Organisational Change Management Volume 1

Life-cycle Approach

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(Life history of an organisation or product that can be called the S-curve, sigmoid curve, second curve or curvilinear logic)

Introduction

Most products/services, organisations, etc follow a similar development pattern (as illustrated in the diagram below) of a beginning (1), a period of slow growth or decline (2), a period of rapid growth (3), a mature phase (4) and an ending (5).

organisational development change management

Resources (time, money, energy, etc)

For example, a product/service<

Organisational Change Management Volume 1

Life-cycle Approach

{product-noshow 13|name|cart|picture|link|border|menuid:206|pricedis3|pricetax1}

(Life history of an organisation or product that can be called the S-curve, sigmoid curve, second curve or curvilinear logic)

Introduction

Most products/services, organisations, etc follow a similar development pattern (as illustrated in the diagram below) of a beginning (1), a period of slow growth or decline (2), a period of rapid growth (3), a mature phase (4) and an ending (5).

organisational development change management

Resources (time, money, energy, etc)

For example, a product/service is launched (1), sells slowly (2), becomes accepted and sales rise rapidly (3), market matures, ie market becomes saturated; product/service is copycatted by competitors; product/service is commoditised (4) and the market changes, ie replacement product needed (5). One way to handle this is by

"...looking at trends on the horizon and using your temporary monopoly to build the brand, make a profit, and then quickly move onto the next generation..."

Oren Harari has quoted by Brad Hatch, 2007b

For example, iPod

"...Apple refused to mirror the opposition, continuously rewriting the rules of music with its popular music player. Copycats looked on and then set out to copy it, but Apple cannibalizes its established market again and again. While everyone takes aim at its products, Apple jumps the curve and keeps on evolving......Apple's new mobile phone with iPod functionality went a step further recently - making a separate music player largely redundant..."

Oren Harari has quoted by Brad Hatch, 2007b

For an organisation, the sequence is start up (1), growth (2), control (3), maturity (4) and shake out or decline (5).

Many start-ups, like in the fashion industry, have fallen over as they
"...make not very clever decisions about what they're doing.....they become too big too fast, do too many things, get in over their heads financially, they haven't paid their tax, they get bigger premises, more staff......you're almost setting yourself up for disaster. If you picked the colours wrong one season and it doesn't sell it's like playing Russian roulette.  It can be that fickle.  Two seasons and you're down.  Nobody can forecast what's going to sell next season. It really is that fragile, that you can be gone all of a sudden..."
Alex Perry as quoted by Nic Walker, 2016


Need to be careful of the bandwagon that social media rules cash registers. Designer Alex Perry hired 4 bloggers and then checked with his staff to determine if social media was moving dresses. He could not trace any sales back to the bloggers!!!!!


Off-shore production and logistics in the fashion industry is not cheap but it is essential to remain competitive with European high fashion and low-priced chain stores. Need to handle the perception that manufacturing offshore, like in China and India, is substandard; yet these countries have been beading beautifully and making beautiful silk of thousands of years.

The different stages of the S-curve require different mindsets, competencies and expertise. At the start of the S-curve is the position of re-vitalising, discovery and inventiveness (called pioneering colonisers) is required; the middle part of the S-curve requires correct investment, exploitation the economies of scale, production of suitable good/services for the market-place, control of the channels of distribution, etc (called consolidators); and when nearing the peak of the S-curve, it is time to re-invent with adequate resources available. On the downward side of the S-curve, the urgency to re-invent is very strong as all resources, especially time, are in short supply.

Another way to look at this is in the development of a new venture. Initially resources (especially people) are paramount. As the business develops, processes and values increase in importance and become embedded in the culture; unfortunately once the culture is well established with its processes and values, this can become a hindrance or disability to change, ie

"...established organisations typically face the opportunity to create new growth business - the consequent requirement is to utilize different resources, processes, and values - at a time when mainstream business is very healthy..."

Clayton Christensen et al, 2003

Ideally, you need to change before the S-curve peaks. This is when you have enough resources (money, time, energy, etc) to handle the development of something new or different. On the other hand, there is where you are most successful and do not see the need to change, ie we have the formula for success, so leave us alone!!!! Yet the corporate graveyard is full of organisations which thought they had the correct formula for success!!!!!!

"...All companies have a date at which they come to the end of their useful life......the tricky part is agreeing on that expiry date..."

