Week 3 – Disruptive Innovation INFS7040 Digital Transformation LEARNING OBJECTIVES • Be able to identify changes in the

environment that can cause disruption to a

business model • Be able to determine factors that differentiate

sustaining from disruptive innovation • Determine appropriate strategies based on an

industry’s unpredictability and malleability 2 RECAP – DIGITAL TRANSFORMATION … the integration of digital technology into all areas of a business resulting in

fundamental changes to how businesses operate and how they deliver value

to customers. Is the pace of Innovation speeding up? 3 Source: McGrath (2013). The Pace of Technology Adoption is Speeding Up. HBR, November 25, 2013. ORGANISATIONAL LIFECYCLE 4 Startup Grow th M aturity Decline Time Pe rf or m an ce Source: Handy (1995). The Empty Raincoat: Making Sense of the Future. Random House Business, 1995. TRANSFORMING BUSINESSES 1. How can an

organisation

generate, evaluate,

and implement a

profitable new

business model? 5 2. How can an organisation react to changes in its external environment at

point A rather than experiencing performance problems at point B? A B Time Pe rf or m an ce New business model New business model Survival? TRANSFORMING BUSINESSES 6 1865 1967 1982 1998 Nokia had sales revenue

of $20bn, $2.6bn profit. April 2014, sale of

Nokia’s mobile

phone division to

Microsoft 20142007 Q4 2007 Nokia has a

global mobile phone

market share of 51% 2020 USA floats idea of

buying Ericsson or

Nokia to compete

against Huawei for

5G 1998 DISRUPTIVE INNOVATION • In almost any industry the most dramatic

stories of growth and success were launched

from a platform of disruptive innovation Examples: – Traditional Encyclopedias – Wikipedia – Video Rental – Streaming Services – Photographic Film – Digital Photography 7 DISRUPTIVE INNOVATION 1. Pace of technological progress outstrips the ability of customers

to make effective use of the improved versions of a product 2. Companies earn attractive profit margins when going upmarket 3. Innovations by incumbent companies help them earn higher

margins from their best customers 4. Industry incumbents often are not first to market with a

sustaining innovation, but they almost always end up on top 5. Disruptive innovations appeal to customers who are unattractive

to the incumbents 6. Industry leaders are not motivated to pursue disruptive

innovation 8 DISRUPTIVE INNOVATION What is Disruptive Innovation • Lower performance (inferior product/service at cheaper

price) according to what mainstream customers want • Other performance attributes (e.g., smaller, simpler, new

technology) that address current non-customers that

makes it prosper in a new value network Over time • As it improves along the traditional performance

parameters it eventually displaces the former technology 9 SUSTAINING VS DISRUPTIVE INNOVATION • Sustaining Innovations

are those that current

customers demand • Disruptive Innovations

are those that do not

satisfy current

customers 10 Source: Clayton M. Christensen and Michael E. Raynor, The innovator’s solution: Creating and Sustaining Successful Growth, HBR, 2013 TWO TYPES OF DISRUPTIVE INNOVATION • Low-end disruption – Aimed at mainstream

customers for whom price

is more important than

quality • New-market disruption – Aimed at non-consumption

(i.e., consumers who

would not have used

product/service already on

the market) 11 TESTS FOR DISRUPTIVE INNOVATION • Low-end Disruption – Test #1: Are prevailing products more than good

enough? – Test #2: Can you create a different business

model? 12 TESTS FOR DISRUPTIVE INNOVATION • New market Disruption – Test #1: Does the innovation target customers who in

the past haven’t been able to “do it themselves” for

lack of money or skills? – Test #2: Is the innovation aimed at customers who will

welcome a simple product? – Test #3: Will the innovation help customers do more

easily and effectively what they are already trying to

do? 13 LET’S TEST FOR DISRUPTIVE INNOVATION • Wikipedia [founded 2001] • Uber [founded 2009] and UberX [introduced 2012]

• Low-end Disruption – Test #1: Are prevailing products more than good enough? – Test #2: Can you create a different business model? • New market Disruption – Test #1: Does the innovation target customers who in the past haven’t been

able to “do it themselves” for lack of money or skills? – Test #2: Is the innovation aimed at customers who will welcome a simple

product? – Test #3: Will the innovation help customers do more easily and effectively

what they are already trying to do? Question time • Is Airbnb a disruptive

innovation? 15 IDENTIFYING INDUSTRY DISRUPTION Scanning Trends & Environment • Porter’s Five Forces • PEST(LE) • Unpredictability/Malleability Matrix • Risk analysis and scenario matrix 16 PORTER’S FIVE FORCES • Porter's Five Forces Model helps

managers and analysts

understand the competitive

landscape that a company faces

and to understand how a

company is positioned within it. • Even though it was created more

than 50 years ago, the Five Forces

Model continues to be a useful

tool for understanding how a

company is positioned

competitively. 17 PORTER’S FIVE FORCES • Threat of new entrants:

– This factor evaluates the ease or difficulty of new companies entering the market, which can affect the level of

competition and profitability. • Bargaining power of suppliers:

– This factor evaluates the level of control that suppliers have over the cost and quality of inputs, which can affect the

profitability and competitiveness of companies in the industry. • Bargaining power of buyers:

– This factor evaluates the level of control that buyers have over the price and quality of products or services, which can

affect the profitability and competitiveness of companies in the industry. • Threat of substitute products or services:

– This factor evaluates the extent to which alternative products or services can meet the same needs as those offered by

the industry, which can affect the level of competition and profitability. • Rivalry among existing competitors:

– This factor evaluates the intensity of competition among existing companies in the industry, which can affect the

profitability and market share of each company. 18 PEST(LE) • Political – Legislation, Consumer Protection, Tax, Tariffs etc. • Economic – Growth, Interest Rate, Inflation, Exchange Rate etc. • Social – Culture, Demographics, Labour & Social mobility, Health & Welfare, Education, Lifestyle etc. • Technological – R&D activity, automation, Energy use and costs, Internet and ICT availability etc. • Legal – Employment/Consumer/Antitrust Law, Health & Safety, Regulations, Trade Barriers etc. • Environment – Weather, climate, etc.

