Disruptive Innovation Dr. Ghada Badawy

1. Disruptive Innovation Dr. Ghada Badawy

2. History shows we are resistant to change

3. History shows we are resistant to change

4. History shows we are resistant to change

5. Disruptive Innovation •  The term was first introduced by Clayton M. Christensen in his book “The Innovator’s Dilemma” in 1997 • Clayton is a Professor at Harvard Business school

6. Different types of innovation • Disruptive innovation, represents a new product or service that enters at the low end of the market and gradually moves up-market, displacing existing, established products. The change driving this disruption may, in itself, be a minor or incremental technological innovation. • Radical innovation represents a major technological breakthrough. • Discontinuous innovation is a new technology applied to solve an existing need in a new way. Use of new material or process for example. • Breakthrough innovation is an "out-of-the-blue" solution that cannot be compared to an existing solution.

7. What is disruption • “Disruption” describes a process whereby a smaller company with fewer resources is able to successfully challenge established incumbent businesses

8. Incumbents Usually Win the Battles of Sustaining Innovation Digital to Optical Caller ID Analog to Digital MOST DEMANDING CUSTOMERS MAIN STREAM CUSTOMERS Performance Measure LEAST DEMANDING CUSTOMERS VOIP Time (Christensen)

9. Examples: • The Analogue Radio • High quality sound • Bulk • High power consumption • The Transistor Radio • Worse sound • Portable • Low battery consumption • Transistor radios was adopted by teenagers who could bring music to the beach • As its sound improved it totally displaced the analogue radio

10. Example 2: • CRT TV: • Better image quality • LCD TV: • Low battery consumption • Low weight • LCD screen was first used in application where image quality wasn’t important • As image quality improved it displaced CRT TV

11. Example 3

12. Are all innovations disruptive? • The first automobiles in the late 19th century were not a disruptive innovation, because early automobiles were expensive luxury items. • The mass-produced automobile was a disruptive innovation, because it changed the transportation market.

13. Are all innovations disruptive? started at the top end of the market and now, with the Model 3, is offering an affordable electric car to mainstream customers. • is clearly transforming the taxi business but it is not disrupting the taxi business

14. The theory • Disruptive innovations are not advanced technologies • They are often novel combination of existing over the shelf components, applied cleverly to a small fledgling value network • The business model that the technology enables is what creates the disruptive impact

15. Red vs. Blue Ocean • the metaphor of blood in the water • are very competitive and populated by “sharks” fighting over the same customers • metaphor reflecting the blue hue of the deep ocean waters that are far from land

16. Red vs. Blue Ocean strategy • Classic sustainable innovation focuses on red ocean strategies and incremental innovation • Known market space, competitive rules, and industry boundaries (lifecycle mindset) • Product mature and become commodities • Can be managed, tested, and analyzed • Disruptive positioning focuses on the blue ocean • Market space does not exist (unknown boundaries) • Demand is created rather than fought over (often no direct competition) • Hard to test, more of an art, often requires intuition, high risk (Kim and Mauborgne)

17. The strategy canvas • Designed to give you an immediate snapshot of how your business/product/ service stacks up against the competition Raise Create Reduce Eliminate

18. The strategy Canvas

19. Why do market leaders fall into the trap • Companies tend to ignore the market’s most susceptible to disruption because • Those markets have very tight profit margins • Are too small to provide a growth rate to a sizable firm • Growth targets bias firm’s toward larger markets • Markets for disruptive innovations cannot be quantified, which biases decision making • Competition leads to oversupplying performance relative to what customers want

20. What do you do? embrace them. • When you spot disruptive innovation opportunities • Set up an autonomous organization tasked with building an independent business around the disruptive innovations • e.g., H&R Block Tax Cut Software in response to Turbo Tax

21. Solution • Ensure business is conducting classical sustainable innovation • Constant flow of new products (incremental) • Need uncompromised customer/competitive input • Develop a forum/process to enable/manage radical and disruptive innovation • Challenge managers to change the game • Radical changes to offering and new markets • Disgruntled customers (lost customers) • Offsite scenarios • Outsource, partners, alliances, acquisitions • Hire outsiders from different industries • Track potentially disruptive technologies, use internal “start ups”

22. Summary • Many of us aren’t as good in embracing change as we think we are • Sustaining innovation opens the way to disruptive innovation • The strategy canvas shows how your industry currently competes • The best ideas are stupid ideas • People dismiss them as toys • They challenge the social norm • They unbundle functions done by others

23. What are the STUPID ideas in your INDUSTRY

24. Sources • Christensen, C.M. (1997) “ The Innovator’s dilemma”, Harvard business School Press, Cambridge, Massachusetts. • Chris Sandstrom: 5 examples of disruptive innovation • Introduction to Disruptive Innovation: The Entourage