Ron Brierley as quoted by Yvonne Dongeon, 2011

Usually success breeds complacency. We try to hang onto past successes and to stay in our "zone of comfort", and very few of us are willing to challenge the assumptions of success and/or use "creative tension" or "mental arm wrestling" to move in different directions. In this mindset, we are less likely to acknowledge changing trends and to find new ways of doing things, especially if they threaten our current and past success and/or zone of comfort. Remember:

"...Seeds of destruction are set at the pinnacle of success..."

Patrick Dawson, 2005

"...There is a pervasive trend in business today, described by many as the tyranny of success, in which successful organisations face considerable difficulty in maintaining their strength - an innovative edge - in the face of changing markets, technologies, and consumer demand. It is a worldwide dilemma......very factors that lead to a firm's success can also play a significant role in its demise. The leadership, vision, strategic focus, valued competencies, structures, policies, rewards, and corporate culture that were also critical in building the company's growth and competitive advantage can become its Achilles heel as technological and market conditions change over time..."

MIT Sloan School of Management, 2008

Some examples of this include

"...IBM failed to foresee the PC revolution and saw its share price plunge by 77% at a time when Dow was quadrupling in value. Xerox failed to see the market for small copiers and handed that market to Canon. Sears got trounced by WalMart. And Barnes & Noble got caught napping by upstart amazon.com..."

Andrew Parris, 2006

When an organisation is most successful is its most dangerous time. Most organisations then will make the wrong decision about their future as it will be based on past or current success, and not future trends. This is sometimes called the creative-destruction argument as all products, services, markets and even specific solutions to social problems eventually become obsolete. Yet this does not mean all organisations and societies become obsolete and irrelevant.

Some organisations become a victim of their own success & size. As their success grows, so does the size of the organisation, like Microsoft (increased staff from 57,000 a decade ago to around 127,000 in 2014; this is around 50% higher than Apple yet the latter's revenue and profit is double Microsoft's) plus the thinking changes from innovation to protecting the successful product, services, etc. Some examples include

- smart phone on Nokia & blue-tooth technology

- impact of quartz watch on industry in Switzerland. For a long time the Swiss dominated the world's watch industry. Then in the 1970s the near-fatal crippling of the Swiss watch industry with the popularity of the cheap quartz/digital Asian watches. Yet Swiss were offered, but rejected, this technology. Their own assumptions about the nature of watch making were so strong, they were incapable of understanding the full implications of this invention. The revival of Swiss watch based on it as a fashion statement, ie cosmetic/luxury item, as well as a time piece. The next disruptive inventions could be

i) around "smart watches" using silicon's unique properties like in the smart phone. Companies like Samsung (GearS), Apple (iWatch), Google (Android Wear), Sony, Asus, LG, etc are experimenting with the technology to develop smart watches.
ii) reducing components, eg Swatch's System51 has gone from 200 to 51 components made by robots
iii) cheaper machines + computer-aided designs means that complete watches are made under one roof

- Skype with telcos. Skype (2003) was not seen as a threat to the telco industry, ie technology would not work; it did not have scale, etc

"...What Skype is doing is like a toy..."

Hossein Eslambolchi, AT&T's then chief Technology Officer as quoted by Rachel Botsman

Yet by mid 2013, it now has 30% of the long-distance phone market

- Microsoft buying Nokia to protect its traditional platforms like Windows

. These "successful" organisations become maintainers rather than innovators

. Creative destruction -old are replaced with new, eg technologies, expertise, firms, etc.; winners & losers

. An indication that a product or organisation is near the peak of the S-curve is when they start making cosmetic changes rather than technological, eg change the colour of a product, etc

Furthermore,

"...Just because a company stumbles - or get smacked......by an unexpected event or challenge - does not mean that it must continue to decline. Companies do not fall primarily because of what the world does to them or because how the world changes around them; they fall first and foremost because of what they do to themselves..."

Jim Collins, 2008

Some organisations become a victim of their own success and size. As their success grows, so does the size of the organisation, and the thinking evolves from innovation to protecting the successful product, services, etc. The organisations become, at best, maintainers rather than innovators.This is more obvious in industries with rapidly changing technology. Some examples include the watch industry in Switzerland not taking up the digital technology, IBM and Dell in computers, Yahoo as a search engine, smart phones with Nokia, Zynga in mobile games, etc. Are Microsoft, Apple, Facebook & Google next?

