Trajectories Of Performance Improvement Sustaining Vs. Disruptive Innovation
MET AD 741: The Innovation Process: Developing New Products and Services
Instructor: Dr. Barry Unger
E-mail: unger@bu.edu
Session 4 (rev 9-26-2018)
Disruptive Tech and Approaches vs Value Networks and Financial Realities (Continued).
Addressing The Market And Industry Challenges Of Newness: Making Early Targeted Sales To Demonstrate Value And Create Credibility & Momentum For Expansion.
Moore’s Concept Of Being A “Whole Product” As A Way To “Cross The Chasm.”
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Review of Class 3 Types of Innovation and Their Organizational and Business Challenges
Trajectories Of Performance Improvement
Sustaining Vs. Disruptive Innovation
Value Networks and Their Impact
Kittyhawk Case
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Review question:
*Give two examples of sustaining innovation and two examples of disruptive innovation
*Define “value networks” and describe one positive and one negative impact they can have (refer to specific businesses if you like)
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Next Session (# 5) – Timeliness and Competitive Factors Facing Innovation
THEME: UNDERSTANDING THAT MARKET NEEDS EVOLVE AND USING THIS IN MAKING PRODUCT DECISIONS. “SHIFTING BASIS OF COMPETITION”, “WHAT JOB WAS YOUR PRODUCT HIRED FOR,”, “PRODUCT EXPLORATION SPACE.”
Christensen Module 2 in BB (Note: this includes three smaller articles in one pdf file). (includes Frameworks Of “Jobs To Be Done”, “Product Exploration Space”, “Discovering What Has Been Discovered”, and “Discovery Driven Planning” that are valuable in creating new products and improving existing products).
Adams Ch. 9 (in BB) from “A Good Hard Kick ..” “Big companies need to act more like startups”
CASE: Eli Lilly case (Harvard coursepack) – What went wrong, why, and what they should do in future? How do concepts of “Shifting Basis of Competition” (new reading), “Value Networks” (previous readings), and resistance to changing business models (previous Kaplan Ch. 3) explain what happened? Do you think Eli Lilly was getting “netflixed?” How would Adams recommend Eli Lilly should act ?
INDIVIDUAL PAPER DUE (ON ELI LILLY CASE – 20% OF GRADE . 750 WORDS MINIMUM, 1250 WORDS MAXIMUM. IMPORTANT TO FOLLOW THE INSTRUCTIONS &“GUIDELINES & CHECKLIST FOR CASE ANALYSIS DOCUMENTS “ IN BB GENERAL FOLDER .
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Class 4 (Today) : Agenda
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CONCEPTS OF TODAY’S CLASS:
Avoiding Tragedies Like Kodak, And Correctly Dealing With The Many Challenges Of Disruptive Technologies And Service Models.
More than just internal organizational politics: The Market Challenges Of Innovation Are Equally Daunting.
Classic ‘Product Life Cycle” Vs The Innovator’s Reality. The “Whole Product” As Necessary For Pragmatists, The Importance Of Creating A Cycle Of Credibility And Momentum. – Targeting Early Market Segments And Applications. : The Art Of Picking & Establishing “Beachheads”.
KODAK & FUJI MINI-CASE
BIG STRATEGIC LESSONS FOR THE FUTURE:
Denning Book review of McGrath – What is the big lesson?
Kaplan, Ch. 3, “Why Organizations Fail at Business Model Innovation” – a list of whiny excuses. What is the big lesson?
GETTING EARLY SALES:
Moore: Crossing the Chasm —and Beyond (BB).
Kawasaki, Ch. 4 – Break Down The Barriers (BB);
Adams, Chapter 2. – “You Don’t Know Your Customer…”;
COLOR KINETICS VIDEO (IF ENOUGH TIME).
KODAK– WHAT HAPPENED? WHAT COULD HAVE BEEN DONE? WHAT CAN WE LEARN FROM FUJI AND RITA MCGRATH? From Steve Sasson (https :// www.huffingtonpost.com /2013/05/21/digital-camera-inventor-kodak-bankruptcy_n_3315622.html )
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How organizational pride, not recognizing the importance of disruptive technology, and attachment to the business model/ business definition of Kodak’s past successes led it to being “a day late and a dollar short” on the opportunity of digital photography
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THIS IS ABOUT STARTING TO MAKE REAL SALES.
Enable test driving
It forces you to make the product easy to use
Low price, price barrier is removed
Sidestep the distribution channel
Money back guarantee is a test drive when creating a sample is impossible
Create sense of ownership (psychological bond to the product)
Make “Matterhorn out of mountains” (shock people into recognizing the potential impact of your product) reduce the ignorance and inertia barrier
Glom on to a “bandwagon” (key is to find bandwagon, that are irresistible concepts)
Focus on a subset of customers
Create a subset of customers
Kawasaki (Chapter 4)
Break Down the Barriers
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New products or services based on radical innovations in technology and business models are considered especially valuable because they provide opportunities for differentiation with especially big margins and profits.
However, they often have issues finding their first customers.
