Meeting the Challenge of Disruptive Change
MOT 석사세미나 1
TOC About the authors At the cover These are scary times for managers… Where Capabilities Reside The Migration of Capabilities Sustaining vs. Disruptive Innovation To Cope with Change In Conclusion
About the authorsClayton M. Christenson
Professor of business administration of Harvard Business School.Worked as a missionary for church in Korea (1971~1973). as a management consultant with BCGCofounder of consulting firm Innosight.Book : The Innovator’s Dilemma: When New Technologies Cause Greate Firms to Fail. The Innovator’s DNA
Michael Overdorf
Dean’s Research Fellow at Harvard Business School.Worked for Alcoa (managerial positions in operations & product development).Chairman and CEO of Innosight (Consulting & Research Services to Companies)Book : The Digital Enterprise and The HBR on Innovation. After the Gold Rush: Patterns of Success and Failures on the Internet.
At the cover
These are scary times for managers… Dealing with major, disruptive
change Not good even before the Internet, glob-
alization
Even harder for now and for the future …
Dayton Hudson Corpo-ration
(Founded in 1902)1902, Dayton Dry Goods Company, Minneapolis.1962, 1st Target store 2nd largest discount retailer in US.
Out of Hundreds of Dep’t Store
Minicomputer Companies Personal Computers
Medical & Business Schools Struggling(change curricula) & Failing
These are scary times for managers… Even in big companies
Not because … Managers can’t set disruptive changes coming.
Usually they can see it. They lack resources to confront them
Have talented managers, specialists, strong product portfolios, first-rate technological know-how, and deep pockets.
But because … Managers lack a habit of thinking about their or-
ganization’s capabilities as carefully as they think about individual people’s capabilities.
These are scary times for managers… Great managers are good at
Identify the right people for the right job and to train employees to succeed at the jobs they’ve given.
Right Peo-ple
Right Job
Train-ing
Suc-ceed at
their job
Organiza-tional Suc-
cess
Organiza-tional Fail-
ure
organiza-tions’ capa-
bilities
These are scary times for managers… Good managers need to be skilled to
…
Right Peo-ple
Right Job
Train-ing
Suc-ceed at
their job
Organiza-tional Suc-
cess
Organiza-tional Fail-
ure
organiza-tions’ capa-
bilities
AssessingPeoples (Re-
sources)
AssessingOrganization’s abilities/dis-
abilities
These are scary times for managers… If an organization faces major change
Make drastic adjustment to existing or-ganization destroy the company’s ca-pability
(disruptive innovation!)
Must understand what types of change the existing organization is capable and incapable of handling.
Where Capabilities Reside factors that affect to organization’s
capabilities Resources Processes Values
Where Capabilities Reside Resources
What can this company do? mostly looks for the answers in its resources people, equipment, technologies, cash, …
tangible Product designs, information, brands, rela-
tionships with suppliers, distributors, and customers less tangible
But, resource analysis doesn’t come close to telling the whole story.
Where Capabilities Reside Processes
The patterns of interaction, coordina-tion, communication, and decision mak-ing employees use to transform re-sources into products/services. Formal processes (visible, explicit)
Product development/manufacturing/budgeting process,
Informal processes (less visible) Routines or ways of working
Processes are meant not to change. Or change through tightly controlled proce-
dures.
Where Capabilities Reside Processes (cont.)
Develop capability for executing a task defines disabilities in executing an-other task.
The most important capabilities and concurrent disabilities are more likely to be embodied in the less visible pro-cesses (background processes). How market research is habitually done, How such analysis is translated into financial
projections, How plans and budgets are negotiated in-
ternally, …
Where Capabilities Reside Values
Narrow meaning: what corporate values. Johnson & Johnson ensure patient well-being Alcoa employee safety
Broad meaning: the standards by which employ-ees set priorities that enable them to judge whether an order attractive or unattractive, whether a customer is more important or less important, whether an idea for a new product is attractive or marginal, … Those decisions are made by employees at every
level.
Where Capabilities Reside Values (cont.)
The larger and more complex a com-pany becomes, the more important it is. Clear, consistent value should permeate the
organization. But it also define what an organization
cannot do. Company’s values reflects its cost structure
or its business model 40% of gross profit margin
Would kill ideas that promise gross margins below 40%
Eg) low-margin market such as e-commerce.
Where Capabilities Reside Two evolving values addressing dis-
abilities 1. Values for company’s acceptable
gross margins Narrow margins gross margins w/ premium
customers
Corona
Lower-end mar-ket
1960’
North AmericaToyota
HondaMazdaNissan
…
1982
Camry Lexus
1989
Sophisticated cars targets at higher tiers
Echo(Yaris)
1999
Entry tier
Where Capabilities Reside Two evolving values addressing dis-
abilities 2. Values relate to how big a business
opportunity has to be before it can be interesting Maintain a constant rate of growth!
