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Diagnosing and Treating Disruptive Innovation*
Christian Terwiesch, Andrew M. Heller ProfessorThe Wharton School and Perelman School of Medicine
*This material is drawn from our executive education program: Mastering Innovation by Christian Terwiesch and Karl Ulrich (Offered @ Wharton San Francisco, January and June of each year)
What is an Innovation?
A new match between a solution and a need.
Innovation or Not?
New Drugs Make Money and Cure Patients
Source: https://pancreaticcanceraction.org/about-pancreatic-cancer/medical-professionals/stats-facts/prognosis-survival/
Source: http://www.snoringmouthpieceguide.com Source: http://www.snoringmouthpieceguide.com
Recently, however, innovation has a negative reputation…
A Fortune 500 Cohort Analysis
19551965
19751995
Source: Stangler and Arbesman (Kauffman Foundation, June 2012)
OffensivelyHow do we best discover and pursue opportunities for future growth?
DefensivelyHow do we mitigate the risk of disruptive innovation?
To disturb“to interrupt the quiet, rest, or peace” and “to interfere with the arrangement or order”
To disrupt“to cause disorder or turmoil” and “to destroy the normal continuance of something
What is a disruptive innovation?
What famous examples of disruption have you seen?
What is Disruptive Innovation? A Look at the Dictionary
Why Everybody is Talking About Disruptive Innovation
Diagnosing and Treating Disruptive Innovation
Diagnosing Disruptive InnovationCompetence enhancing vs competence destroying innovationsComponent vs architectural innovation
Treating Disruptive InnovationLeadership challenges in incumbent organizations: Look for new dimensions of meritDisruption does not happen overnight: Most things are better in the morningConsider getting vaccinated against disruptionMost disruptions have a happy ending (for the customer)
An Autopsy to Understand the Mechanism of Action:The Case of the Brittanica
X
Source: By User:SEWilco - Own work, CC BY-SA 3.0, https://commons.wikimedia.org/w/index.php?curid=1367734
History of the BritannicaLaunched in 1768
32 Volumes and 32,640 pages
In its 15th edition (last one published in 2010)
19 editors, >50 writers / employees
Large and effective salesforce
Sales (Source: Greenstein and Devereux):1990 >100k per year2000 <50k per year2010 <10k per year
What caused this decline?
Disruption Happens when Competences are Destroyed
A competence enhancing innovation is one that leverages the existing skills and knowledge of an organization. It builds on and extends competences (Tushman and Anderson)
⇒ The rich are getting richer (existing industry structure is reinforced), though they will have to go through change to take advantage of the innovation
Was digital technology competence enhancing for the Britannica?
Source: MacIntosh Repository
Source: Amazon
Source: Britannica
Disruption Happens when Competences get Destroyed
A competence destroying innovation is one that destroys the existing skills and knowledge of an organization or makes them irrelevant (Tushman and Anderson)
⇒ Revolution in industry structure: the incumbents suffer and are not able to adapt
Competences are More Likely to be Destroyed if the Innovation is Architectural
A component innovation is one that only affects a sub-system or a component of a larger product or service, limiting the adaptation requirements to the new technology
An architectural innovation is one that leaves individual components of the larger system by and large unchanged, but instead changes the interaction among these components
Key Symptoms of a Disruptive Innovation
A (disruptive) innovation is a novel match between a solution and a need
New solution technologies / approaches get invented
Symptom 1: Most customers prefer the new solution
Symptom 2: The incumbent cannot respond as its competences are limited to the old solution, which now loose their value (competences or other valuable assets destroyed, more likely than not architectural innovation)
Group Discussion: Disruptive Innovation or Not?
Treatment Plan
Leadership challenges in incumbent organizations: Look for new dimensions of merit
Disruption does not happen overnight: Most things are better in the morning
Consider getting vaccinated against disruption
Most disruptions have a happy ending (for the customer / the patient)
Time
Performance
Dimension of merit: the key user need that matters to the customerBetter serving the existing customers
An incremental Innovation is an improvement along a dimension of merit
Technological Progress Along a Dimension of Merit
Source: http://ns1758.ca/winch/winchest.html
Some Innovations are Non-Incremental
Technological discontinuities / major technological shifts
A radical innovation is a major improvements along a dimension of merit
Such innovations are very rare…
… and should not be confused with disruptive innovation (might even enhance competences)
Time
Performance
Dimensions of Merit and DisruptionExample: Photography
Who had a camera like this?
What was the dimension of merit?
When did you stop using it?What did you use instead?Did new camera make better pictures?