KEY POINTS:
Innovation and New Product Development (and even startup funding!!) have changed from traditional “product life cycle” to focus on “crossing the chasm”
Understanding and utilizing “disruptive innovations”, and finding appropriate early applications
Crossing The Chasm Today
Traditionally Marketing People Thought Of A “Product Life Cycle” (Stolen From Sociology Studies of Dissemination)
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Introduction
Getting the product or service into the marketplace – building familiarity – getting noticed
Growth
Gradual acceptance by potential and actual customers (make money and profits!)
Maturity
Acceptance – (make lots of money and profits!).
Decline (and gradually lessening profits).
Why should it follow this pattern?
Elements of The “In Your Dreams” Product Life Cycle
9
Innovators
Technology
Enthusiasts
Early
Adopters
Visionaries
Early
Majority
Pragmatists
Late
Majority
Conservatives
Laggards
Skeptics
But Moore Saw A Different Reality For Innovation!
Chasm between
early and mainstream
markets
2.5%
13.5%
34%
34%
16%
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The True Segments In Moore’s Reality.
Innovators
Techies, have influence not money, every family has one
Early Adopters – Visionaries
First to bring real money to the table, help publicize
Early Majority – Pragmatists
Make the bulk of technology/ innovation purchases, adopt when there’s a proven record (“CYA”).
Late Majority – Conservatives
Price sensitive, skeptical, demanding
Laggards – Skeptic
Sell around them!
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The Chasm
Moore suggests that getting to the place where you make the big profits involves crossing a ‘Chasm’- especially with ‘tech’ products
Tech Enthusiasts and Visionaries will go with a new product
Pragmatists need more convincing
A BIG DISCONNECT! Getting to the mainstream volume markets is therefore challenging
A PAINFUL PLACE TO BE: Early market interest declining but the mainstream market is not comfortable with maturity of the product.
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A HUGE GAP IN PERSPECTIVES!
Early Adopters – Visionaries motivated by opportunity and what is possible)
Early Majority – Pragmatists motivated by present problems and immediately available full solutions)
Different perspectives on price, completeness of solution, ease of use
Receptiveness vs. delay and doubting
Very difficult to bridge this gap (from requirements of visionaries to those of pragmatists): Each application or vertical market segment has different sets of required features, usage scenario, sales channels, and so forth, difficult to know in advance.
OFTEN CAUSES PRODUCT INTRODUCTIONS TO UNEXPECTEDLY STALL, AND COMPANIES TO HIT FINANCIAL PROBLEMS
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Moore: A “whole product” / “solution” is necessary to cross the chasm
Solution = “The minimum set of products and services necessary to ensure that the target customer will achieve his or her compelling reason to buy”
“In this light, we saw that high-tech companies were prolonging their stays in the chasm because they were unable, or unwilling, to commit to taking any particular whole product all the way through to this level of completion” – (Geoffrey Moore, 2000). THE REASON FOR FOCUSING, FINDING TARGET NICHES, AND WINNING IN THEM.
Why the Early Stage is Critical
Dominant product design is discovered
Skill & capabilities are built
Most compelling value propositions are uncovered
Learn about customers needs and what would be a “WHOLE PRODUCT” — These are all prerequisites for success in later growth markets
Begin to start building a reference group – either get a “Cycle Of Credibility And Momentum” (Unger 1997) or start to go down.
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Two different buyer types:
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Early Adopters (Visionaries) Pragmatists (Early Majority)
Product: Willing To Improvise To Make A Product “Whole” For Themselves Must Have What They Consider To Be A WHOLE PRODUCT (At Least For Their Application Or Niche) Tuned To Their Specific Needs, And Not Requiring Much Improvisation Or Extra Work On Their Part).
Brand Conservatism: More willing to try products from less known upstart companies with less industry reputation. Want To Buy From Market Leader (Or At Least ‘Recognized’ Brand), Well Accepted In Their Specific Industry. “You Never Get Fired For Buying From IBM”
Price: Relatively price insensitive Must Prove Cost/Benefit
Promotion: They’ll find you Peer Group & Influencers
Successfully Crossing the Chasm
Identify a group of ‘Pragmatist’ potential customers, and resolve their doubts
Moore talks of a ‘bowling alley’ and aiming for one pin at a time…
Attack the ‘Early majority’ as a series of ‘niches’ – and meet their expectations
Different ‘pins’
‘Snowball’ effect from adoptions
Using early ‘niches’ as evangelists Hopefully- experience a ‘Tornado’ of demand
Mass Market adoption
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Crossing the Chasm: Critical Elements
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Segmentation is crucial
Must have the “whole product” for targeted segments
Build a self-referencing set of users
Via a “bowling alley” strategy
Operational excellence becomes critical
“NICE TO HAVE” VS. COMPELLING
Not having the whole product (something critical to application).
Not focusing => leads to lack of “self-referencing” set of users
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SOME CRITERIA FOR SELECTION OF INITIAL TARGETS FOR CROSSING THE CHASM
DOES APPLICATION HAVE THE RIGHT CHARACTERISTICS? (Reproduced from Moore’s Article):
“Is target customer well funded and accessible to sales force?”
