Diagnosing and Treating Disruptive Innovation*

Transcription

1 Diagnosing and Treating Disruptive Innovation* Christian Terwiesch, Andrew M. Heller Professor The Wharton School and Perelman School of Medicine *This material is drawn from our executive education program: Mastering Innovation by Christian Terwiesch and Karl Ulrich Wharton San Francisco, January and June of each year)

2 What is an Innovation? A new match between a solution and a need.

3 Innovation or Not?

4 New Drugs Make Money and Cure Patients Source:

5 Recently, however, innovation has a negative reputation Source: Source:

6 A Fortune 500 Cohort Analysis Source: Stangler and Arbesman (Kauffman Foundation, June 2012) Offensively How do we best discover and pursue opportunities for future growth? Defensively How do we mitigate the risk of disruptive innovation?

7 What is Disruptive Innovation? A Look at the Dictionary To disturb to interrupt the quiet, rest, or peace and to interfere with the arrangement or order To disrupt to cause disorder or turmoil and to destroy the normal continuance of something What is a disruptive innovation? What famous examples of disruption have you seen?

8 Why Everybody is Talking About Disruptive Innovation

9 Diagnosing and Treating Disruptive Innovation Diagnosing Disruptive Innovation Competence enhancing vs competence destroying innovations Component vs architectural innovation Treating Disruptive Innovation Leadership challenges in incumbent organizations: Look for new dimensions of merit Disruption does not happen overnight: Most things are better in the morning Consider getting vaccinated against disruption Most disruptions have a happy ending (for the customer)

10 An Autopsy to Understand the Mechanism of Action: The Case of the Brittanica History of the Britannica Launched in 1768 X 32 Volumes and 32,640 pages In its 15 th edition (last one published in 2010) 19 editors, >50 writers / employees Large and effective salesforce Source: By User:SEWilco - Own work, CC BY-SA 3.0, Sales (Source: Greenstein and Devereux): 1990 >100k per year 2000 <50k per year 2010 <10k per year What caused this decline?

11 Was digital technology competence enhancing for the Britannica? Disruption Happens when Competences are Destroyed Source: MacIntosh Repository Source: Britannica Source: Amazon A competence enhancing innovation is one that leverages the existing skills and knowledge of an organization. It builds on and extends competences (Tushman and Anderson) The rich are getting richer (existing industry structure is reinforced), though they will have to go through change to take advantage of the innovation

12 Disruption Happens when Competences get Destroyed A competence destroying innovation is one that destroys the existing skills and knowledge of an organization or makes them irrelevant (Tushman and Anderson) Revolution in industry structure: the incumbents suffer and are not able to adapt

13 Competences are More Likely to be Destroyed if the Innovation is Architectural A component innovation is one that only affects a sub-system or a component of a larger product or service, limiting the adaptation requirements to the new technology An architectural innovation is one that leaves individual components of the larger system by and large unchanged, but instead changes the interaction among these components

14 Key Symptoms of a Disruptive Innovation A (disruptive) innovation is a novel match between a solution and a need New solution technologies / approaches get invented Symptom 1: Most customers prefer the new solution Symptom 2: The incumbent cannot respond as its competences are limited to the old solution, which now loose their value (competences or other valuable assets destroyed, more likely than not architectural innovation)

15 Group Discussion: Disruptive Innovation or Not?

16 Treatment Plan Leadership challenges in incumbent organizations: Look for new dimensions of merit Disruption does not happen overnight: Most things are better in the morning Consider getting vaccinated against disruption Most disruptions have a happy ending (for the customer / the patient)

17 Technological Progress Along a Dimension of Merit Performance Source: Time Dimension of merit: the key user need that matters to the customer Better serving the existing customers An incremental Innovation is an improvement along a dimension of merit

18 Some Innovations are Non-Incremental Performance Time Technological discontinuities / major technological shifts A radical innovation is a major improvements along a dimension of merit Such innovations are very rare and should not be confused with disruptive innovation (might even enhance competences)

19 Dimensions of Merit and Disruption Example: Photography Who had a camera like this? What was the dimension of merit? When did you stop using it? What did you use instead? Did new camera make better pictures?

