Digital Business Models - Week 9: Disruptive Innovation and Business…
Digital Business Models - Week 9: Disruptive Innovation and Business Models
How Useful Is the Theory of Disruptive Innovation
? by Andrew A. King and Baljir Baatartogtokh.
The theory of 'Disruptive Innovation'
Christensen provides an explanation for the failure of respected and well-managed companies
Good managers face a dilemma
, he argues:
by doing the very things they need to do to succeed
— listen to customers, invest in the business, and build distinctive capabilities —
they run the risk of ignoring rivals with “disruptive” innovations
This is also how we should think about big 'social issues'
e.g. poverty, lack of access to healthcare and illiteracy.
Main conclusion about 'Disruptive Innovation:
Publications fail to provide confirmatory evidence for the theory. Suggesting instead, that full-blown disruptions of the type that Christensen describes are rare
- most managers respond effectively to potentially disruptive threats.
Method: delving into the case histories of dozens of 'disruptions' identified by Christensen
(and his coauthor,
Michael E. Raynor
surveying / interviewing 1 or more experts on each of 77 cases discussed in 'The Innovator’s Dilemma' and 'The Innovator’s Solution'
, (Christensen & Raynor lay out the elements theory there).
In the disruptions by Salesforce.com, Intuit’s QuickBooks, & Amazon, the theory 'works' and is explanatory
But, in a majority of the 77 cases - they found different motivating forces or displayed unpredicted outcomes
. Among them were cases involving
, the effect of numerous
competitors, changing economies of scale
shifting social conditions
About the four main elements of the theory:
(1) there existed incumbents with sustained innovation; (2) that they overshot customer needs; (3) they retained the capability to respond; (4) they floundered as a result of the disruption
interesting point is:
“Disruption has a paralyzing effect on industry leaders,”
Competitors with disruptive innovations
lull incumbent companies into complacency by avoiding a head-to-head competition for the incumbents’ best customers
target in- stead new and low-end customers
. They are simpler, more convenient, and less expensive.
QQ - How can they go for that target group so specifically?
Main conclusion: “the disruptors are on a path that will ultimately crush the incumbents
. In summary, although Christensen and Raynor selected the 77 cases as examples of the theory of disruptive innovation, our survey of experts reveals that many of the cases do not correspond closely with the theory.
In 60 cases (78% of the total), and contrary to the expectations of the theory, our experts thought that incumbent companies were not producing, or likely to produce, products or services that exceeded customer needs.
In at least 40% of the 77 cases changing business conditions increased the economic advantages of scale and thereby limited the number of businesses that could profitably serve the market.
In response to any competitor or disrupter: first, managers should calculate the value of winning. Second, they should find ways to leverage existing capabilities. And finally, where practical, they should work collaboratively with other companies.
Work collaboratively with other companies
Final conclusion: are no substitutes for careful, fundamental analysis of the nature of competition and the sources of competitive advantage
From Strategy to Business Models and onto Tactics by Ramon Casadesus-Masanell and Joan Enric Ricart (2010)
To present a conceptual framework to separate and relate the concepts of strategy and business model
: a business model, we argue, is a reflection of the firm’s realised strategy.
We show that the concepts of strategy and business model differ
New strategies for the ‘bottom of the pyramid’ in emerging markets
have also steered researchers and practitioners towards the systematic study of business models - like African Clean Energy
refers to the logic of the firm, the way it operates and how it creates value for its stakeholders (2)
refers to the choice of business model through which the firm will compete in the marketplace (3)
refers to the residual choices open to a firm by virtue of the business model.
They present the
generic two-stage competitive process framework
‘a good business model’ as the one that provides answers to the following questions
: ‘Who is the customer and what does the costumer value?’ and ‘What is the underlying economic logic that explains how we can deliver value to customers at an appropriate cost?’
Uses a 'machine' or 'car' analogy
to distinguish between the business model e.g. - the 'mechanical workings of the tractor' and the 'strategy' with which the mechanical workings have been programmed and created.
These parts make up the business model: (a) the concrete choices made by management about how the organisation must operate, and (b) the consequences of these choices.
Finished enough to understand the point
looking at hyper disruptive business models
(gives seven metaphors for disruption)
The subscription model
(customer must pay a returning subscription price to have access to the product/service) - like Netflix. (The constant revenue stream from subscribers reduces uncertainty).
The freemium model
is a business model where the customer has free access to the basic service but is charged for additional features. Like: Spotify, Dropbox, LinkedIn, The New York Times, Farmville.
The free model
is a business model integrated by companies that don’t charge the end users (directly). The data and the attention of the users is the currency. (By offering the product or service for free it is easy to gain a lot of users).
The market place
is a business model used by a company that only facilitates a platform where parties economically interact with each other. Like eBay, Alibaba, Friendsurance, priceline.com, The Lending Club, etc.
The access over ownership model
is the business model that grants customers the use of the product without buying it. “Everything as a service.”
The hyper market
is the business model used by digital companies that act as hyper stores, offering enormous amounts of products and or services. Like Amazon or CoolBlue.
The experience model
is a business model used by a company that provides the customers with an unseen (user) experience. Like Tesla or KLM, Disney World.
The on demand model
generates revenue by the exponential need of people to have things done right away. Speed and convenience matter the most. Like; Uber, Operator, TaskRabbit
is one of the most powerful, disrupting business model. Companies build an entire universe of products and services in which customers gets lost without them knowing it. Like Apple or Google