19 PEST(LE) – e.g., AUTOMOTIVE INDUSTRY 20 Political Economic Social Technological Legal Environment PEST(LE) – E.G. AUTOMOTIVE INDUSTRY 21 • Incentives for low emission vehicles in EU/China • Subsidies for car manufacturers are still high in several countries

(e.g., FRA, GER, CHN) Political • Recovery after the GFC abruptly ended with massive sales lump

in 2020 • Taxes on luxury vehicles increasing (e.g., Singapore) Economic • Owning a car less important to millennials • SUVs continue to increase in popularity Social • EVs are getting better/cheaper (e.g., Tesla Model 3, VW ID.3) • Connected cars, integrating of sensors and environment • Self driving technology getting better Technological • Emission controls are tightening in EU and China (e.g.,

Volkswagen scandal) Legal • Banning of vehicles in cities (e.g., Paris, London, Beijing)Environment Question time • Make a PESTLE analysis

for ANU 22 In Class Exercise - PEST(LE) – ANU 23 Political Economic Social Technological Legal Environment • In this exercise you will work in groups to

complete a PESTLE analysis for ANU. • You may need to use the Internet to gather

information about higher education in

Australia to help guide your analysis. • Create a table and be ready to share with the

class. UNPREDICTABILITY/MALLEABILITY MATRIX 24 1. (Un)Predictability • Determines accuracy of forecasts • Action: Experiment versus plan • Action: Implement the required speed

and agility in processes 2. Malleability • Determines how much the actions of

a firm can shape the industry • Action: Act upon the Company’s

desire, need, and ability to shape the

industry U np re di ct ab ili ty Malleability Source: Reeves et al (2012). Your strategy needs a strategy. Harvard Business Review, September, 2012. Hi gh Lo w HighLow UNPREDICTABILITY/MALLEABILITY MATRIX 25 Adaptive • Be fast • Experiment • Short Cycle

Times Shape • Orchestrate • Engage • Grow the

ecosystem Visionary • Be first • Persist • Speed Classic • Be Big/Grow • Plan • Take a large

share of profit

pool Malleability Unpredictability UNPREDICTABILITY/MALLEABILITY MATRIX 26 IMPLICATION FOR SUSTAINING

CONSTRUCTIVE DISRUPTION • Transformative changes that are often

required in their business strategies require

disruptive thinking – Transforming their customer-facing strategies; – Monitoring environmental, social and governance

changes – Revisiting strategies timely to keep business

ahead of the curve. 27 DEALING WITH UNCERTAINTIES 28 MitigationImpactLikelihoodRisk DEALING WITH UNCERTAINTIES - EXAMPLE 29 MitigationImpactLikelihoodRisk • Invest in low/zero emission

technology HighHighEmission regulations

tighten • ↑ Revenue from auxiliary services • Enter new markets • Develop car sharing scheme HighMediumCar ownership %

reduces • Renting instead of selling carsMediumMediumTaxes on vehicles

increase • Cost control • De-Diversification of range MediumMediumProlonged Economic

downturn Question time • Make a risks register

(short-version) for ANU 30 In Class Exercise - DEALING WITH UNCERTAINTIES 31 MitigationImpactLikelihoodRisk • In this exercise you will identify potential

risks and develop appropriate mitigation

strategies for ANU. • Try and identify at least 3 risks • Create a table and be ready to share

with the class. IMPLICATION FOR SUSTAINING

CONSTRUCTIVE DISRUPTION • Continuous transformation effectively

accumulates risks. – Top management should have a clear visibility of

the relevant internal and external risks that can

affect the family business, the strategy or the

business transformation model that is adopted. 32 SCENARIO PLANNING – EXAMPLE 33 Cars are only bought B2B Car ownership increases Zero emissions cars mandated Emissions are not regulated Long live Stuttgart Focus on luxury, Petrol-engine cars

Engineering Challenge Develop zero emission mass transport vehicles Green cities Zero emission, self driving, mass market cars Long live Detroit Muscle Cars Cost efficiencies Globalisation SCENARIO PLANNING – EXAMPLE-3D • Theoretically speaking,

you can add as many as

dimensions to make

complex planning. 34 IMPLICATION FOR SUSTAINING

CONSTRUCTIVE DISRUPTION • Transformative change is energised by foresight. – It is driven by the family’s purpose and values and their

ability to continuously recognize new opportunities – or

anticipate potential “scenarios” “risks”, and “threats”.

– It’s proactive, not reactive, and it has a long-term planning

requirement. 35 IMPLICATION FOR SUSTAINING

CONSTRUCTIVE DISRUPTION • With continuous transformation, there is the

potential for “Change fatigue” among management

and employees.

– Waning energy does exist.

– Stability is also a wonder indicator for (some) institutional investors – In general, managers need to have good policies and procedures in

place to help ensure that changes are integrated successfully and

minimize disruption when turnover does occur. 36 QUESTIONS? Summary of learning outcomes • Disrupting or sustaining Innovation? • Four useful models/tools to assess

environmental influences: – Porter’s Five Forces – PEST(LE) – (Un)Predictability/Malleability matrix – Risk analysis and scenario matrix 37 51作业君版权所有