disruptive innovation - ProvenModels

clashjudiciousElectronics - Devices

Nov 8, 2013 (3 years and 9 months ago)

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disruptive innovation

based on:

the Innovator's dilemma by Clayton M. Christensen and the innovators solution by Clayton M. Christensen and
Michael E. Raynor

different measure of performance

time

performance

time

new market disruption

compete against nonconsumption

low end disruption

adressing overserved customers

with a low cost business model

sustaining technology

bringing a better product into

an established market

most demanding

customers

least demanding

customers

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performance trajectory


the performance trajectory is represented by the red lines sloping gently upward
across the chart. This trajectory represents the rate of improvement of the
products


every market has its own distinctly different trajectory of improvement that
innovating companies provide as they introduce new and improved products


the pace of technological progress almost always exceeds the ability of
customers in any given segment of the market to use it


this happens because companies keep striving to make better products that they
can sell for higher profit margins to not
-
yet
-
satisfied customers in more
demanding segments of the market.

example
:


Intel pushed the speed of its microprocessors ahead by about 20 percent per year, from its 8
megahertz (MHz) 8088 processor in 1979 to 3.8 gigahertz (GHz) Pentium 4 Prescott chip in 2004

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value network


a value network is the
context

within which a firm establishes its cost structure
and operating processes


in this network the firm
works with suppliers and partners

in order to respond
profitably to the common needs of a specific market segment


consequently the firm can only successfully commercialise their product in this
specific market segment


If the firm, however, tries to target their product in a different market segment
they may be incapable of successfully commercialising their product.

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example of two value networks


the mainframe computer industry could compete against the personal computer
industry because of the difference in value networks.


the cost of research and development in the mainframe industry was substantial.
Historically, these costs were offset by a high gross profit margin of between 50
percent and 60 percent.


competition in the portable computer value network was based on a very
different cost structure. Computer manufacturers incurred few research
-
related
expenses. They preferred building their machines with proven components
procured from vendors. As a result, companies in this value network were
profitable with gross margins of 15 percent to 20 percent.

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customers


for every market a rate of improvement exists that customers can utilise or
absorb, represented by the diagram’s parallel dotted lines sloping gently upward
across the chart.


customers in the highest or most demanding tiers may never be satisfied with
the best that is available, and those in the lowest or least demanding tiers can
get over satisfied with very little.


for example, in the personal computer industry the processing power kept
increasing in the 1990’s. Customers who used a personal computer for simple
applications were satisfied with a low processing power, but customers who
performed advanced multimedia applications preferred more processing power.

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sustaining technology

sustaining technologies improve the performance of established products, along the
dimensions of performance that mainstream customer’s value. The rate of
performance improvement can progress faster than the market demand (see figure).
This means that in their efforts to provide better products than their competitors,
companies often “overshoot” the ability of consumers too absorb the technological
progress.




example:

due to the improvements of the USB flash drive, the data storage capacity increased from 8 MB
in 2000 to 8 GB in 2007
.

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disruptive technology

Initially, disruptive technologies do not attempt to bring better products to
established customers in existing markets. They disrupt and redefine trajectories by
introducing products and services that are not as good as currently available
products, but have additional features that appeal to different market segment such
as reduced size, weight, complexity and lower power consumption. Disruptive
technologies emerge and progress on their own, uniquely defined trajectories.




Christensen listed two types of disruptive technologies:



new
-
market disruptions


low
-
end disruptions

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new
-
market disruptions

new
-
market disruptions create a new value network where non
-
consumption must be
overcome. New
-
market disruptive products are much more affordable to own and
simpler to use than existing products enabling a whole new population of people to
begin owning and using them, and to do so in a more convenient way.

As their performance improves they ultimately become good enough to pull customers
out of the original value network into the new one, starting with the least
-
demanding
customers. Because new
-
market disruptions compete against non consumption, the
incumbent leaders feels little threat until the disruption is in its final stages.





example:

handheld devices, such as Palm Pilot and BlackBerry, were new
-
market disruptions for
notebooks because they provide the customer with mobility, computing power and ease of use.

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low
-
end disruptions

Low
-
end disruptions take root at the low end of the original or mainstream value
network. The performance
-
oversupply produced by the sustaining technology
creates a vacuum into which simpler, more convenient customer offerings are
drawn. Low
-
end disruptions use this vacuum to bring their products to the market.
These disruptions, however, require low
-
cost business models that grow by picking
off the least attractive of the established firms’ customers. They initially perform far
worse along one or two dimensions of performance that are particularly important to
those customers but may migrate upwards into the mainstream market.




example:

Amazon.com was a low
-
end disruption relative to traditional bookstores. Amazon provided their
customers with more convenience for a better price.