For exmple, Dell initially disrupted the PC industry when it introduced build-to-order and direct online sales; over the years it became the industry leader. But the industry landscape changed, eg mobile phones becoming minicomputers, etc and they remained stuck within a commoditised PC market.

One firm that has used digital technolgy to change the way it does business is Disney,  ie its clients are no longer BBC or RTZ but iTunes, Google, PlayStation and Microsoft.  There was a proliferation of channels/platforms/devices, etc wanting to deliver Disney's content and this put Disney in a position of power.  The new technologies opened up commercial opportunities and new revenue streams, eg

"...you could look at the way in which programs were sold; they could be sold to one person for one platform for one experience and later to somebody else for a different experience......Disney was the first company to put long form episodes on the iPod......technology defines how content is created, how it is distributed and how it is consumed...... if you have a platform  that can't respond to the sort of digital expectations of the consumer, you are in trouble..."
Catherine Powell as quoted by Joanne Gray, 2016a

It is about connecting all the lines of Disney's business that go under the one brand like stage shows, retail and licensing products, release of films, programming and distributing TV channels, theme parks, etc 

NB

"...The essence of innovation is also obsolescence..."

Allan Gray as quoted by Vesna Poljak, 2013

In addition to becoming maintainers rather than innovators, other indicators of being victims of their own success and size are increase focus on

- incremental improvement of current products rather than creative destruction or disruption, eg making cosmetic changes like colour/size of product, rather than technological

- bureaucracy, ie less flexible with more hierarchical, process-focussed, rules & regulations orientated, etc

- silo performance, ie organisation becomes more specialised, segmented, departmentalised, etc with focus on groups rather than whole organisation's performance

- abuse of market power to protect the status quo, eg monopolistic activities, anti-trust charges, etc, Some examples include

i) Microsoft has paid US $3.4 b. in fines to European courts over a decade

ii) Intel is appealing its anti-trust case that started around 2000

iii) Google is fighting the EU anti-trust regulator's claim it has illegally abused its market dominance (2015)

- buying competitor or products/services/staff, etc from other innovative, successful organisations for market share, revenue, etc rather than innovating themselves like Apple's iTune buying Beats to keep its position in music industry and Microsoft buying Nokia to get into the mobile phone business, etc

Remember:

"...Even something that has had a long term success, it's only a knife edge away from failure..."

Steven Lowry as quoted by Jemima Whyte, 2015

Innovation can be risky
Successful companies are praised for their sound decision-making by responding to customer's needs and for focusing on investments that give the best returns. However, this is sometimes sowing the seeds of their demise.  Only up to 20% of investments into innovations are successful (Clayton Christensen, 2016). Thus investing in innovation is risky & unpredictable.  Some of the reasons for this are the pace of technological change, types of technology change (disruptive v. sustainable) and status quo thinking about investments. Some examples include Sears Roebuck, IBM, Xerox, Digital Equipment Corporation.


The watch industry is a good example of unpredictability, ie who would have believed that
- men would ditch the pocket watch for the more feminine "wristlet" version
- in the 1970s, Swiss watch industry was decimated by the quartz time piece made famous by Japan's Seiko. This less expensive and more accurate watch marked the end of the traditional industry with mechanical cogs-and-spring movement, ie it is estimated that 3/4 Swiss watchmaking workforce and their machinery disappeared. There was no certainty that the mechanical watch was going to survive. The Swiss watch industry recovery was based on the watch becoming a desirable luxury item like the Omega Speedmaster watch that went to the moon and is still a huge success in 2016.  Nicolas Hayek Snr was the man responsible for introducing a face-saving Swatch and consolidating the Swiss industry
- smart or connected watch, ie in addition to telling the time, being a luxury item, etc the watch had become a mini computer (Bani McSpedden, 2016)

One of the best way of handling the dominance and monopolistic approach of big tech companies like Microsoft, Intel, Google, Apple, etc is to encourage innovation. Rapidly changing technology is more effective than laws, rules and regulations, etc in increasing competition. Also, the legal cases can take years, if not decades, of work their way through courts, appeals, etc. Some recent examples of the impact of technological change include

- both Microsoft and Intel focused on PCs. Thus they miss on the rise of tablet computers and smart phones which allowed companies like Apple, Google, Qualcomm, etc to become dominant players in mobile devices.

