
pull them out of the traditional with functional reporting structure for sure.
And what you're going to get is an organization that's flexible, hungry, and lean.
That's what you want. One that doesn't see a low margin,
small market is unattractive.
One that sees it as potentially the future.
Keep that organization independent so that you
don't have debilitating political battles about
how we're going to optimize our strategy across
the mainstream and the independent organization,
the independent organizations that tend to lose those battles.
You need to let it run. This way, that new organization,
and Christensen points to some examples where this happened,
is able to respond quickly,
get excited about small wins that would not
even attract the attention of the mainstream business,
and find new customers.
And he gives the example of Control Data Corporation
where they were able to succeed this way. Okay then.
So I think at this point,
we have worked through Christensen's perspective on disruptive technologies.
And in fact, Christensen has taken this in a number of different directions.
His book, "The Innovators Solution", quite a recent book,
is something that if you are interested in this,
I'd recommend you push further.
What I want to do now though is connect it to
our previous sessions and particularly to our first module,
which, of course, was on ambidexterity.
Now, if you think about it, I don't think it's hard to
look at the disruptive technology argument,
to look at what we've seen so far and say, "Well,
wait, this is just ambidexterity going on."
No, it's not. It's distinct,
but certainly, the idea that these two technologies,
two marketplaces are very different places,
were going to need to be aligned in very different ways.
That's very amenable to Christensen's argument.
And you can interpret a number of his insights as problems
of structural or cognitive inertia leading to poor decisions, inability to implement.
You can see the problem of undermining,
maybe not quite as much though.
Christensen, I think is more about
the structural and measurement issues than the political battles,
although he does talk about them.
And this is why, I think putting the two
together really starts to give us fuller insights.
Now, the other thing is,
if you think about Christensen, one of Christensen's,
I think, underappreciated points,
that's his point that, look,
if a technology is sustaining,
if it's something your customers are demanding,
he saw incumbent firms as being very resilient,
very capable of managing those technology challenges,
even if it's a revolutionary or competence destroying change.
And this maps with the idea
that once we've built an alignment in our mainstream business,
that highly aligned organization can be a very effective one, a robust one.
It's when we need to have two different alignments
working at the same time that ambidexterity comes in,
and the argument is that that's the toughest problem.
Now, if we think about, well,
what else is new about Christensen,
there's the idea of threat.
This is really important.
I think if you think about the way that we talked about innovation in the first module,
we didn't make a strong distinction
between new markets that are opportunities and new markets that are threats.
And when a new market is a threat,
then the political and undermining behavior that we saw in
the ambidexterity discussion becomes all the worse
because people in your own organization are going to threaten your bread and butter,
so to speak, your main business.
So it just exacerbates that.
And the other thing that Christensen brings in is the idea
that we have to look at technology cycles in more depth
and think about trajectories of
technological capability intersecting market trajectories,
rather than think about technology versus technology.
A lot of the prior work would frame the issue
as a new technology is going to be better than the old technology.
And Christensen reveals that that's really the wrong way to think about it.
You want to think about technology at market intersections
that exist now and that don't exist now, but might in the future.
So, overall, Christensen's work connects
with strengthens and broadens the arguments for ambidexterity as
a general idea and then our focus as we go deeper being around
understanding different kinds of innovations and how they stress
organization's ability to respond and how it can respond effectively.
And in fact, in his more recent work,
Christensen actually acknowledges some of the ambidexterity work which happened just,
these were relatively fairly similar times
the ambidexterity work was a little bit earlier, the initial work.
But most notably, and this is really interesting,
he talks about how the independent organization,
which he saw as the solution,
needs a lot of executive support,
needs work to integrate with the main organization over time,
the things we saw in the first module.
So let's summarize. First, in this video,
we developed a better sense of how insidious disruptive technologies can be.
We saw more about why they're difficult for a well-managed firm to respond to.
And we challenged further the assumption
the incumbent can dive back in and be a fast follower.
Not to say you can't, but generally speaking,
defining it that's a high risk, high resource approach.
The second thing we saw is how to respond,
and that really had two dimensions.
One was change of perspective on how you think about the potential of new markets.
It's not how your customers see it.
It's how your technologists see it and where
the feasible market technology intersections are.
And then structurally, the second key point
is the idea of forming an independent organization to focus attention,
build commitment, and enable a flexible response.
The third thing is, at the end,
we talked about how disruptive technology and ambidexterity hit many of the same notes.
They complement each other so that the songs,
so to speak, is much richer if we think about both of them.
Now, what we're going to do next is,
we're going to build on this idea that
different kinds of innovations require different types of responses.
That's where we're going to go in the next lesson.
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