“Compelling reason to buy?”
“Can we deliver a product that is whole enough for them?”
“Do we have the right competencies?”
“Can entrenched competition stop us?”
“Can we leverage small “wins” in one segment to other segments?”
Added Note – Detailed “Segmentation Analysis ” Lets You Focus On Finding The Right Target And Then Create A Full Enough Solution And Doing The Accurate “Stakeholder Analysis” Necessary For Success (“DOES EVERYONE LEAVE THE PARTY HAPPY?”)
Restating Moore’s Criteria To Reflect Present Day Priorities.
In light of the importance of getting early sales, rephrase criteria 1 of the target being “well-funded and accessible” to “Can a sale be made quickly and installed this year?” (SPEED!), or is it subject to bureaucratic slowness or other impediments to getting the deal and shipping it?” Rephrase criteria 2 of “compelling reason” to “Is It a Must Have Central To What they do?” (NEED!).
And ……… add your own “common sense” criteria to guide your analysis.
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The Real World!
It’s never as clear as it seems – but you MUST figure it out!
Issues of Market maturity, segmentation scheme, best target segment, whole product elements
Often, internal company positioning and politics are as difficult as external market issues.
As your product moves through the various stages, your strategy must change
Geoffrey Moore’s model of what it takes may not always be specifically referred to, but it is ingrained in every high tech marketing effort
Building the strategy is one thing, executing it is another.
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“CROSSING THE CHASM” EVEN MORE CHALLENGING WITH “DISRUPTIVE” AND/OR NEW-MARKET-ENABLING INNOVATIONS, AND THE SPEED WITH WHICH THEY PROPAGATE
The problems of Crossing the Chasm (you can lose a lot of precious money and momentum chasing the wrong vertical markets that are not ready or appropriate) only more difficult with fast moving rapidly improving disruptive innovations
Job #1 – Locate The Initial Market for the Disruptive Technology (Christensen, 1994).
AND TODAY’S CAUTIOUS INVESTORS NEED PRAGMATIST BUY-IN OR “VALIDATION” (EVEN A SMALL BUT REAL NICHE), AND A WELL THOUGHT OUT SALES PLAN RIGHT FROM THE BEGINNING (…IN OTHER WORDS, INNOVATIONS NEED TO START TO CROSS THE CHASM ON DAY 1)
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“CROSSING THE CHASM” SUCCESSFULLY IS MOST CHALLENGING WITH “DISRUPTIVE” AND/OR NEW-MARKET-ENABLING INNOVATIONS, AND THE SPEED WITH WHICH THEY PROPAGATE
Disruptive innovations are based on radically new and still developing technologies (e.g. nanotechnology) or market approaches (e.g. in financial services) and have the Potential To Dramatically Change an Industry
Most such disruptive innovations however are initially too “immature” or incomplete to be competitive for the most common (or “mainstream”) applications and customer groups.
Either too expensive, too slow, too low quality (on some mainstream performance metric, too user-unfriendly to operate and install, etc. to be used in the big mainstream applications
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CHALLENGE OF THE INNOVATOR – THE NEED TO BECOME COMMERCIAL
Success (and high stock values) requires developing scalable, profitable, sustainable business operations
Going from discoveries and “tools” to repeatable vertical market “solutions” (components, full products and systems, or even standardized services)
Becoming commercial means “Crossing The Chasm” (ref. Geoffrey Moore, 2000), an invisible “gap” in the Product Life Cycle
Going from “Early Adopters” to “Mainstream Pragmatists”
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UNDERSTAND THE NATURE OF THE INNOVATION AND ACT ACCORDINGLY!
Determine whether the innovation is disruptive or sustaining, and its significance? For example – who supports it within the organization? Don’t just talk to your existing lead customers.
Start to Cross the Chasm: Locate early viable (funded and “highly motivated“/ desperate/ hungry/ opportunistic) “beach-head” applications/ “targets”/ “niche” markets – preferably applications that you can leverage later into other niches.
Relax the requirements for short term revenue and margins on potentially disruptive innovations.
This is what startups do and is what large companies should also do! See: “Big Companies Need To Act More Like Startups” in Rob Adams, A Good Hard Kick In The Ass: Basic Training For Entrepreneurs 2002.
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IT PAYS TO ‘CHOOSE WISELY’ IN FINDING ‘VIABLE EARLY MARKETS’
Establish Credibility
Gently Learn the Intricacies of Vertical Markets and Industries and The Full Solutions They Require
Avoid Financial Catastrophe
VIDEO from 2002
George Mueller
Color Kinetics
WARNING: IN VIEWING THIS PLEASE REMEMBER THAT COMPANY FOUNDERS ARE TYPICALLY UPBEAT IN THEIR ASSESSMENT OF PROGRESS.
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Color Kinetics Discussion .
Identifying and choosing the best target markets.
Think about the alternatives and then creatively apply Moore’s criteria.
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