- for Google, mobile apps are now challenging its lucrative web search as cellphones use the likes of Amazon, Yelp, etc to search directly for products and service, etc, ie

"...Today 7 out of every 8 minutes on mobile devices is spent within apps......consumers are going to whichever website or apps serve them best. And they face no friction or costs in switching between them..."

Vindu Goel et al, 2015

Linked with obsolescence is creative destruction, ie old are replaced with new, eg technologies, expertise, firms, etc.; winners & losers, eetc. Some examples

- globalization means that countries with cheaper labour win in industries that are labour-intense like manufacturing (clothes, auto, etc), while countries with more expensive labour will lose unless they find other industries to develop that are less labour-intense, like service/knowledge industry (education, consulting, etc)

- Industrial Revolution with mechanization, etc resulted in land-owners and artisans losing to industrialists and factory workers. It changed the definition of labour by changing the systematic and organised use of labour with the benefit of mechanical devices and machines to create goods asociated with coal, iron, ships, pottery, cloth, canals and steam
Events linked with the Industrial Revolution are
- James Watt's first condensing steam engine
- Josiah Wedgwood opened his first line pottery factory
- textile making was revolutionised by James Hargreaves' mechanical spinning- jenny, Richard Arkwright's water-powered, cotton-spinning frame Samuel Crompton's spinning mule
- Cranage, Smeaton & Cortwere developed the processes for purifying iron by "puddling" and rolling molten metal
- Abraham Darby and John Wilkinson constructed the first iron bridges in the world; Williamson was the 18th century champion of things ferrous, ie made the first iron railway, iron chapel
- Jethro Tull devised crop-sowing inventions
- Thomas Coke introduced new land management methods

Linked with technological changes were sociological movements such as caused by Enclosure Acts (where formerly common-held land was being fenced and hedged for farming with the use of new machines and the principles of crop rotation; improved breeds of livestock, ie fatter, sturdier and healthier than their bony forebears). As a result of these improved farming methods, the output of grain, vegetables and meat rose. White bread became commonplace; cheese became popular; abundance of cattle feed resulted in fresh meat being available all year round.

People began to appreciate the interconnecting links, ie better food and health conditions resulted in a fall in the death rate, especially at childbirth, and resultant population explosion. Some other health examples include better midwifery, increasing number of doctors, construction of hospitals were women gave birth, introduction of smallpox inoculation (after 1760), understanding that fresh air was good, etc.

Also, there were improvements in education and literacy; development of a newspaper industry and more reliable, efficient; postal system, this all resulted in a better informed public that was starting to encourage new and enquiring approaches to challenge some of the dogma of the time, like fundamental religious beliefs that God created man, etc. It was the time of men of science like Charles Darwin (evolution), William Smith (geology), Joseph Priestley (discovered oxygen), Samuel Johnson (dictionary), Thomas Payne (political thought), Edward Burke (liberal thinker), etc

The 18th-19th century Industrial Revolution created a new kind of worker, ie one who could read and wanted to understand how things worked with a keenness to acquire useful knowledge that could be applied to daily living. It has been highlighted (Elena Douglas, 2015) that the main reasons for the Industrial Revolution were more than the impact of steam, coal, access to large markets or capital accumulation, etc. It was the thirst for and dissemination of knowledge applied to improving daily living; followed by trial, error, measurement and improvement.

But

"...economic growth is not just a process of more and better machines, and more and better educated people, but also a transformative and destabilizing process associated with widespread creative destruction. Growth thus moves forward only if not blocked by the economic losers who anticipate that their economic privileges will be lost and by the political losers who fear that their political power will be eroded..."

Daron Acemoglu, (2012)

This equally applies to organisations, ie winner and losers. If the losers hold too much political and/or economic power so that they can successfully resist change, it will not happen. Need to find a way to handle this power, ie counter it or accommodate it, etc

Example of organisation that fell and then regained its position include Xerox and IBM:

- Xerox - by 1990 it was no. 21 on the Fortune 500. But then with uncompetitive prices, Xerox fell, ie its stock price plummeted 92 percent in less than two years with declining revenues and falling market position plus a SEC investigation. Things looked grim. But after Anne Mulcahy became CEO in 2001 she reversed Xerox's situation from a loss of more than $US 200 million in 2000 - 01 to a profit of more than $ 1 billion in 2007.

