L03 L: Disruptive Innovation

Question 1

Lecture topics Disruptive Innovation

Answer 1

Disruptive innovation theory
§ Digital technology and disruption
§ Assessing disruption (Uber)
§ Responses to disruption
§ Disruption in ecosystems

Question 2

Definition Sustaining innovation

Answer 2

Better products, for higher prices, to attractive customers in existing markets

Question 3

Definition Disruptive innovation

Answer 3

Products with a novel mix of features, performance and price attributes (e.g simpler or more convenient products, for lower prices), appealing to new or unattractive customers.

Christensen (1997) ; Christensen & Raynor (2003);

Question 4

FEATURES OF DISRUPTIVE INNOVATION AS PROCESS

Answer 4

(1) Existing products overshooting
(2) Novel mix of attributes (often inferior, simpler, more convenient, cheaper products)
(3) For new or unattractive customers
(4) Asymmetric motivations
(5) Technology as enabler of improvement trajectory

Question 5

ASYMMETRIC MOTIVATIONS

Answer 5

Disruptive innovations (initially) do not score well on resource
allocation criteria of large incumbent firms:

• Best customers do not want disruptive innovations
• Disruptive innovations not offer profit margins that they seek
• Small markets do not solve growth needs of large companies
• Markets that don’t exist can’t be analyzed
• Financial investment tools are biased towards existing business

Question 6

Why do new entrants often win with
disruptive innovation

Answer 6

Because “rational” resource allocation mechanisms work
against investment in disruptive innovation.

Question 7

Characteristics of digital technology that enable fast
improvement trajectory:

Answer 7

• Low marginal costs (& low overhead)
• Moore’s law
• Network effects
• Distributed development (e.g. 3rd party developers)
• Crowd-based improvement
• Machine learning

Question 8

INCUMBENT’S RESPONSES (ADNER & SNOW 2010):

Answer 8

(1) Defensive: Racing
(2) Offensive: Transition
(3) Retreat

Question 9

RACING RESPONSE (defensive)

Answer 9

Defensive response:
- Fleeing to higher market segments
- ‘Cramming’
- Alternative: legal battles

Question 10

TRANSITION RESPONSE

Answer 10

Offensive response

When disrupted: fight, don’t flee
- Frame as threat in resource allocation process

• Separate from existing business
  (ambidexterity) - might be acquisition or external venture
• Frame as opportunity for this
  separated entity

Question 11

BOLD RETREAT RESPONSE

Answer 11

Defensive/offensive response
- Retrenching in a revealed niche

• Relocating to a different market
• New technology reveals demand heterogeneity (which may have been ignored in dominant design)
• Metrics for comparison are not universal

Question 12

According to ANSARI, GARUD & KUMARASWAMY, 2015, when is a player considered a competitor and when is a player considered a complementor?

Answer 12

“A player is your competitor if customers value your product less when they have the other player’s product than when they have your product by itself.”

“A player is your complementor if customers value your product more when they have the other player’s product than when they have your product by itself.”