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Strategy as Revolution
James OldroydKellogg Graduate School of ManagementNorthwestern University
[email protected] TNRB
Radically Improving the Value Equation
Reconfigure the Value Chain and employ a completely new/different value chain
Value for Whom?
4
Separate Form and Function
Finding new uses for existing technologies
Credit Cards turned to hotel keys
6
Pushing the Bounds of Universality
Focus not only on the served market but on the entire imaginable market
http://www.polaroid.com/promotions/promo.jsp?FOLDER%3C%3Efolder_id=385651&FOLDER%3C%3EbrowsePath=385651&PRODUCT%3C%3Eprd_id=31111&PRDREG=
POL&bmLocale=en_US&bmUID=1017153506454
7
Striving for Individuality
Mass Customization/Striving for Individuality
http://www.us.levi.com/fal02a/levi/ospin/l_ospin_frame.jsp?FOLDER%3C%3Efolder_id=2357089&bmUID=1026829418909
9
Rescaling the Industry
Re-scale the Industry• Increasing scale, from local to national or
national to global (e.g., IKEA, Service Corporation [funerals] International)
• Downscaling to serve narrow or local customer segments (e.g., microbreweries, local bakeries, bed-breakfast inns).
PFIZER TO ACQUIRE PHARMACIA CORPORATION FOR $60 BILLION IN STOCK,
STRATEGICALLY POSITIONING COMPANY FOR LONG-TERM LEADERSHIP IN RAPIDLY
CHANGING PHARMACEUTICAL INDUSTRY
10
Licensee
Licensee
Licensee
Licensee
Intel IBM
PC Mfr
PC Mfr
PC Mfr
PC Mfr
PC Mfr
Structure of Microprocessor Market Before and After the 386
12
Examples
3 million independent
sales representatives
J.C. Penney and other retail outlets
The Market
Barrier
13
The Corporation
The Channel The
Market
Barrier
Ford Corporation Purchased
Dealerships to give it direct customer
access
In 2002 “Ford is selling its Company-owned dealerships” Source: 2001 Annual Report
Direct Approach via Ford.com and other online sites
Examples
14
Online access to account information– Account activity & balances– Portfolio holdings
Online access to Merrill Lynch research
Ability to e-mail with financial consultant
Online bill payment capabilities
Access to Merrill Lynch analytical tools
Ability to execute trades
Source: ml.com
Brokers The Market
ml.com
Merrill Lynch sought to involve brokers in the online process
to minimize dissatisfaction
Examples
16
Driving Convergence
Product/Service Bundling • Offer broader mix of related products along the
value chain beyond “core” product (e.g., software office suites, GM car loans/leasing)
• Swimming in other industry pools
17
Providing a solution
First StepsProduct Extension
Service Extension
Philosophical ExtensionPurchase Experience
Product Needs
Customer Guest
63% of Fortune 100 Firms claim to offer solutions.
Solution helps customers succeed in the marketplace by enhancing revenues, reducing
current or future costs.
FinallyCo-created value add
Integrated Offering
Creates some risk
Requires intimate customer knowledge
Is completely customized
Source: Adapted from “From Solutions to Symbiosis” Sharma, Lucier, and Molloy. Strategy and Business, 2002
18
Value Division
Customer
Supplier
Firm
Willingness to Pay
Supplier opportunity cost
Cost
Price
Value Captured by Customer
Value Captured by Firm
Value Captured by Supplier
Added Value is the total value created with the firm in the game – total value created without the firm in the game or the value that would be lost to the world if the firm disappeared. A firm cannot capture more
than its added value.
19
The Opportunity and Threatof Disruptive Technologies
Clayton M. ChristensenHarvard Business School
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Disruptive Technologies: A driver of leadership failure
Performance that customers
can absorb or utilize
New Performance
trajectory
Per
form
ance
Time
DisruptiveTechnology
Performance trajectory of present technology
driven by sustaining technological improvements
21
Invasion of Disruptive Steel Minimill Technology
Rebar
Other bars & rods
Structural Steel
Sheet steel
Ste
el Q
ualit
y
1975 1980 1985 1990
Quality of m
inimill-produced ste
el
22
XDSL
Bit
Rat
e
Time
Cable Modem
Fixed wireless
Mobile wireless
Bandwidth needed in various application tiers of the market
Full-motion video
A sequence of disruptive technologies in the“last mile” of the telecommunicationsinfrastructure
23
Disruptive innovations typically have enabled a larger population of less-skilled or less-wealthy people to do things in a more convenient, lower-cost setting, which historically could only be done by specialists in less convenient, centralized settings. Disruption has been one of the fundamental causal mechanisms through which our lives have improved.