- IBM - in the 1990s, IBM hired an outsider (Lou Gerstner, previously at RJR Nabisco and American Express). He is credited with saving IBM by bringing back together its disparate parts, embracing the Internet and concentrating on services.

Some ways to reinvent an organisation include innovation (see later), bringing in outsiders (like IBM) and/or linking with an organisation that is outside your industry. Some examples of the last include

- Philips (its most profitable products are developed from the food industry and include coffeemakers, blenders and juices plus electronic goods and health-care technology).

- Nestle (has links with Krups to make coffeemakers that use a capsule system)

- DSM (Dutch agricultural company - has been marketing its machines through social media in China)

- Threadless.com uses customer designs to design its own T-shirts and these are manufactured by another company. All this is done via the Internet.

"...these are completely different industries but, by combining them, you can reinvent itself and stay big and alive..."

Fons Trompenaars as quoted by Fiona Smith, 2010m

An example of how 2 organisations facing almost identical circumstances and trajectories but had 2 completely different outcomes involves Wal-Mart and Ames. Wal-Mart has become the No. 1 company in the world, while Ames has "disappeared". But in the early 1970s Wal-Mart and Ames Department stores had a similar business model for rural discount retailing and regularly copied each other. The main difference was that Ames of started in Northeast America, while Wal-Mart moved in concentric circles from Arkansas. Both organisations delivered exceptional results from 1972 to 1986, beating the market by more than 10 times. Then Ames fell and has never recovered.

"...both Ames and Wal-Mart had strong entrepreneurial founders who guided their early growth, but whereas Sam Walton passed the company to a home-grown insider, Ames replaced its entrepreneurial leader with an outsider. Both Ames and Wal-Mart had vast, untapped opportunity with a basic strategy of low-price rural discounting, but while Wal-Mart maintained steady organic growth consistent with that strategy, Ames deviated from the strategy in favor of wild growth. In 1988, it acquired Zayne, aiming to double the size of the company in a single year. Wal-Mart retained focus on small towns before making an evolution into urban sites; Ames revolutionized itself over night into urban retailing and catapulted itself into decline. Wal-Mart created its own success, and Ames caused its own death..."

Jim Collins, 2008

If you are unsure as to the position on the S-curve of your organisation/product/service, etc, use some performance criteria, such as sales, profit, staff numbers, productivity indicators, market share, number of awards achieved, etc, to draw your S-curve and see where you are. Remember:

"...institutions falter when they invest too much in "what is" and too little in "what could be". There are many ways companies over-invest in the status quo: they devote too much marketing energy to existing customer segments while ignoring new ones; they pour too much development dollar into incremental product enhancement while under-funding breakthrough projects; lavish resources on existing distribution channels while starving new go-to-market strategies......legacy strategies have powerful constituencies; embryonic strategies do not..."

Gary Hamel, 2005

Even if things are going well, it is prudent to think of ways to change or re-invent or re-vitalise. It may mean developing a new market for your products/services, changing products/ services, changing to a new industry, re-structuring your organisation, new geographical market location, etc. On the other hand, if you have already peaked and are moving "down hill", you need to urgently start doing things differently!!!!!!

The waves of innovations during the different industrial revolutions are good examples of the S curve

An organisation needs to periodically shake itself up, regardless of the competitive landscape. Some signs that indicate a shake-up is required include

- formal and informal structures are similar

- 'silo' formations dominate

- strategies, routines, processes, systems et al become barriers

- communications and collaboration across units is minimal

- innovativeness has declined

- persistent failure to spot new developments and opportunities

- resources are concentrated in a few powerful groups

- groups doing critical work are under-resourced, etc

Some suggested ways to change before you have to change revolve around structure, recognition and processes.

- structure (how is your business organised? ie by function, geography, customer type, product, etc)

- recognition (what is emphasized in performance reviews and compensation? ie incentives for individuals/teams/organisations are transparent; open vs confidential appraisals; short-term performance vs. long-term development; revenue vs. value-added; sales vs. profit, etc

- processes (how do you carry out your work? ie decision rights (who decides what, reporting lines, etc); distribution (centralized or decentralized); location (which processes sit next to each other); focus (customer or product)

organisational development change management

Organisations which are aware of the need to be ahead of the next wave of innovation ask themselves, - What will give rise to the new areas of innovation" For a wave of innovation to happen, there is a significant array of relatively new and emerging technologies and a recognised genuine need in the market that is leading to a market expansion.

