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Ever wondered what disruptive innovation is all about? It is not about web services, it is not about digital, (even though it could be!) but rather about gross margins and growth opportunities.
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Disruptive innovation
Why big companies aren’t always capable of seizing the moment
Can one company manufacture both of these products?
Cable operated excavators was dominant during many years up until the 50ies
During the 50ies the first hydraulic operated excavators entered the market
Only four dominant players in the cable operated business still exists today…
…while all current dominating companies were entrants to the business in the 50ies!
8 april 2023 Sida 7
Why is that?
The logic was that ”The bigger the bucket, the better the excavator!”
Time
Pro
duct
per
form
ance
Bucket size
The new kind of excavator did not fit the current market place very well!
Small bucket
Relatively weak
Less suitable for heavy duty work
Relatively robust
Smaller body
More manouverable
…But that does not mean that it was sub par, just that it was different from status quo!
The market for the different types of companies was essentially very different
Market for cable operated
• Big building sites• Earthmoving• Mining• Road work• ….
Market for hydraulic
• Small building sites• Garden work• Ditching and och drainage• Private users• …
Characteristics of business
• Bulk sales• Whole sales towards big end users• Big customers preferred with
• Big volumes and big margins• Economies of scale
Characteristics of business
• Sales of individual machines• Retail sales• Rental based• Small customers with
• Low volumes and low margins
Why on earth would you ever wanna go into the hydraulic market?
Because market characteristics are not static and neither is the performance disruptive technology!
Time
Pro
duct
per
form
ance
Need for mainstream users
Cable operated excavatorsHydraulic excavators
Need for ”high-end” users
Need for locala contractors
Need for private persons
Bucket size
Hydraulic excavators
By using the RPV framework do describe why companies act in a specific way we can understand this better
Why didn’t the incumbent companies manage to transition into the new technology?
Resources
Processes
Values
Difficulty to change
Impa
ct o
n de
cisi
ons
and
capa
bilti
es
Values define the common sense for investment decisions within a company
Gross Margins
There are two main parameters that a company consider before making an investment
Growth volume
Values define the common sense for investment decisions within a company
Gross Margins
There are two main parameters that a company consider before making an investment
Incumbent overhead
costsIncumbent
gross margins
Incumbent technology
Net margins
Disruptive overhead
costsDisruptive
gross margins
Disruptive technology
Net margins
Gross Margins
There are two main parameters that a company consider before making an investment
Net loss
Gross Margins
There are two main parameters that a company consider before making an investment
Incumbent overhead
costs
Disruptive gross
margins
Combining disruptive technology gross margins with incumbency overhead costs creates a net loss rather than a profit
When considering disruptive technologies incumbent companies will not see the benefits
Values define the common sense for investment decisions within a company
Growth volume
Demanded revenue growth
Disruptive revenue possibilities
Incumbent current revenue
Disruptive current revenue
Disruptive technologies can’t fulfill the growth need for a big company
There are two main parameters that a company consider before making an investment
Incumbent companies do not have the values to invest in disruptive
technologies due to the very reason that makes them succesful!
Some Swedish disruptors
• SKF Förlänger livstiden 2000 ggr!• IKEA Skär bort något som ansågs nödvändigt• HM Prefabricerar istället för individuellt• Claes Ohlson Någon som sett några järnhandlare nyligen!• Skype Prata gratis!• The Pirate Bay Skall vi byta grejer med varandra?
Installed office software Online cloud applications
Examples of possible disruptive innovations
Incumbent technology Disruptive technology Affected industry
Software sector
Examples of possible disruptive innovations
Incumbent technology Disruptive technology Affected industry
Proprietary operator centric telco model
Open source user centric telco model
Telco sector
Examples of possible disruptive innovations
Department centric public services
Citizen centric public services
Incumbent technology Disruptive technology Affected industry
Fredrik
Kansli
Sjukvård
Skola Polis Public sector
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