Disruptive Innovation: Two Dimensions of Performance
Source: Ulrich 2017
Secondary Dimension (e.g., cost per picture, digital)
Prim
ary
Dim
ensio
n (e
.g.,
imag
e qu
ality
)
min
. req
uire
men
t -ni
che
mar
ketmin. requirement - main market
incumbent
new entrant
improvement trajectory
improvement trajectory
good enough for main market
performance outstrips market need
Initial Set-up: #1: An incumbent technology that is superior on a dimension of merit
#2: A new technology that is inferior on the dimension of merit, but has some other performance dimension that makes it attractive for some people
And then:#3: The new technology improves and becomes good enough on the old dimension of merit
#4: More and more people prefer the new technology providing it with scale advantages
#5: The incumbent is not able to respond
What Happened to Film Rolls? (part 1)
(photo marketing association)
Digital Cameras
Film Cameras
Source: Ulrich 2017
What Happened to Film Rolls? (part 2)A Closer Look at the Early Days
Apple QuickTake 100 released in 1994
Resolution: 640x480 pixels
Manufactured by: ?
Licensing condition: ?
Lesson 1: You get disrupted by an inferior technology =>Focus on the Need, not on single dimension of merit or profit.
A disruptive innovation is inferior on the dimension of merit Cheaper and of interest to more (yet different) customersSome similarity to blue ocean innovation (different attributes matter)
Incumbent technology is still improvedTends to be catered towards the existing customers (horizon 1)Customers are sophisticated and willing to pay high prices for the dimension of merit
Disruptive innovation tend to be associated with lower price points
Gives rise to the innovator’s dilemma (Clayton Christensen): Why do firms succeed?They listen responsively to their customers and develop their next generation products
Why do firms fail?They listen responsively to their customers and develop their next generation products
Which clinical areas do you currently see at risk for this type of disruption?
Competence Destroying Innovation, Architectural Innovation, New Dimension of Merit – Try this out in this case!
Competence Destroying? Architectural? New Dimension of Merit?
What could Border’s have done to protect their futures?
At what time would you take action?
Online Book Retailing is not the only Threat to Borders:eBooks, Rentals, Audio, …: Disruption is Knocking at your Door Everyday
Source: Statista
Source: Statista
Online Book Retailing is not the only Threat to Borders:eBooks, Rentals, Audio, …: Disruption is Knocking at your Door Everyday
Current development of healthcare spending is not sustainable…
Big Data and Artificial intelligence; EMR
Value based payment, bundled payment, sharing of savings
Genomics, T-cells, biotech
Consumerization of healthcare
Connected healthcare, home monitoring, implantables, wearables
Networks and partnerships – post acute care, retirement homes
Personalized medicine, precision medicine
Disruption is Knocking at your Door Everyday: Examples from Healthcare
Back to Books - Disruption Does Not Happen Overnight:How the Printing Press Disrupted the Scribes
Disruption Does Not Happen Overnight: Electric CarsLesson 2: Most Things Get Better in the Morning
Source: https://commons.wikimedia.org/w/index.php?curid=455286
The Lohner PorscheHybrid engine using electricity or petrol10-14 horse power
Source: Von Museumsfotografierer - Eigenes Werk, CC BY 3.0, https://commons.wikimedia.org/w/index.php?curid=9864574
The BMW E1Electric engine with 50hpDeveloped 1991
Innovation Portfolios: There Exist Different Types of Innovation
Deliberate allocation across three horizons
The orphan horizon
Enables relative comparisons
Group discussion:Where would you want to spend some resources as a hedge?
Example: Car2Go => Lesson 3: Take a Small Number of Deliberate Bets to vaccinate against Disruption
Launched by Daimler in 2008
Daimler makes $180B in revenue
14,000 vehicles in operations
Biggest car-sharing service in the world
In 2018, merged with BMW car-sharing
Absorptive capacity is a firm’s ability to identify, assimilate, and apply external knowledge (Cohen and Levinthal)
How much would you be willing to pay for a vaccine/insurance?
How Much Would You Pay for Disruption Insurance?A Disruption Vaccine?
Typical car insurance per year: $1,500Typical car price: $13k for used, $31k for new car
Most Disruption Have a Happy Ending
Looking across time, what has happened to:- The number of images- The quality of the images- The profit of the producers- The utility of the customers
Ulrich 2018
Most Disruption Have a Happy Ending (for the customer)
New Service Delivery Models and Connected Strategies*
Nicolaj Siggelkow & Christian Terwiesch
*This material is drawn from our book project: Connected Strategies by Christian Terwiesch and Nicolaj Siggelkow
Combination of - Reading- Videos- Problem sets
Automatically gradedSuggested readings
Helps professor by:- Providing feed-back where students
struggle
- No more grading
The old way The Internet Way The New Way
Student reading
Personal Health
Changes in the Customer Experience
⇒What is the overall trend in Customer experience here?
Conclusion
⇒Acknowledgments (Support, funding, your time)⇒ Future (stay in touch, network, slides)⇒Take-aways
- What will you do differently?- One suggestion for changes in Mack 4.0?