"...The first industrial revolution began with the steam engine and new machines increased the labour productivity of cotton-spinning and production of steel. This was followed by further industrial shifts with the engineering that evolved out of advances in the understanding of, for instance, electro-magnetisn. This was followed by a focus on mass production of the automobile and electrification of cities, which lasted until the 1940s. The rise of semiconductors and electronics provided some of the enabling technologies and helped create new business opportunities throughout the 1950s and 1960s. In the case of the information and communications technology (ICT) wave of innovation, it is easy to identify the technologies that were driving the growth of capacity in the industry. Innovations in computer processing power, network bandwidth and data storage......this last wave of industrial activity was largely based on semiconductors, fibre optics, networks and software......if the last wave of innovation, ICT, was driven by market needs such as reducing transaction costs, we believe that there is significant evidence that the next wave of innovation will be driven by the twin needs simultaneously to improve productivity whilst lightening our environmental load on the planet..."

Karlson Hargroves, 2005

The world is littered with examples of firms that lose their edge and grow into giant bureaucracies/silos that stifle innovation, etc, and there is internal warfare between different silos, eg Sony, Sun and Xerox. Even Microsoft has battled with this. Firms and departments/divisions/units, etc that have become successful, usually with the development of one product, have a very powerful incentive to defend it and their power base, even if technology is changing around them.

The next Industrial Revolution or the Second Machine Age

· Smart machines are displacing much of the human workforce (this includes the more cognitive professional jobs)

· Robotics, artificial intelligence and data analysis have gone from "laughably bad" to "very good"; we are at an inflection point with profound consequences. Some examples:

- Google's driverless car which drove more than 200,000 km on roads without a crash

- Watson, the IBM supercomputer, that defeated everybody on a US quiz show called Jeopardy

- improving speech recognition and its links with the development of artificial intelligence

- progress on usefulness of big data analysis

· Initially it was thought that automation, etc would have most impact on repetitive, manual jobs but robotics, artificial intelligence and data analysis are having an effect on

"...higher-level human activities are easier to mimic than basic functions. It is easier, for example, to create an algorithm that performs thousands of advanced mathematical calculations in a few seconds than one that can make up a simple story. Robots build cars and tablets but they cannot make the bed or tend the garden better than humans..."

Hans Moravec as quoted by Robert McDermott, 2014

· Is the second industrial revolution or the second machine age upon us?

Some people claim that we are going through an era like the Industrial Revolution owing to impacts of

i) Technology, ie Internet, eg social media (world-wide 24/7 communications, etc), web (e-business, etc), globalisation (global collaboration in science, innovation and technology plus widespread availability of data and information), digitalisation (things that were once scarce are becoming abundant and making goods cheaper), mobile phones (linking everybody to everything), information/sharing economy (better use of resources and decision-making, etc), data analysis (unlimited data availability to anyone), barcodes, cash machines (money available 24/7 anywhere), personal computers, education (online and individualised), medicine (disease diagnosis and treatment), etc

(NB need to be careful of information overload but this will provide opportunities for better decisions and greater freedom)

· With the internet (including digitalisation, web, telecommunications, social media, etc) we are going through a unique period in history that is equivalent to the impact of the Renaissance, Reformation, Enlightenment & the Industrial Revolution combined.

· These eras produced turmoil & upheaval.

· This is happening with the internet as it is allowing previously disenfranchised groups to become connected to each other & world-wide communities; plus accepted business models are consequently under threat.

· Some implications of the internet's power include like its impact on social organization: it is transforming the way governments, businesses, extremists, etc can capture and use information to their advantage, and this has impacts for issues like privacy, rights to data, global alliances, etc

- it is estimated that 80+ percent of people in Africa have mobile phones (first quarter 2013); African smart phone penetration is 20% and expected to explode.

- Facebook is challenging China the world's largest organised community; its users are not constrained by borders or societal fragmentation, etc

- January 2014 flash mob political protests in Brazilian malls

- crowds that assembled in Egypt's Tahrir Square

- extremist groups successfully attracting recruits in Syria and Iraq

- online education is democratising education

- employment is now available outside traditional workplaces and providing new opportunities for the disabled and elderly, etc

"...Just as previous technological revolutions nearly eliminated entire classes of field workers, labourers and craftsmen, and now will target white-collar jobs aswell..."

