DISTRUPTION: happens when an established company, well respected and well positioned on the market (incumbent) is beaten (from a competitive standpoint) by a newcomer usually a new venture, which takes the market leadership thanks to new technologies.

Case Histories:

Oticon:

-> BUSINESS:

• Danish hearing-aid company;
• Product: devices for hearing better;
• Was dominating the USA and Europe market (1958-1985), was an established company.
• Indtroduced this deviced in 20th century;

-> CHAR:

• Technical superiority: Behind-The-Ear (BTE) hearing aid & reasonable price;
• Technologists interact more with diverse and increasingly global customers;
• Manager good to improve products incrementally (but cultural arrogance and blinded to radical technologies).

-> Starkey: in 1985, small US-based company, introduced a new device that was not performing better than Opticon, but was In-Th-Ear (ITE) hearing aid.

-> PROD CHAR:

• Smaller and less intrusive;
• Fashion oriented;

-> By 1986, 80% of the American market shifted to ITE products. Historical prosperity of Opticon evaporated, they losed market share (15% in 1985 -> 9% in 1986)

=> Customer habits were changin, not only in terms of performance but in terms of appearance.

💡Spot the innovation & introduce it as well as you can!

RCA:

-> Transistors were invented at Bell Labs (AT&T) in 1947.

• They had not enough power to be used in radio, TVs and telecommunication equipment.

-> RCA got the license to use transistors and started to invest heavily to empower them.

-> Sony commercialised the first transistor-based poket radios in 1955. Sound quality was much lower than common radios.

-> In RCA where disputes about whether the company enter the transistor business and cannibalize their profitable tube business.

-> Sony started to commercialise black-and-white portable TVs, whom target was people who don’t have room for floor-standing TVs (product segment where RCA was largely dominant).

• Sony wasn’t seen as a threat;
• When transistor achieved power enough to be used in higher quality;

=> RCA decided to enter the business, the management had problems of trying to play two different technological games and RCA failed.

Seiko:

-> Hattori-Seiko was the dominant Japanese watch producer in 1960s, a small player in a global market, dominated by Swiss firms.

-> S. decided to trasform itself in a both quartz and mechanical watch company, moving into low-cost & high-quality watches.

-> At the beginning of 1970s quartz movement watches replaced mechanical watches.

• Swiss firms had to reinvest in mechanical watches
• Seiko and other Japanese firms prospered while Swiss industry drastically soffered.

Lessons to learn:

• Technolgoy matters;
• It’s innovation that distrupts mainstream technologies;
• Distruptive technologies are hard to intercept as they appear as significantly weaker than the established one at the very beginning.

Sustaining VS Distruptive Technological Chance

-> Distruption is coming from technological discontinuity:

Threat of Distruptive Technologies:

-> The technologies are tested to know what is the dominant one.-> Example: distruptive technologies in the US steel industry:

Technological Cycles:

-> A technological change in a product class is characterized by long periods of incremental change punctuated by discontiuities (radical innovations).

DOMINANT DESIGN: carachteristic of the product mostly assessed by the market, by the customers.

• The one that fails exit the market;
• The other try to change product characteristics to fit the design.

Stategic Warnings:

-> Establiched companies believe that investing aggressibely in distruptive technologies is not a rational financial decision:

1. Distruptive products are often cheaper & simpler, promising lower margins;
2. Distruptice products are first commercialized in emerging and insignificant markets;
3. Established firms’ most profitable customers generallyu don’t want products based on distruptive technologies;
4. Ther start-ups or new-comers that aggressively promote distruptive products do not appear as a real challenge to their market position.

Manage the Distruption > Ingedients for Success:

1. Spot the distruptive technology;
2. Develop your market insight and conduct directed research;
3. Adapt your organization and business model to the distruptive technology;
4. Invest in distruptive technologies.

1.Spot the Distruptive Technology:

• Build networking and scouting capabilities;
• Develop an appropriate culture in your organization.

Build networkingand & scouting capaibilities:

“For each of the 7,500 P&G’s researchers, there are elsewhere in the world about 200 scientists or technicians equally talented” (A.G. Lafley)

“99.999996% of world population live outside DSM! Networks needed!” (R. Kirschbaum)

“Ninety-nine percent of everything exciting that happens will happen outside your own research labs” (T. McKillop)

“Not all the smart people work for you!” (H. Chesbrough)

NIH: Not-Invented-Here

• Cultural problem: we think that all the best people are in our organization, not accepting that there are other people maybe better.

Case History:

A.Procter & Gamble:

-> P&G create many partnership to exchange culture about their business.

• Has a network of 70 technology enterpreneurs based around the work:

“Much of the operation and momentum of connect and develop depends on our network of 70 technology entrepreneurs based around the world.” (Harvard Business Review, 2006)

• They create external connections.

B.Google:

“Google has taken to hoovering up small intern start-ups in its search for talent and fresh ideas, pulling off 23 deals already this year compared with only six in 2009” (From FT, 29/09/2010)

C.Intel:

-> Has a division called: Intel Capital, is a venture capital fund with more than 100 investment professionals around the world.

