Managing Technological Innovation

IEOR 4998, Tuesdays 1:10PM - 3:40PM 1127 Seeley W. Mudd Building

What I hope you learn today

Sustaining Innovation Disruptive Innovation

Case Study: Google

Indexers
YAHOO! CURATION W3CATALOG

ARCHIE (FTP) 1990 1993 YEAR 1995

Full Text Search

BREADTH + RELEVANCE INKTOMI

ALTA VISTA LYCOS WEB CRAWLER 1994 1995 YEAR 1996

Technology S Curve

from Murrae J. Bowden, Moores Law and the Technology S-Curve, Current Issued in Technology Management, Winter 2004, Issue 1 Volume 4

Google, et al Full-text Search Indexers

1990 1994 1998

Technology Strategy of Firms using Sustaining Innovation

Christensen, The Evolution of Innovation in Technology Management Handbook, edited by Richard Dorf. Boca Raton, Fla.: CRC Press, 1998.

Sustaining Innovation

[S]uccessful innovators usually have a pretty clear idea of the kind of competitive edges theyre seeking. Theyve thought long and hard about whats practical in their particular businesses...

- Andrall E. Pearson (former president of PepsiCo and a Managing Director at McKinsey before joining the faculty of HBS), Tough-Minded Ways to Get Innovative, Harvard Business Review, May-June 1988

Allocation of Resources

10% 20% 70%

70% 20% 10%

from Managing Your Innovation Portfolio, by Bansi Nagji and Geoff Tuff in the Harvard Business Review, http://hbr.org/2012/05/managing-your-innovation-portfolio

Return on Investment

Who benets from sustaining innovation?

How do you nd good, concrete ideas? ... your best backdrop for spurring innovation is knowledge--knowing your business cold. Good ideas most often ow from the process of taking a hard look at your customers, your competitors, and your business all at once. So, in looking for ways to innovate, Id concentrate on: Whats already working in the marketplace that you can improve on and expand. How you can segment your markets dierently and gain a competitive advantage in the process. How your business system compares with your competitors. ...most of PepsiCos major strategic successes are ideas we borrowed from the marketplace--often from small regional or local competitors.
- Andrall Pearson, op cit

Christensens Model of DisruptiveInnovation

Value Network
S ININ A T S U G N ATIO V O INN
NEEDS

QUALITY VALUED BY EXISTING MARKET

CUSTOMER

TIME

Value Network
QUALITY VALUED BY EXISTING MARKET
I TAIN S U S NG N ATIO V O INN
N ATIO V O INN

N CUSTOMER

EEDS

PT ISRU

IVE

Value Network
QUALITY VALUED BY EXISTING MARKET
QU IT AL BY D UE AL KET Y V AR M W NE
I TAIN S U S NG N ATIO V O INN

N CUSTOMER

EEDS

DIS

E INN RUPTIV

OVATIO

Disruptive Innovation
In every market there is a rate of improvement that customers can utilize or absorb In every market there is a distinctly dierent trajectory of improvement that innovating companies provide as they introduce new and improved products Disruptive innovations dont attempt to bring better products to established customers in existing markets. Rather, they disrupt and redene that trajectory by introducing products and services that are not as good as currently available products. But disruptive technologies oer other benets typically, they are simpler, more convenient, and less expensive products that appeal to new or less-demanding customers

Disruptive Production

Was Google disruptive?

What changed in 2002?

Googles Customers

Google

Googles Customers

SEARCHER

Google

ADVERTISER

Googles Customers

SEARCHER

Google

ADVERTISER

Googles Customers

SEARCHER

Google

ADVERTISER

What is Quality to an Advertiser?

Googles Advertiser Innovations

Content of marginal quality Very low cost

Low reach

Finely targeted

Text-only ads

Low production costs

Disruptive?
Lower cost Lower on old quality dimension Establish a new quality dimension Find a new market Improve along old quality dimension

Shorter recap
When the initial basis of competition is commodied, competition occurs along another basis When the old basis and the new basis require a tradeo, disruptive innovation can occur The disrupting company can follow the existing improvement path in the old basis until that basis is commodied then compete on the new basis-then the sustaining company can no longer compete

Non-disruptive innovation possible, even for startups

Disk drive industry

Proven Technology New Technology

Established New rms: 43% New rms: 18% Market Success: 8% Success: 0%

Emerging New rms: 29% New rms: 10% Market Success: 36% Success: 37%

A market without a dominant player doesnt need to be disrupted

Proven Technology Established Market Market Segmentation New Technology Product dierentiation

Emerging Market

Disruption

Market Evangelism

Blanks Four Market Types

Existing Market Customers Customer Needs Product Performance Existing Performance Resegmented Market (niche or low-cost) Existing 1. Cost 2. Perceived need/ problem 1. Good enough at the low end 2. Good enough for the new niche Existing incumbents New Market New/New Usage Simplicity and convenience Low in traditional attributes, improved by new customer metrics Clone Market New New idea already proved overseas Good enough for local markets

Better/Faster

Competition Risks

Existing incumbents Existing incumbents

Non-consumption/ None, foreign other startups originators Cultural adoption

1. Existing incumbents Market adoption 2. Niche strategy fails

Readings for Next Week

Christensen, Intro to Part II, Chapter 7, Chapter 8 Carlota Perez, Technological revolutions and techno-economic paradigms, http:// www.carlotaperez.org/papers/PerezTRsTEPsTUTWP20.pdf http://steveblank.com/2009/03/26/supermac-war-story-4-repositioning-supermac-market-type-atwork/ Chris Dixon, The Idea Maze, http://cdixon.org/2013/08/04/the-idea-maze/ Steve Johnson, Where Do Good Ideas Come From (video), http://www.youtube.com/watch? v=NugRZGDbPFU Tina Seelig, A crash course in creativity, http://www.youtube.com/watch?v=gyM6rx69iqg First Round Capital, 90% of Feedback is Crap, http://rstround.com/article/90-of-feedback-iscrap-how-to-nd-the-next-big-startup-idea# Wesley Tansey, How to Find Startup Ideas, http://wesleytansey.com/how-to-nd-startup-ideas/ Neil Stephenson, Innovation Starvation, http://www.worldpolicy.org/journal/fall2011/innovationstarvation James Altucher, How to Become an Idea Machine, http://www.jamesaltucher.com/2012/10/howto-become-an-idea-machine/

All unattributed slides about disruptive innovation from:

Christensen, Clayton M. (2012): Disruptive Innovation. In: Soegaard, Mads and Dam, Rikke Friis (eds.). "Encyclopedia of Human-Computer Interaction". Aarhus, Denmark: The Interaction Design Foundation. Available online at http://www.interaction-design.org/encyclopedia/disruptive_innovation.html