David Rothkopf, 2014

- data flows are becoming as important to competitive success as capital flows

- supply chains are changing; eg 3-D printing will allow manufacturing from home

- neuroscience and biotech developments are challenging traditional ways of looking at mental health, crime, life expectancy, bioethics, healthcare, etc

· All this is increasing productivity but adding volatility to the way we live and the political process.

ii) Increasing number of women in managerial roles that traditionally belonged to men (traditional roles of men and women in society are changing; technology is enabling more people to work from home, etc)

iii) Automation, eg more jobs/professions, etc being replaced by machines (including computers), etc and leading to artificial intelligence (this is driven by the exponential growth of computing power); algorithms are replacing professionals like traders, journalists, book critics, etc

iv) Scientific research breakthroughs, eg medicine (human gene project, cancer medicines, individualised treatments, etc), greater collaboration across different disciplines (eg genetics, pharmacy, engineering, medicine, etc) nanotechnology, space exploration, agriculture, energy, transportation, etc

Notes

i) To achieve another industrial revolution, the new innovations and technologies must transform the whole of the economy, not just an industry. For example, first Industrial Revolution in the late 19th century occurred when

- Thomas Edison invented the first properly working light bulb (resulted in light, air-conditioned buildings , service economy, etc;

- Karl Benz built the first reliable internal combustion engine (resulted in development of motor vehicles, highways, wholesale distribution networks, etc);

- Guglielmo Marconi and David Hughes sent a wireless signal (better and quicker communications, etc)

plus huge improvements in public health

· Interaction between jobs and technology

 

Cognitive

Task

Tax preparers

Typists

Plumbers

Real estate agents

Cartographers

Mechanical engineers

Credit analysts

Cooks

Geological technicians

Authors & writers
Veterinarians

Manual

Task

Assembly line

Unskilled labourers

Baggage porters

Wholesale/retail workers

Train & crane operators

Chauffeurs

 

Routine Task

Non-routine Task

Over the years, machines have replaced dozens of workers and software has replaced service sector work as defined under the routine task column. In recent times, non-routine tasks are also being replaced by machines. If your job requires "perception and manipulation", there is an increasing chance of its being replaced. However, if the job requires creative (development of novel ideas) and/or social intelligence (much human interaction and empathy), it is less likely to be replaced. Thus jobs at low risk include psychologists, curators, personal trainers, archaeologists, marketers, public relations, most engineers, surgeons, fashion designers, etc. On the other hand, some professions under threat include

- lawyers (as cheap notary software and algorithms that can read thousands of pages much more quickly than a clerk)

- traders (algorithms are doing the calculations around stocks and shares, etc quicker and more accurately)

The most successful organisations will combine human creativity with raw machine intelligence.

· Linked with the invasion of technology is the declining share of income going to labour rather than capital. There are large returns to the owners of machine intelligence and global "winner takes all" successes that digital products produced. This highlights the importance of education in achieving personal prosperity.

The more a firm grows and is successful, the greater its risk of becoming a bureaucracy.

The challenge is to find ways to stop staff retreating into the departmental ghettos when companies become big. When they are start-ups with a small number of staff, fragmentation is not a threat

Some, such as Apple, had managed to overcome the bureaucratic trend by having a dominating chief executive (Steve Jobs) who bashed down the silos.

Facebook, which is employing more than 4,000 people (a 40% increase in 12 months), is trying to derail this bureaucratizing trend by encouraging staff interaction from different areas to facilitate the production of new ideas. Some silo-busting methods used by Facebook include

- holding open meetings where staff are encouraged to mingle and grill senior executives

- encourage meeting, like lunches, with randomly selected staff from different areas

- staff are encouraged to change teams regularly

- staff are encouraged to work in different departments

- new staff in their initial in-house training are encouraged to form lasting relationships with staff who are going into different sections

- "hackathons" where staff are encouraged to attend to all-night computer programming events that occur monthly

- staff are encouraged to use first names and there is a ban on calling people by their surnames and/or using titles

"...One of the biggest challenges with a company growing fast is that, as you add more people, you stop knowing each other or meeting each other. The communications start to go up and down silos..."