• $ 10 billion have been invested into more than 1000 companies.

-> Intel Capital provide funds to three types of investments:

• Ecosystem development investment (60% of total invested) comapnies building technologies related with core products of intel;
• Gap-filling investments (30%) focused on thecnologies complementary to those of intel and not sold directly;
• ‘Eyes and ears’ investments (10%) centred on monitoring opportunities looking extremely, useful, promising and profitable but also bery challenging ans risky.

Develop an apporpriate culture in organization:

-> DEF: create an organizational context in which idividual employees are encoraged to think and speak out-of-the-box.

-> Required human side of organization;

-> The context should stimulate these types of behaviour in individuals:

• Initiative;
• Risk-taking;
• Enterpreneurship;

-> CORPORATE ENTERPRENEURSHIP: organization that invest on employees to create innovation ship from inside.

• Multitasking.

-> A firm should encourage these behaviours through acting on the two levers:

• SOCIAL SUPPORT: which is concened with providing people with the security and latitude they need to perform;
• PERFORMANCE MANAGEMENT: which is concerned with stimulating people to deliver high-quality result and making them accountable for their actions.

2.Develop your market insight & conduct directed research:

-> AIM: discover a fact about that market that has not previously been made use of, but when leveraged will generate increased profits.

• Is the attempt to discover a penetrating truth about consumers, their aspirations and motivations which can in turn be used to generate growth.

-> Develop customer insight: identify the latent needs of the customers and discover nwe unexplored market segments.

-> Adopting the customer perspective is a guiding principle for the entire business model design process.

=> Successfull innovation requires a deep understanding of customers including environment, daily routine and concerns and aspirations.

Case Histories:

1.Toyota Prius:

-> mid 1990s, company launched a project called G21 (Global 21° Century), with goal of build a car with fuel efficiency of 47.5 miles per gallon (50% more than basic Corolla)

1. Improving trasmission and engine of existing cars.

-> They opted for a hybrid technology, improving fuel efficiency of 50%, but was prohibitively expensive.

1. Engineers opted for a  hybrid car that whould boost fuel efficiency by at least 100% and cost effective by one year time (in time for Tokyo Motor Show).

-> The battery was a majour problem to solve: technology was very sensitive to temperature.

-> President asked for full production in 22 months (2/3 of usual time).

-> In 1997 car was on mrke with a great success.

-> Development cost more than 1b$.

-> LESSON: A new technology in a business organization required the top-management to be implemented.

2.Procter & Gambler & the disposable diapers:

-> P&G introduced disposable diapers, a already known  & high price product:

-> The market insight:

• Desire of consumers for greater convenience;
• Increasing presence of women in the workforce.

-> With the new machine P&G was able to produce diapers at 5.5c$. Was more expensive than diaper service but affordable to increasingly affluent consumers.

-> Market grew from 10$ million to 370 in seven years.

-> LESSION: Connect your product to Business Model Canvas: what means that consumer have to buy it everyday? That would be better to create a subscription.

Direct Research:

-> DEF: understand how best serve the market;

• One a market insight is identified => problem = How best serve that market?
• Technology is a tool to do this.
• Companies usually explore different alternatives to sell their products;

Organizational Inertia Theory:

🔗Adam Smith, was the firts to say that the organization need to have lots of things as defined definition of roles and their activities.

• Ambidextrous Organization:

-> Are defined by:

• STRUCTURAL SEPARATION between organizational units devoted to:
  • Exploration of current technologies and business;
  • Exploration of nes, distruptive technological trajectories and businesses.

  each having its own processes, structures and cultures;

• TIGHT INTEGRATION between the exploitation and exploratoin units at the senior executive level.

Case History:

1.USA Today:

-> Founded in 1982, lost more than half a billion dollars during its first decade.

• 1992 turned to profit and continued to expand rapidly becoming the most widely read daily newspaper in USA.
• Second part of 1990s clouds apprear on the ordizon: readship was falling steadlu and competition was heating up.

=> They created an unit to launch an online news service. But didn’t improve much: the new unit was too isolated to capitalized the experience of the other units.

• In 1999 Curley launched a “Network strategy” in which the company would share news content across three platforms: newspapers, USAToday.com and USAToday Direct (TV operation).
• Many people were fired.

-> In 2000 Curley repalced Cichowisk requiring that senior leadership of the three business was tightly integrated:

• If a company is good into let employees working one for another create synergies.

Ciba Vision:

-> Created in early 1980s as business unit of Ciba-Geigy (now Novartis), develop & sell contact lenses & eye-care products to optometrists.

-> In second part of 1980s was dramatically suffering from the competition of Johnson & Johnson. Glenn Bradley, the president launched in 1991 6 innovation projects, each focusing on radical innovation.

-> Bradley decided to manage & organise these new projects without integrating them in company’s traditional organization, fearing that conflicts in resource allocation & conventional procedures & conservative cultural principles could have hampered the creativeness & focus of projects.