20 Disruptive Innovation: Two Dimensions of Performance Initial Set-up: #1: An incumbent technology that is superior on a dimension of merit #2: A new technology that is inferior on the dimension of merit, but has some other performance dimension that makes it attractive for some people And then: #3: The new technology improves and becomes good enough on the old dimension of merit #4: More and more people prefer the new technology providing it with scale advantages Primary Dimension (e.g., image quality) performance outstrips market need improvement trajectory incumbent min. requirement - main market min. requirement - niche market new entrant good enough for main market improvement trajectory Secondary Dimension (e.g., cost per picture, digital) #5: The incumbent is not able to respond Source: Ulrich 2017

21 What Happened to Film Rolls? (part 1) Digital Cameras Film Cameras (photo marketing association) Source: Ulrich 2017

22 What Happened to Film Rolls? (part 2) A Closer Look at the Early Days Apple QuickTake 100 released in 1994 Resolution: 640x480 pixels Manufactured by:? Licensing condition:?

23 Lesson 1: You get disrupted by an inferior technology => Focus on the Need, not on single dimension of merit or profit. A disruptive innovation is inferior on the dimension of merit Cheaper and of interest to more (yet different) customers Some similarity to blue ocean innovation (different attributes matter) Incumbent technology is still improved Tends to be catered towards the existing customers (horizon 1) Customers are sophisticated and willing to pay high prices for the dimension of merit Disruptive innovation tend to be associated with lower price points Gives rise to the innovator s dilemma (Clayton Christensen): Why do firms succeed? They listen responsively to their customers and develop their next generation products Why do firms fail? They listen responsively to their customers and develop their next generation products Which clinical areas do you currently see at risk for this type of disruption?

24 Competence Destroying Innovation, Architectural Innovation, New Dimension of Merit Try this out in this case! Competence Destroying? Architectural? New Dimension of Merit? What could Border s have done to protect their futures? At what time would you take action?

25 Online Book Retailing is not the only Threat to Borders: ebooks, Rentals, Audio, : Disruption is Knocking at your Door Everyday Source: Statista

26 Online Book Retailing is not the only Threat to Borders: ebooks, Rentals, Audio, : Disruption is Knocking at your Door Everyday Source: Statista

27 Disruption is Knocking at your Door Everyday: Examples from Healthcare Current development of healthcare spending is not sustainable Big Data and Artificial intelligence; EMR Value based payment, bundled payment, sharing of savings Genomics, T-cells, biotech Consumerization of healthcare Connected healthcare, home monitoring, implantables, wearables Networks and partnerships post acute care, retirement homes Personalized medicine, precision medicine

28 Back to Books - Disruption Does Not Happen Overnight: How the Printing Press Disrupted the Scribes

29 Disruption Does Not Happen Overnight: Electric Cars Lesson 2: Most Things Get Better in the Morning Source: Source: Von Museumsfotografierer - Eigenes Werk, CC BY 3.0, The Lohner Porsche Hybrid engine using electricity or petrol horse power The BMW E1 Electric engine with 50hp Developed 1991

30 Innovation Portfolios: There Exist Different Types of Innovation Deliberate allocation across three horizons The orphan horizon Enables relative comparisons Group discussion: Where would you want to spend some resources as a hedge?

31 Example: Car2Go => Lesson 3: Take a Small Number of Deliberate Bets to vaccinate against Disruption Launched by Daimler in 2008 Daimler makes $180B in revenue 14,000 vehicles in operations Biggest car-sharing service in the world In 2018, merged with BMW car-sharing Absorptive capacity is a firm s ability to identify, assimilate, and apply external knowledge (Cohen and Levinthal) How much would you be willing to pay for a vaccine/insurance?

32 How Much Would You Pay for Disruption Insurance? A Disruption Vaccine? Typical car insurance per year: $1,500 Typical car price: $13k for used, $31k for new car

33 Most Disruption Have a Happy Ending Ulrich 2018 Looking across time, what has happened to: - The number of images - The quality of the images - The profit of the producers - The utility of the customers

34 Most Disruption Have a Happy Ending (for the customer)

35 New Service Delivery Models and Connected Strategies* Nicolaj Siggelkow & Christian Terwiesch *This material is drawn from our book project: Connected Strategies by Christian Terwiesch and Nicolaj Siggelkow

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41 Combination of - Reading - Videos - Problem sets Automatically graded Suggested readings Helps professor by: - Providing feed-back where students struggle - No more grading

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46 Changes in the Customer Experience The old way The Internet Way The New Way Student reading Personal Health What is the overall trend in Customer experience here?

47 Conclusion Acknowledgments (Support, funding, your time) Future (stay in touch, network, slides) Take-aways - What will you do differently? - One suggestion for changes in Mack 4.0?