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8/3/2019 Innovation - The Role of Innovation in a Business's Life Cycle
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Innovation
The Role of Innovation in a Company’s Life Cycle
8/3/2019 Innovation - The Role of Innovation in a Business's Life Cycle
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Introduction
Rarely does an idea for a new-growth product or business emerge fully formed in
an creative person‟s mind
No matter how well articulated a concept or insight might be, it must be shaped and
modified, often significantly, as it gets fleshed out into a business plan to win
funding
A dearth of good ideas is rarely the core problem in a company that struggles to
launch exciting new-growth businesses The problem is in the shaping process. Potentially innovative new ideas seem
inexorably to be recast in attempts to make existing customers happier while
missing opportunities to acquire new customers
Ideas that emerge from this shaping process most often result in me-too innovations
that could just as readily be reshaped into business plans that created trulydisruptive growth
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Two Primary Types of Innovation
SUSTAINING INNOVATION
Improve performance of established products
Meet demands of mainstream
customers in major markets
Vary in difficulty, cost, time, etc.
Established firms dominate
DISRUPTIVE INNOVATION
Generally underperform established products in mainstream markets
Have new features that fringe / new
customers value
Cheaper, simpler, smaller, more
convenient to use
Entrant firms dominate
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Sustaining Innovation
Improves the performance of established products along dimensions of
performance that mainstream customers in major markets have historically valued
Customer relationships, cost structures, and organizational dynamics are unchanged
Does the same, for the same people, only better in ways these people understand
Sustaining innovation can be improvements that are incremental or breakthrough in
character
Sustaining innovation is the most common type of innovation
While sustaining innovation is important, all companies are susceptible to
disruptive innovation
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Sustaining Innovation
TIME
M E A S U R
E O F P E R F O R M A N C E
Range of
performance that
customers canutilize
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Disruptive Innovation Theory
Disruptive Innovation, a term of art coined by Harvard Business School associate
professor Clayton Christensen in his 1997 book “The Innovator‟s Dilemma”,
describes a process which a product or service takes root initially in simpleapplications at the bottom of a market and then relentlessly moves „up market‟,
eventually displacing established competitors
“The theory holds that existing companies have a high probability of beating
entrant attackers when the contest is about sustaining innovations. But established
companies almost always lose to attackers armed with disruptive innovations.”
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Market Need vs. Technology Improvement
Time
P e r f o r m a n
c e
Technologies can progress faster than demand
Suppliers eventually give customers more than they need or are willing to pay
Allows room for underperforming disruptive technologies
Undershot
Customers
OvershotCustomers
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Disruptive Innovation
Bring a different value proposition to the market
Initially under performs established products in mainstream market But, the products improve at a rapid rate
Superior in ways that are not valued by the established market – more reliable,
easier to use, or cheaper
Disruptive innovation creates high growth for the entrant disruptor
Disruptive innovation results in declining growth for the disruptee
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DISRUPTIVE
TECHNOLOGIES
TIME
M E A S U R E O F P E R F O R M A N C E
Range of
performance
that customers
can utilize
Sustaining Innovation vs. Disruptive Innovation
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Disruptive Innovation Case Study One: Steel Industry
Historically, most of the world‟s steel has come from massive integrated steel mills that do
everything from reacting iron ore, coke, and limestone in blast furnaces to rolling finished
products. It costs about $8 billion to build a new integrated mill Mini-mills, in contrast, melt scrap steel in electric arc furnaces, which are small and energy
efficient compared to blast furnaces used in integrated mills
Using straightforward technology, mini-mills can make steel for 20 percent less than
integrated mills
Initially in the mid-1960‟s mini-mills could only produce the lowest quality steel productwhich is rebar
Low quality steel products such as rebar also have the lowest profit margin, so incumbent
integrated steel producers offered little resistance and gave up their least valued customers to
mini-mills. The integrated mill were happy to be rid of that commodity business
By leveraging the foothold established in the rebar market, mini-mills reinvested in R&D toadvance technology which allowed them to produce higher quality steel products.
Eventually mini-mills, such as Nucor, became increasingly able to produce higher and higher
quality steel products, and at higher profit margins possible with integrated mills
Nucor‟s market capitalization now dwarfs that of the largest integrated steel company, US
Steel. Bethlehem Steel went bankrupt
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Disruptive Innovation Case Study One: Steel Industry
The Up-Market Migration of Steel Mini-mills
1975 1980 1985 1990
% of Total
SteelProduction
55%
22%
8%
4%
Time
S t e e l Q u a l i t y
7%
Gross Margins
12%
Gross Margins
18%
Gross Margins
25 - 30%
Gross Margins
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Case Study Two: Angioplasty Disrupts Cardiac Bypass Surgery
Prior to the early 1980‟s, the only people with heart disease who could receive interventional
therapy were those who were at high and immediate risk of death. Most people who suffered
from heart disease simply went untreated Angioplasty enabled a new group of providers, cardiologists, to treat coronary artery disease
by threading a catheter into a partially clogged artery and puffing up a balloon
Angioplasty was often ineffective with half of the patients suffering a reclogging of the artery
within a year
But because the procedure was simple and inexpensive, more patients with partially occludedarteries could begin receiving treatment
The cardiologists benefited too, because even without being trained in surgery they could
keep the fees for themselves, and had to refer fewer patients to the heart surgeons
Angioplasty thereby created a huge new growth market in cardiac care
As cardiologists pursued the high profits that came from better services they discovered they
could insert stents (eventually medicine coated) to prop open even difficult-to-open arteries
This disruption has been underway for three decades and now that the disruption is apparent,
there is little that the surgeons can do
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Case Study Two: Angioplasty Disrupts Cardiac Bypass Surgery
Number of Angioplasty and Cardiac Bypass Surgery Procedures
Balloon Angioplasty
Bypass P r o c e d u
r e s ( 0 0 0 s )
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Companies and Products Whose Roots Were in Disruption
Kodak Beef processing Department stores
Bell Telephone (Swift, Armour) (Marshall Field’s, Macy’s)
Merrill Lynch Ford Catalog retailing
(Sears, JC Penney, Montgomery Ward)Plastics
(DuPont, Dow, etc.)
Sony Honda motorcycles
Minicomputers McDonald’s
IDEC, etc.) Xerox Black & Decker Discount department stores
Toyota, Nissan consumer power tools (Kmart, Wal-Mart, Target)
Ultrasound soft Japanese steel companies
Endoscopic surgery Southwest Airlines Credit scoring in consumer lendingFlat-panel displays Fidelity (self-service Charles Schwab Vanguard index mutual funds
investment management)
Blended plastics Barnes & GE Capital
Personal computers Community colleges Seiko Noble
Kodak Funsaver Portable diabetes digital watches
single-use camera glucose meters University of MCI, Sprint Toys ‘R Us
Phoenix Sun Circuit City
Microsoft Bloomberg Microsystems Home Depot
Wireless telephony Oracle Canon photocopiers Dell Staples
Cisco Intuit Quickbooks (accounting) Computer Best Buy
and Turbo Tax software MBNAInk-jet printers Quartz microwave ovens Digital animation (Pixar et al) Hyundai, Kia
Veritas, Network Appliance & air conditioners E-mail
eBay Unmanned military aircraft Microsoft SQL database software ECNs
Palm Pilot, RIM Blackberry Concord School of Law Google Linux Amazon.com
Digital printing Online On-line
Salesforce.com 802.11 stockbrokers travel agents JetBlue
1870
1950
1960
1980
2000
New Market Low End
H i s t o r
y