The pace of change in the modern-day world is now increasing faster than ever before. New companies are constantly coming into the scene and dismantling old companies in seemingly every industry. Companies that we thought were for sure going to do well have vanquished into oblivion. Think of blockbuster being taken out by Netflix (after they had ironically declined to acquire Netflix), Facebook to Myspace, Vine disappearing, Sears, Bed Bath and Beyond, and many others that now no longer exist. If there was a way to figure out when certain innovations would disrupt existing incumbents, that would go a long way to knowing when to leave certain investment positions and/or business endeavors and switch to the new thing. In the Innovators Dilemma, by Clayton Christensen, the key point mentioned is the “S curve” that is laid out in great detail.

Introduction

-why do companies fail despite being the leading company, even in innovation?

-the main reason for failure is they listened to the customer too much; they kept doing sideways additions instead of innovating for the next exponential change. This good management lead to being innovated out, not bad management

-management needs to simultaneously focus on short term health of business with an eye on long term disruptive technologies being implemented and innovative

-sustaining vs disruptive technology

-technological progress often outstrips what society needs

-companies and technology improvement improves more than customer needs. So, increase in desktop features became redundant as desktops became wiped out by laptops and now tablets

-disruptive technologies are used by least profitable customers as they are desperate and want change

Principle 1; Companies rely on customers and investors for their resources

-theory of resource dependence; companies are dependent, not the other way around unlike what managers think

-companies able to best recognize problems and solve them first, even ahead of the customer, wins. Many companies are slow and reactive as they don’t see the coming trend, only the current trend

-mainstream company can only keep up or stay on the cutting edge if they have separate divisions managed independently, as those new technologies usually come in on low margins so have to separate them. The seed, the saplings, and the tree must be separate.

Principle 2; small markets don’t solve growth needs of large companies

-first mover advantage is significant. Large companies entering new niche industries not worth their money and time. But, it is for a small company. Thus, invest in small companies

-companies that wait for a market to be interesting will be too late and too far behind

Principle 3; markets that don’t exist can’t be analyzed

-current companies or market leaders don’t typically put money into new markets where there is no data to assess. However, this is where the new incumbents have the advantage as they start in new industries immediately. In existing technologies and processes it’s easy to copy. But, in new disruptive industries and technologies it is not easily to copy at all. This is the innovators dilemma. Do you put time and money into unproven situations, that may or may not yield capital and small in TAM currently? If you wait and it’s successful, it’s already too late

Use discovery-based planning: assume forecasts and strategy are wrong, and goal is to be less wrong

Principle 4; an organizations capabilities defines its disabilities

-processes in place prevent looking at new ideas

Principle 5; The availability of technology doesn’t necessarily equate to market demand

-especially true on functionality. Supply usually exceed demand

-consumers look at in order: functionality, reliability, convenience, then price

-only when supply for each of these gets met or exceeded and in quality do we move to the next stage. However, for many consumer products that are easy to create, there is too much supply which is why consumers look at price

-product performance exceeding demand is what leads to the next stage of product life cycles

-there is no reason for existing automakers to pursue electric vehicles as it eats their own gas market share and has lower margins than their own vehicles

Part 1 — why great companies fail

Chapter 1

how do great firms fail? Insights from the hard disk drive industry

-following customer orders too closely

-one has to recognize in advance what the customer really wants, as opposed to what they want. Spend time and money developing the current position and also having future developments in mind. E.g. develop Better horses and a car. Or, just develop a car if you don’t have the resources to develop the horse.

In 1976, entering the disk drive industry, there were 17 large, diversified corporations, and an additional 129 firms entering the industry. Of the original 17 large corporations, only 4, IBM, Hitachi, Fujitsu and NEC remained. Of the 129, only 109 remained by 1996 at all. So about 80% long term are gone either bankruptcy, going private, or acquired

-over time technology improves and prices go down

-it makes sense to improve the current technology IF disruptive technology is not coming. IF disruptive technology is coming, then that is pouring money down a hole. This would be today putting money towards hard drives instead of cloud or retail ignoring e-commerce

-in a sustained technological change that is not radically innovative, the incumbent dominant companies will win. It is only with new emerging technologies that the new companies will win as this new technology is not in the radar of old companies until it is too late; they may only realize 4–9 years after the initial first mover. The new mover first appeals to a small niche target market and slowly expands that way, as the revenue from those markets isn’t enough for big players. Essentially, new entrants must play in new arenas and new technologies and not directly compete with existing incumbents. In addition, for incumbents to pivot business models, this will often cannibalize the companies own existing sales for an uncertain bet at best, something the existing dominant players are unwilling to do

Chapter Two

value networks and the impetus to improve

-big companies end up with tunnel vision on its main product only

-firms failed when technological changes destroyed existing processes. Firms succeeded when new technology enhanced existing positions

-companies don’t innovate because the value from a known revenue stream is higher than an unknown stream

-value networks: something only has value if others also are looking for that kind of value

-desktop value network needed high gross profit margins, at least 50–60%. Laptop value network only needed 15–20% to be profitable

-if a new innovation is believed to be in a lower value network of lower margins, it will not be of interest to established firms until it is too late

-traditional technology S-Curve: when new technologies, in the traditional product life cycle, intersect or are close to intersection of the current technology, that is the time (slightly earlier than intersection) to make a shift towards the new technology. This usually occurs when the current technology is at maturity and is approaching decline

-disruptive technology S-curve: the new technology becomes the only curve as the old technologies are wiped out entirely as the new technology can also be used in the same domains

