Week4Meetingthe Challenge of disruptive change PDF

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Meeting the Challenges of disruptive change - Prof Don...

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Week 4 Case Study 1 “Meeting the challenge of disruptive change” -

Christensen C and Overdorf M, Harvard Business Review, March - April, 2000

1. 2. 3. 4.

Capabilities Sustaining vs Disruptive Innovations Strategies (3 Ways) A, B, C,D matrix Table

Where capabilities reside Resources - tangible ones: people, equipment, technologies, and cash - less tangible ones: product designs, information, brands, and relationships with suppliers, distributors, and customers. - access to abundant, high-quality resources-> increases organization’s chances of coping with VUCA.

Processes - Patterns of interaction, coordination, communication, and decision making. - Formal: Explicitly defined and documented-> eg. accounting - Informal: routines or ways of working that evolve over time-> eg. investment strategy habitual market analysis, budgeting negotiations. - Dilemma of businesses: Processes, by their nature, are repetitive, consistent and systematic. They are meant NOT to change as they are designed to work on the task it was designed for the best. However, this means that processes when put into other tasks, the work done becomes sluggish. - Problem: a process that creates the capability to execute one task concurrently defines disabilities in executing other tasks.-> very different ways of working - The most important capabilities & disabilities lies in less visible processes-> habitual way of working-> organizations’ most serious disabilities in coping with change reside.

Values (focus on 2) -evolution of these two values is what makes companies progressively less capable of addressing disruptive change successfully. -first value dictates the way the company judges acceptable gross margins. -value add products & services → attract more customers → add overhead costs -second value relates to how big a business opportunity has to be before it can be interesting. - as companies become large, they lose the ability to enter small, emerging markets. - problem is magnified when companies suddenly become much bigger through mergers or acquisitions. Simplified meaning: Values dictates the way company judges acceptable gross margin. So good fit values mean the company has already experimented and then decide on the values and target group that they want to prioritise(based on whether company is seeking for profit maximisation or breakthroughs) and then work on it to achieve their aims. Sustaining vs Disruptive Innovation (what are the differences? how do small/big firms respond to such changes, and why?) Sustaining innovation - innovations that make a product or service perform better in ways that customers in the mainstream market already value - tend to be developed and introduced by established industry leaders because of resources(leaders introducing sustaining tech)- processes(evaluate tech potential of sustaining innovations and launching of new products) -values(higher margins from better products sold) framework

Disruptive innovation - Innovation with lower performance according to what mainstream customers want, includes other performance attributes (smaller, simpler, cheaper) which are not valued by current customers that make it prosper in a new value network - Disruptive innovations create an entirely new market through the introduction of a new kind of product or service, one that’s actually worse (in terms of its quality), initially, as judged by the performance metrics that mainstream customers value. - occurs intermittently and no routine process and tend to have lower profit margins per unit sold; inconsistent with established company’s values - tend to be pursued by smaller companies as their cost structures can accommodate low margins and values can embrace small markets Creating Capabilities to cope with change -

largely depends on the organisation’s processes and values

3 Ways to Manage Disruption 1. Create new organizational structures within corporate boundaries in which new processes can be developed (Google & new parent company Alphabet) New types of coordination 2. Spin out an independent organization from the existing organization and develop within it the new processes and values required to solve the new problem. - Current processes not suitable/appropriate for the organisation’s new ventures. The innovation/idea is different from the business(products & services sold) that the company is currently involved in. - Values: Profit margins/cost structures not aligned with companies, will not be prioritised if it is done with mainstream processes in big companies - The primary requirement is that the project not be forced to compete for resources with projects in the mainstream organization. - Spinouts can be effective for companies to enter different industry but it must have the CEO’s personal, attentive oversight (i.e must have the existing organisation’s support) 3. Creating capabilities through acquisitions -

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Acquisition allows a certain company to gain new capabilities only if innovating managers know where the capabilities reside in the acquisition and are able to assimilate them accordingly to the capabilities and disabilities of the parent company. To achieve this, one must have a separate assessment of the capabilities and disabilities in the resources, processes and values of both their own company and the one they are seeking to acquire.

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If the acquired company’s capabilities are their resources (people, products, technology, customer base), integrating these resources into the parent company’s processes would definitely leverage the parent’s existing capabilities.

A. Values and Processes are a good fit - No new capabilities are required - Deploy either Functional Teams (focus on function-specific issues then pass on to the next function, organisation’s processes remains) or lightweight teams (cross-functional, but members report to respective functional managers) - Usually for Sustaining Innovations (i.e. an improvement of a product that the company has already manufactured and commercialised - phone/tablet/PC models) B. Values fit but processes don’t - New types of coordination and interaction between co-workers required - eg. Manufacturing a different kind of product from what it currently sells (company wants to shift from manufacturing hard disks to thumbdrives etc) C. Both Values and processes do not fit - a spin off enables the project to be governed by different values and ensures that new processes emerge D. Processes fit but values does not - Heavyweight team can be formed within the organisation, but commercialization requires a spin-out - Development makes use of main organisation’s existing processes. However, for the allocation of resources, due to differences in values, the priorities of the new project

often conflicts with that of the organisation’s. (after development, the company has to operate separately)...