Strategy and Innovation

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Strategy and Innovation

• Jonny Holmström
• E-Mail jonny.holmstrom_at_informatik.umu.se
• Twitter _at_jonnyholmstrom

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Todays Main Issues

• Key trends in todays society
• Disruptive innovations in the network economy
• Some possible strategic responses to disruptive
  innovations from product and services to
  solutions and experiences

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The big trends in the 21st Century?

• Smart Phones

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The big trends in the 21st Century?

• Tablets

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The big trends in the 21st Century?

• Social Web

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Result Disruption
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Disruptive innovation

• A disruptive innovation is an innovation that
  helps create a new market and value network, and
  eventually disrupts an existing market and value
  network (over a few years or decades), displacing
  an earlier technology. (Wikipedia)

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According to Clayton Christensen, professor at
HBS, high-performing firms can do everything
right and still loose their market leaderhip
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The fast track of innovation
Because of increased competition in a globalized
world innovation is speeding up. But while new
products are launched in an increasing pace,
consumers are having a hard time catching up
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The comfort zone of society
Society does not change as fast as technological
innovations are. People much rather stay within
their comfort zone and keep living their lives
they way they are used to living them.
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The real meaning is in the use
Technological possibilities and the pace of
innovation is way ahead of peoples needs. We
must remind ourselves that the real meaning of
innovation is in the use.
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Disruptive Innovations

• Clayton Christensen Innovators Dilemma and
  Innovators Solution
• Sustaining Innovation make better products that
  can be sold for more money to attractive
  customers incumbents prevail
• Disruptive Innovations commercialize a simpler,
  more convenient product that sells for less money
  and appeals to a new or unattractive customers
  new entrants beat incumbents

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Sustaining vs Disruptive Innovations

• Sustaining innovation targets demanding customers
  with better performance than what was
  previously available
• Disruptive innovations do not attempt to bring
  better products to established customers in
  existing markets rather they introduce
  products/services that are (maybe) not as good as
  those currently available but they are simpler
  and less expensive and appeal to customers
• Disruption occurs as the rate of technological
  improvements are higher than customers can
  utilize
• The disruptive products and services may
  eventually become acceptable to high-end
  customers

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The customer is not always right Why high
performing companies fail

• The highest performing companies ... have well
  developed systems for killing ideas that their
  customers dont want. As a result, these
  companies find it very difficult to invest
  adequate resources in disruptive technologies
  lower margin opportunities their customers dont
  want until those same customers decided that
  they want them. And by then it is too late.
• - This is the Innovators Dilemma

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Two Types of Disruptions

• New Market Disruptions compete with
  non-consumption as they are so cheap and simple
  they attract new customers previously dont use
  the products and services
• Low End Disruptions simple low cost business
  models to pick off the least attractive of the
  established firms markets and progress upwards

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Disruptive vs. Sustaining Technologies
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How to initiate an innovation
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Examples

• Low cost airlines British Airways and KLM under
  attack from Ryanair - full service, hub-and-spoke
  strategy versus low cost, point to point,
  no-frills strategies
• Barnes Noble vs Amazon.com
• The attackers utilize strategies that are both
  different from and in conflict with the
  strategies of the incumbent firms Disruptive
  strategic innovations
• Incumbent firms struggle in competing because of
  conflict with mainstream strategy and established
  way of working

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Possible responses to disruptive innovations

• Focus on and invest in the traditional business
  the disruptive innovation will not grow
  indefinitely (10-20) and wont capture 100 of
  the market
• Ignore the innovation it is not your business
  different customers, value propositions and
  require different skills and competences
• Attack back disrupt the disruptive innovation
  create an even newer game
• Playing both games simultaneously via a
  separate unit

Charitou, C C Markides (2003) Responses to
Disruptive Strategic Innovations. Sloan
Management Review Winter 2003 55-63
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Strategic Re-Orientations From Products and
Services to Solutions and Experiences

• Two strategic re-orientations in recent years
• In a world of standardized products, companies
  are turning to service offering for growth -
  often in the name of business solutions
• What the customer buys and considers value is
  never a product. It is always utility that is,
  what a product does for him Peter Drucker

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Example GM

• General Motors
• Automotive services - sales, repairs, financing,
  parts and accessories roadside assistance
  insurance
• OnStar travel, emergencies, satellite radio
  services vehicle monitoring services car phone
  and data services, personal concierge services
• Home services (GMAC) home sales, mortgage,
  relocation, monitoring, insurance, satellite TV
  etc
• Underpinned by strong brand, an ICTs platform and
  a community of users and suppliers

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Example MacGregor Cranes

• MacGregor Cranes
• Manufacturer of shipboard cranes
• Core Manufacturing of cranes based on
  engineering skills
• Threat from low-wage countries
• From product to services from cranes to the
  service of lifting stuff
• Give the crane for free, charge the customer for
  using it
• Role of sensor technologies

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Summing up

• Disruptive innovation is a key force in todays
  society
• Innovation strategies must be in place both for
  incumbent firms and start-ups
• The customer is always right is not correct
  anymore