4. Understanding Disruption

Question 1

Disruption

Answer 1

• Industry-level phenomenon

- destructs old and creates new business models, affects the business cycle

Question 2

Disruptive Innovation

Answer 2

Firm-level Theory

Characteristics [MPCC]

• creation of an entirely new market
• through introduction of a new product, often lower in performance (simpler and more affordable; lower technology)
• not meant to satisfy current mainstream customers (lower end and new markets)
• product moves up the consumption market to compete with incumbent firms for market share

Process; does not take place overnight

Question 3

Sustaining Innovation

Answer 3

making existing products better to meet demands of mainstream customers

improvements to increase market share by meeting the needs of their core customers

Question 4

Large Companies: Which is their choice?

Answer 4

Sustaining Innovation. Pursuing sustenance better aligns with their business model

Avoid Disruptive Innovation due to:

• low growth volume
• low profit margin
• hard to see growth potential since it is a new and unfamiliar market segment

Question 5

Process of Disruption

Answer 5

1. Creation of a new, non-competitive market independent of existing businesses
   - entrants target overlooked segments
   - more suitable functions at a lower price
2. New market expands and slows growth in the traditional market
   - incumbent: sustaining innovation, chooses not to respond vigorously to challenge
3. New entrant moves upmarket while improving product quality
   - maintains initial advantages (cost structures and affordability)

e.g. Smartphone market: Apple/Samsung vs XiaoMi/Oppo/Huawei

Question 6

Challenges for Large Companies in Disruption [B-ICE]

Answer 6

stopped by organisational culture (presence of bias)

• culture guides decision making
• status quo bias
• sunk cost bias

listening to their customers, giving them what they wanted
- ignored the neglected market (echo chamber)

failure to transit and compete (organisational culture)
- limited by VPR

disruptive innovation destroys existing competencies

• competence enhacing: Sony making digital photography sensors by building on existing knowledge
• competence destroying: Kodak’s chemical photography capabilities useless due to switch to digital photography

Question 7

Capability Considerations [VPR framework]

Answer 7

Values: decision prioritisation framework

• standards to set priorities
• cost structures and business models

Processes

• formal: explicitly defined
• informal: way of working, habits developed overtime
• effective only when dealing with what they were designed for

Resources: tangibles and intangibles

Question 8

Creating Capabilities to cope with change [SIA]

Answer 8

New organisation structure

• new heavyweight team, new processes developed
• done within corporate boundaries and when the company’s capabilities reside in processes
• redraw boundaries to facilitate the creation of new processes

Spin out an independent organisation

• to develop with new processes and values
• done when different cost structure is required

Acquire a different organisation

• whose VPR closely matches the requirements of new task
• similar processes and values: not integrate, but assimilate
• similar resources: integrate