•Computers
•Xerography
•Angioplasty
•Equity Investing
•Personal, portable blood glucose meters
Almost always, disruptive innovations such as these have been ignored or opposed by the leading institutions in their industries for perfectly rational reasons.
24
Many of our Economy’s Greatest Companies Began as Disruptive Innovators
Intel
Sun Microsystems
Compaq
Dell
EMC
Microsoft
Nucor
Merrill Lynch
Charles Schwab
Bloomberg
AT&T
Cisco
Sprint PCS
Nokia
Toyota
Honda
Sony
Barnes & Noble
Amazon
Sears
Wal-Mart
Established firms seem instinctively to force disruptive technologies into existing markets and business models.
Major Established Electronics Markets:
Tabletop radios, floor-standing televisions,
computers, telecomm. equipment, etc.
Path taken byestablished vacuumtube manufacturers
Disruptive Technology: Transistors vs. Vacuum Tubes
Hearing Aids
Path taken byentrant firms
Portable Radios &Televisions, etc.
26
What Is Digital Photography?
PresentApplications for
Silver HalideFilm Technology
ASustaining
Technology?
Enabling Technologies: CCDs, Ink Jet Printing, CMOS Sensors
Children’s Games
Professional /Archival
Recreational
ADisruptive
Technology?
A MajorGrowth
Opportunity?
27
Disruptions amongst health care professionals
Performance thatthe marketplaceneeds or utilizes
Com
plex
ity
of d
iagn
osis
& tr
eatm
ent
Time
Specialist & sub-specialist p
hysicians
Nurse practitioners
Self-care
Family / personal care physicians
28
Waves of Disruption Among Healthcare Institutions
General Hospitals
Com
plex
ity
of d
iagn
osis
and
trea
tmen
t
Stand-alone sub-system centers
Complex
Simple
Out-patient, in-office care
In-home care
Identifying Which Surface-to-Air Missiles to Worry About
1. Need a different process with different people to identify possible disruptions.• Customers won’t lead you to them.• Marketing, sales and financial people will oppose or be unenthusiastic.• Senior management will often be unaware or attach little importance to technology
2. Watch for a market to emerge where the technology is valued and incubated•This will be a trivial or commercially unimportant market. Don’t look where you are: look for other applications.
3. When it has “gone commercial,” draw a trajectories map. •Watch at the low end of your market: who isn’t using your product any more?.•Markets that are over-served in terms of functionality, and populated by large, complex, centralized or inconvenient products and services, are vulnerable to attack .
4. Litmus test for high-potential disruptive innovations:• Technologically simple• Starts at a low price point• Minimizes infrastructural & regulatory barriers -- follows the path of least resistance• Success isn’t predicated upon customers’ behavioral change• Enables a larger population of less-skilled people to conveniently do something that only expensive specialists historically could do.
31
Region B:
Modular Architectures
Region A: Integral A
rchitectures
Per
form
ance
Time
Sustaining Technology
The interaction of technological progress with customers’ abilities to use it drives changes in the basis ofcompetition and industry structure
Disruptive
Technology
Beat competitorswith functionality
Beat competitorswith speed and customization
32
The Disruption of Traditional Campus-Based Management Education Programs
Traditional MBA Programs
Strategy consulting firms
Qua
lity
of
man
agem
ent e
duca
tion
Time
Self-administered
distance education
Large corporations
Small businesses
Corporate Universities
with live instructors
Corporate Universities
with on-line instruction
33
Downtown
Department Stores
Mall-based category retailers
Sears, Wards C
atalogs
Category / lifestyle-focused catalogs
Discount
Department Stores
Sears stores Category Discounters
On-line departm
ent
stores
On-line
Category Stores
Historical Disruptions in Retailing: Three Recurrent Patterns
More complex
Sell themselves
Soft goods
Hard
goods
40%, 3x turns
30%, 4x turns
23%, 5x turns