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Disruptive Innovation (CONCEPT (Christensen (2006) - The Ongoing Process…

- - - - True anomalies to the model would be where (1)
      - the incumbent leaders lose their positions of industry leadership to an entrant when confronted with a sus- taining innovation that would help them sell a better product for more attractive profit margins to their best customers; or (2) an incumbent successfully builds an industry-leading business in a disruptive innovation by developing and commercializing the disruption within the same business unit that is also responsible for sustaining the profitable growth of the original).
      - Use of th eTheory to Predict the Future.
      - The theory must provide
      - the ability to predict what will happen to the incum-bents and entrants in the future if they take different
      - actions relative to the innovation.
      - CLEARER DEFINITIONS
      - Disruption is a relative phenomenon - disruptiveness is not an absolute phenomenon but can only be measured relative to the business model of another firm.
      - It is a business model problem, not a technology problem.
      - The model of disrup- tion explains why the leading established firms now find themselves atop wireless telephony. The technology did not make incumbent response difficult. The disruptive innovation in business models made it vexing, and I have subse- quently sought to use the term disruptive innovation.
      - A disruptive innovation is financially unattractive for the leading incumbent to pursue, rel- ative to its profit model and relative to other invest- ments that are competing for the organization’s resources.
      - It is a business model problem, not a technology problem. ". I made a mistake when I labeled the phe- nomenon as a disruptive technology; the disruptive business model in which the technology is deployed paralyzes the incumbent leader".
  - - - Christensen:
      - A disruptive technology: a novel mix of attributes compared to the estab- lished technology, but is inferior to the established technology according to the needs of consumers in the primary (mainstream) market segment. The disruptive technology is, therefore, initially purchased by consumers in a secondary (niche) market segment who place high value on the new technology’s attribute mix. As the new technology matures, its performance improves, but its perceived quality in the primary segment remains inferior to that of the established technology. Despite this performance inferi-ority, the new technology is able to enter the primary segment because the established technology is “over supplying” customer needs.
      - Implication / importance: For scholars, such disruptive technologies highlight the question of the boundaries of technology competition and how those boundaries change over time (Adner, 2001). For managers, disruptive technologies highlight the danger posed to incumbent firms from too quickly dismissing new technologies as inferior and irrelevant to their market positions.
      - 3 main question: 1)we explore whether or not there is
      - competition between two technologies; that is, whether or not a new technology is dis- ruptive at a point in time. 2) we explore whether or not disruption is triggered by technological progress, due perhaps to performance over supply, and if so, how long it takes a new technology to break out of its niche. That many of these threats did not materialize highlights the importance of distin- guishing disruptive threats from technologies that will remain isolated in a niche. 3) what are the effects of disruption on competitive outcomes such as prices, social welfare, firm market shares, profitability, and innovation incentives.
      - FIndings:
      - 1) we show that the threat of disruption is increasing in the number of new technology firms, the relative size of the primary segment, the primary segment’s utility from the new technology product, and the marginal costs of the established firms. Thedisruptivethreatisgreater when firms can price discriminate across segments. The fact that disruption occurs when new technology firmspursueahigh volume, low price strategy that allows them to break into the primary segment. The lower the costs of established technology firms, the lower the threat of disruption.
- - - - Incumbents are improving along a trajectory of innovation: sustaining innovations improve the products in a few established value areas.
      - The pace of sustaining innovation overshoots customer needs:
      - Incumbents have the capability to respond but fail to exploit it: resource allocation processes designed and perfected to support sustaining innovations. Entrants avoid head to head competition, so target new and low-end customers ,with products that are not as good as currently available, but they are usually simpler, more convenient, and less expensive.
      - Incumbents flounder as a result of the disruption: disruptors are on a path that will ultimately crush the incumbents.
      - 4 Key Elements of the Theory or DI:
  - - - Not all disruptive innovations are the same. 3 types: business model, technological, and new to the world product innovations should be treated as distinct phenomena. All 3 types may follow a similar process to invade existing markets, and may have equally disruptive effects, but they product different kinds of markets and have different managerial implications.
      - Business Model Innovation: discovery of a fundamentally different business model in an existing business. They do not discover new products, they simpley redefine what an existing product or service is and how it is provided to the customer. They have different performance attributes, different customers, different KSF, different value chain network. --> Incumbent firms have little incentive to adopt them.
      - BMI are different than Tech Innovations: some accepted wisdoms of DI need to be modfiied. 1) New business models are not necessarily superior to the ones established companies employ. 2) A separate unit is not the best way for an established company to adopt and exploit DI. 3) Incumbents need to find a way to respond to DI< but it doesn't always mean they have to adopt it.
      - 2) Radical Product Innovation: they introduce products and value proposiitions that disturb prevailing consumer habits and behaviors in a major way. The markets they create undermine the competences and complementary assets on which existing competitors built their success. Latecomers shift the basis of competition away from technical performance to other product attributes such as quality and price, by cutting the price of the product to a mass-market level, while simultaneously improving the quality of the product to make it acceptable to average consumer.
      - RDI are different from Technological Innovations: Scaling-up process is smilar to the disruptive innovation described by Christensen. Many examples of DI are really examples of companies scaling up a niche market into a mass market.
      - To counter this, in-stead of spending valuable resources and managerial talent at growing new radical businesses inside, established companies should aim to create, sustain,
      - and nurture a network of feeder firms—of young entrepreneurial firms busy colonizing new niches.
  - - - Can the disruptive technology framework make ex-ante predictions: It's really hard to predict outcomes ex-ante, easy to do post-hoc. Ex-ante predictions involve predicting what performance the market will demand along various dimensions and what performance levels technologies will be able to supply.
      - Why do some incumbents succeed: what determines whether incumbents fail or succeed in the face of disruptive tech? Incumbent's curse is overstated. Experience does not lead to inertia. Contingent on national context.
      - What are the merits of being customer oriented?
      - Is creating an independent organization to pursue the disruptive technology is always best?
- - - - The degree of preference overlap between the new technology's existing customers and the incumbent's segment specifies the magnitued of the impact tha sustaining innovations along the preference lines of one segment will have on consuemr evaluation in theother segment.
      - The degree of preference asymmetry specifies firm's differential incentives to compete for new market segments.
      - Critical to a disruptive outcome is the price at which the invader offers its product. The attacking firm must have the incentive and ability to offer its technically inferior, yet nonetheless satisfactory product at a sufficiently lower unit price to consumers than its rival.
      - --> To identify potential disruptions, managers should also plot price trajectories of the competing offers.
      - DISCUSSION
      - As technology development progresses, consumer's performance requirements are met, and then exceeded by their home tech. As performance continues to surpass consumers' requirements, consumer's WTP for improvements decreases, opening the door for lower-priced, lower-performance offers to capture these consumers. As the overlap between market segments' preferences increases, firms have greater incentives to enter rivals' markets. When preference overlaps is asymmetric, the firm whose technology casts a larger performance shadow on its rival's market, and whose tech is therfore relevant to a larger number of consumers, has grat incentive to invade, trading price for vlume. The invaded firm, confronting a smaller set of potential users, chooses to exploit existing opportunities in the uncontested portion of its market segment rather than engage in price competition with its rival.
        --> Highlights the relationships among consumer preferences and consumers' WTP for performance improvements as key factors that give rise to tech disruptions.