-> Bradley integrated the units…

• Where leaders of breakthrough projects should report to a single senior executive: the vice president for R&D Adrian Hunter;
• Ciba Vision’s incentive system was enhanced so that managers were rewarded on basis of overall company performance;
• A new vision statement for the whole company was elaborated.

Senior Executive Team:

-> Have the key role of ensuring integration in structurally ambidextrous organizations.

-> Achieved through:

• Articulating a clear, emotionally engaging and consistent vision;
• Bilding a senior team with diverse & heterogeneous competencies;
• Introducing specific processes & intergation mechanisms.

4.Invest in Distruptive Technologies;

Justify Investement in Distruptive Technology:;

-> Good manager are drive to keep their organization growing;

• Companies that become large & successful maintaining growth becomes progressively more difficult.

-> Distruptive technologies are initially sold in small, emergin markets.

-> It’s difficult to justify investments in their development.

-> Customer, rather than managers, determinate what a firm will do;

How overcome these barriers? Embedding small companies:

-> One approach is to embed the project into an organization that is small enogh. Can be:

• Spinning out (or Spinning Off): an independent organization;
• Acquiring an appropriately small company.

VENTURE BUILDING: enterprenueral supportal organizations (organization that support birth of new organizations and corporate organizationship)

-> In latest years two forms come out: venture builder and startup builders.

• Venture Builders: oragnization, units of established organizations, that have the duty to spin-off innovation in companies.

-> Es: Eni-verse, economical people and engineer that take the patents of new innovations coming from other units of ENI and support the company to create innovation and let these unit to become new startup.

• Was born last year.
• Startup Studio: a team propose and idea that start a new enterpreneur business. They collect from other countries ideas with similar characteristics (usually search for that country with their same characteristics).

-> They look for the team to develop the ideas.

Case History: Cysco Systems

-> When the firm identifies a technological opportunity which is promising but with a potential disruptive impact, it encourages some valuable researchers to leave the company through a spin-out process and finances the research activities of the newly founded firm.

• Besides, it maintains the possibility to acquire the spin-out back in case it produces relevant research results.

-> This strategy was adopted in 1999 with Andiamo, a spin-out firm operating in the field of big disk hardware and software for web server applications, that was re-incorporated in 2003

Big Bang Distruptions:

-> At the oral exam bring examples, not the same in the class. Prepar them at home.

Alibaba: collected the biggest IPO of the history. Investors usually love distruptors.

Cameras out of focus: The popularity of smartphones has allowed to displace one consumer product, the digital camera, especially low cost fixed lens cameras;

Nintendo’s declining sales: Nintendo announced that it had cut its net profit forecast of Y55bn ($527m) in the year to March to a net loss of Y25bn.

WhatsApp: WhatsApp has succeeded to destroy the market of SMS in only four years: an operation that would required in other times between 20 and 30 years.

-> Launch a new product in a market in which there is not regulation:

• Food delivery before it exist;

Rules From Big-Bang Distruption:

1. New products/ service need to start with higher characteristics in order to competing simultaneously on price, performance and customization.

❓ Which is the common characteristic between Big-Bang Distruptions and Blue Ocean strategy? And which is the difference?

-> Both breask the value cost leadership of Porter view.

-> BBD is build on technology, BOS not always.

1. BBD are starting to appear in every industry.
2. The source of distruption is the same: the technology.

-> E.g. Netflix distrupted the CDs/ DVDs industries.

Three Key Characteristics:

-> Three rulest to have a BBD:

1.Unencumbered Development:

-> DEF: Big-Bang innovations are often born of rapide-fire, low-cost experiments on fast-manufacturin, ubiquitous technology platforms.

• Don’t need budget approval and aren’t vetted before development begins;
• Are oftern build out of readily available components that cost little or are free.

-> Innovators and enterpreneurs can experiment with new applications at little risk to investors, abandoning prototypes that do not quick prove popular.

-> Ask yourself who’s the sobstitute of one application of your smartphone. Who was doing this job before you?

2.Unconstrainde Growth:

-> DEF: Big-Bang distruptions collapse the product life cycle:

-> There are only two segments:

• Trial Users: often partecipate in product development;
• Everyone else.

-> Cycle of new products:

• Development;
• Deployment;
• Replacement;

->

3.Undisciplined Strategy:

-> DEF: Big-Bang distrupters contradict much that you know about competitive strategy.

• Better performance, lower price and greater customization.
• Compete with mainstream products on all three value disciplines right from the start.

-> How can be less costly?

• Moore’s Law: The faster, cheaper, and smaller computing power is now deployable on a global scale and delivered through the cloud to inexpensive mobile devices.
• Today’s Technology continually and dramatically reduces costs.

Three Questions on BBD:

=> BBD is not ” a Phenomenon“, but the result of some Megatrends:

1. Growth of Sharing Economy model & Product Servitization model.
2. Momentum growth of the enterpreneurial dynamic;
3. Reduction of:
   1. Creation costs;
   2. Marketing costs;
   3. Reduction of experimentation costs.

-> No without risks:

Four Stages of BBD:

-> What change in BMC?