-established firms already have the new technology as prototypes, even early on. The only issue is that these firms don’t have the freedom or divisions to pursue these new technologies, due to other needs and bureaucracy

-senior management rarely initiated innovative designs

Step 1: disruptive technologies were first developed within established firms

Step 2: marketing personnel sought reactions from lead customers, personnel

-by asking around, negative responses were received. Thus, the project gets shelved. This is incorrect as this is based on what the customer thinks they want, rather than what they actually want

Step Four: new companies were formed, markets for disruptive technologies found by trial and error

Step Five: entrants moved upmarket

-entrants now take sales in established markets

Step Six: established firms try to join the bandwagon after the fact

-this doesn’t work as costs too high, way too much of a disadvantage and lagged behind

-staying close to customers doesn’t always work

-the S-curve can predict disruptive technologies if the rate of increase in the existing technology is increasing at a decreasing rate. If this occurs, then a disruptive technology will be able to take over, since their will be niche customers who look at alternatives. If they can do this and cross the chasm, the tipping point, then the disruptive technology rapidly starts improving in the upward slope of the s-curve and the old technology dies rapidly

-value networks impede companies from the ability to innovate as they end up being trapped in the network they are currently in, a network that is currently positive but long term negative

Chapter 3

Revolutionary Technological Transformation within the Mechanical Excavator Industry

-if your technology does not fit that market but has genuine value, take that technology and sell it elsewhere

-the technologies failed not because the incumbent firms did not know, but rather they didn’t think it made sense until it was too late. Listening to the customer too much is what led to the issue and conforming too much to current customer needs instead of having an eye for and sacrificing for the uncertain future

Chapter 4

what goes up, can’t go down

-upward move to higher value networks with better margins works, but downward to lower margins doesn’t

-with competing projects, projects for the here and now win over potential future uncertain revenue

-in a bigger company with too many people, there is too much bureaucracy and it’s unlikely for a company to be innovative and to start going on the decline

-it is hard for any company to be repeatedly innovative. After their first big win, the company tends to stay in that one sustaining technology and not look at disruptive innovations

Part Two — managing disruptive technological change

Five principles to managing disruptive technologies effectively:

1- resource dependence. Customers effectively control resource allocation in well run companies. Take care to extricate resources to future projects

2- small markets don’t solve growth needs of large companies. Target niche markets as innovator to avoid the ire of a large market share company so that they don’t notice

3- ultimate use of disruptive tech is not known in advance. Failure is an intrinsic step toward success

4- organizations have capabilities independent of capabilities of the people working there; processes

5- technology supply does not equal demand; sometimes one is far greater than the other

Chapter 5

give disruptive technologies to organizations whose customers need them

-resource dependence theory: those that focus on where they got the resource do best (the customer)

-create separate division for new innovation rather than trying to convince an entire group; force doesn’t work to try and convince or convert. Amazon succeeded with separate divisions for everything

-two different models of how to make money cannot peacefully coexist within a single entity

-new innovations start out niche and more expensive with lower margins. But, over time, through efficiency, they become more profitable, cheaper, and expand into less niche markets until they go mainstream entirely

Chapter 6

Align the organization’s scale with the dimensions of the market

-big companies won’t look at small market opportunities

-leadership in sustaining technologies is not necessarily essential; it is however in disruptive technology as it creates enormous value and a significant first mover advantage

-companies make way more money in a blue ocean of no competition in an emerging industry than a red ocean of a sustained existing industry with tons of competitors

-apples old computers tried to force the Apple I and II onto consumers in a emerging market; did not work

-waiting until a market gets big enough to be interesting doesn’t work either as the first market movers are already far too ahead, and they may have changed the market and now dictate it

-give small opportunities to small organizations: an organization should encourage failure and success, and view the success of a division as important, not as a side piece. Large companies can also do this by acquiring small companies and letting them run independently in those other industries

Chapter 7

discovering new and emerging markets

-hard to forecast emerging markets, easier to for known sustaining markets

-don’t assume what the customer wants

-experts will always be wrong in forecast for emerging markets

-getting the right strategy right away is not as important as conserving enough resources for new initiatives on a 2nd or 3rd try

-those that run out of resources towards new strategies are the ones that truly fail

-In disruptive situations, actions must be taken before plans are made

-agnostic marketing; no one knows the market or the demand

Chapter 8

apprising your organizations capabilities and disabilities

-important to create the right organization and right culture around the right people

-have good processes, values, and people

-values can’t be taught after childhood, or are very difficult to

Chapter 9

performance, market demand, product life cycle

-once performance oversupply of a product occurs, this may be where the emerging technology overtakes the sustaining technology

-differentiation loses meaning once product exceeds what market demands

-competing on: capacity, size, reliability, and finally price

-once a market competes on price, that means there is nothing more to innovate and it’s disruption time

-weaknesses of disruptive technologies are their strengths in other better suited markets

-managers should bring out disruptive technologies and new ideas out of the drawing board and right into practise in the market and adjust accordingly instead

-disruptive technologies are cheaper, faster, better

-intuit and quicken for accounting kept the software simple instead of making it have too many needless features

-disruptive products always command a premium; sustaining products compete in price

Chapter 10 — case study if managing disruptive technological change

-electric cars; of their technology improves at a rate faster than the demand for them or demand for EV improvement, then the technology is not yet mature and shows future promise

-new technologies markets can’t be estimated by the experts; they are kidding themselves

-do not do a Hail Mary on risky ventures; only a little bit

Disclaimer

This is not Financial Advice. This article is meant only for educational and perhaps entertainment purposes.