$40 million (25% growth) additional $10 mil-lion market
$40 billion (25% growth) additional $10 billion market
As companies become large, they lose the ability to enter small, emerging markets.
Magnified companies by M&A suffer the same problems.
The Migration of Capabilities As organizations grows
Focus shift: Resources(people) Pro-cesses, values At early stage founder has a profound im-
pact1987
digital-editing system
product lack of consistent process to develop and manage
Avid Tech-nology
1993IPO: $16/
share
1995$49/share
2012$9/
share
saturatedmarket
1926managerial ac-
counting
people (managing director for 3yr) process, value
McKinsey & Com-pany
1935McKinsey left
company
1937McKinsey
die
2010$10 billion rev-
enue
Hundreds of MBAs
The Migration of Capabilities As successful company mature …
Employees begin to follow processes and decide priorities by assumption rather than by conscious choice, those processes and values come to constitute the organization’s culture.
Capability to change
Re-sources
Visible & artriculated processes & values
Cul-ture
easy diffi-cult
Company Sizesmall
Company Sizesmall large
Sustaining vs. Disruptive Innovation Evolutionary changes (sustaining in-
novation) Innovations that make a product/service
perform better in ways that customers in the mainstream market already value. Compaq early adoption: 16-bit CPU 32-bit
CPU Merril Lynch’s CMA introduction
Sustain the best customers by provide something better than had previously been available What successful companies are pretty good
at
Sustaining vs. Disruptive In-novation
Revolutionary changes (disruptive innovation) Create an entirely new market through the intro-
duction of a new kind of product/service, initially, can be judged as worse value by the performance metrics of mainstream customers. Charles Schwab’s bare-bones discount brokerage PC against mainframe & minicomputers
Disruptive don’t address the next-generation needs of leading cus-
tomers in existing markets improved so rapidly that they ultimately could address
the needs of customers in the mainstream of the market
Sustaining vs. Disruptive In-novation
Disruptive innovations occurs so in-termittenly… No company has a routine process for
handling them. Smaller, disruptive companies are more ca-
pable of. Nearly always promise lower profit mar-
gins and not attractive to the company’s best customers They’re inconsistent with the established
company’s value Larger companies often surrender with huge
resources.
To Cope with Change Change management, Reengineering
Program But, process are not as flexible or
adaptable as resources are – values are even less so.
Create a new organizational space where those capabilities can be de-veloped Create a new organizational structures
within Spin out an independent organization Acquire a different organization
To Cope with Change Creting new capabilities internally
Pull the relevant people out of the exist-ing organization and draw a new bound-ary around a new group Heavyweight teams
Team members are physically located together, and each member is charged with assuming per-sonal responsibility for the success of the entire project.
Strong atComponents
(powertrain, electrical sys-tem, …)
To accelerate auto develop-ment
(heavyweight teams)
ChryslerFocus on automobile plat-
formsDesign a process for inte-
grating various subsystems
To Cope with Change Through a Spinout Organization
When the mainstream organization’s values would render it incapable of allo-cating resources to an innovation project. Old-line companies to handle the Internet
challenge New project should not be forced to
compete for resources with mainstream organization’s projectHewlett-
PackardSpinou
t
Laser-printerDivisionink-jet project
Ink-jetDivi-sion
To Cope with Change Through Acquisitions
What created the value that I just paid so dearly for? Did I justify the price because of the acqui-sition’s resources ? Or was a substantial portion of its worth crated by processes and values? Process & Values don’t try to integrate the acquisi-
tion into the parent organization. (let them stand alone!)
Resources integrate it into parent. Plug acquired people, products, technology, and customers
into the parent’s processes as a way of leveraging the par-ent’s existing capabilities.
To Cope with Change Through Acquisitions (cont.)
Wall Street
Daimler
Strong processes/Few re-sources
(design & subsystem in-tegration)
Crysler Acquisi-tion, 1998
Pressure to consoli-
date
Siemens AG
IBM
Strong processes, PBX product
(develop & find new market)
ROLM Acquisi-tion, 1984
?
1987Full Integra-
tion(failure)
Half sold,1989
To Cope with Change Through Acquisitions (cont.)
Cisco Sys-tems
Acquisition, 1993~1997
(early-stage compa-nies)
Absorbed re-sources
Stratacom, 1996(larger & mature
company)
StrataCom(Multi-Service Switching
Business Unit)
In Conclusion Confronting changes …
First determine whether they have the resources required to succeed
Then ask, Does the organization have the processes
and values it needs to succeed in this new situation?
Are the processes by which work habitually gets done in the organization appropriate for this new problem?
Will the values of the organization cause this initiative to get high priority or to languish?
In Conclusion
The reason that innovation often seems to be so difficult for established companies is that they employ highly capable people and then set them to work within organizational struc-tures whose processes and values weren’t de-signed for the task at hand.