Pedram Keyani (Facebook) as quoted by Gillian Tett, 2013

NB The values displayed by start-ups can be very different from those established organisations. The start-ups can be very brash and show no respect for the industry norms, traditions, ways of doing business, governance, etc, while the bigger and more economically important an organisation becomes, the more corporate values of clear hierarchy, centralised control, accountability, discipline, respect for rules and procedures, etc become apparent

(sources: Karlson Hargroves, 2005; Freek Vermeulin et al, 2010; Gary Hamel, 2005; Jim Collins, 2008; Fiona Smith, 2010m; Andrew Parris, 2006; MIT Sloan School of Management, 2008; Patrick Dawson, 2005; Clayton Christensen et al, 2003; Brad Hatch, 2007b; Gillian Tett, 2013;Neil Irwin, 2014)

S-curve on Products

The diagram below illustrates the S-curve concept for a range of products, such as TVs, videos, refrigerators, computers, cars, micro-wave ovens, etc. It is of interest to note that, over time, the S-curve has become steeper!!!!

organisational development change management

(source: Federal Reserve Bank of Dallas, 1998)

S-curve on Property Cycle

This graph demonstrates stable periods when either prices are high (end of inflationary period) or after prices have declined (end of deflationary period)

organisational development change management

(source: John Wasiliev, 2013)

Even iconic fashions have to re-invent themselves like trench coats

organisational development change management

organisational development change management

S-curve on Shares

This graph shows the emotional roller coast (resembles the S-curve) that investors can go through when investing in the share market

organisational development change management

(source: QSuper, 2013)

Some Variations of the S-Curve

organisational development change management

Leveraging the Wave

organisational development change management

Timing the Change

organisational development change management

(source: Lynch & Kordis, 1988)

The top left hand diagram is the ideal scenario for re-vitalisation, ie maximising gains from the first curve as the organisation/product/service, etc moves into the next curve. The other 3 diagrams each show less-than-ideal scenarios. Obviously the bottom right hand diagram illustrates the worst scenario, ie changing when on the downward slide with fewest resources available to handle the re-vitalization. Usually this scenario involves "knee jerk" or drastic reactions, such as downsizing, that will bring short-term benefits, such as reducing costs immediately, but impact negatively on the long-term viability of the organisation.

For around 2 decades, I have been conducting sessions on organisational change management and constantly need to re-vitalise the sessions. Some re-vitalising strategies which I have used are:

- began to organise the workshops myself (initially he presented the workshop for a training organisation)

- outsourced proofreading and editing of written material

- regularly changing the length of session from 1 to 5 days depending on the needs of the group

- changed venues (different hotels) and locations (different cities and countries)

- changed where I advertised (initially focused on mailing lists, then on managerial journals, and then concentrated more on Internet, business magazines and professional journals; now a primary focus on e-marketing, personal contact and social media)

- altered the registration process (initially had a PA handle all enquiries and registration; now I do it myself as it allows me to talk directly with potential attendees)

- regularly re-designed and updated the brochure advertising the workshop (making it more colourful and professional plus suitable for different markets)

- changed my presentation style (started with overheads, moved to PowerPoint and now focus on attendees' participation)

- changed workshop frequency (from twice a year to once in some markets; up to 4 times a year in another market)

- regularly upgraded and expanded the accompanying reference book. It started as 1 volume of around 120 pages; it is now 5 volumes of over 2,500 pages with 1,500 plus references covering 70+ frameworks and 230+ implementation techniques

- reduced size of workbooks so that the content was formatted into 2 pages per A4 size page; now copy the 5 volumes onto a CD/USB for attendees

- provided a complimentary copy of book (The Toolbox for Change: a practical approach) which is now in its 3rd edition and hand-out detailed background notes

- increasingly devote more time to pre- and post-workshop discussions with attendees

- clientele has changed over time (increasing number of academics, female managers and consultants, young professionals, etc attending the workshop)

- conduct more in-house workshops (including to consultant groups, etc)

- regularly have associates attend the workshop to critically evaluate my performance

- at different times, I have partnered with a leading Australian university's executive teaching facility, an international training organisation, professional association and a tier-one legal firm

- developed a Masterclass concept (with co-facilitator) to cater for increasing numbers of young professionals who are academically trained in change management and have had several years' experience in the workforce

- expanded by conducting Masterclass/workshop outside Australia (including USA, Fiji, Solomon Islands & PNG) with locally-based associaes

- accept invitations to be guest lecturer/course facilitator at tertiary institutions, like University of South Pacific, to post-graduate students. These sessions cover 40+ hours of training

- develop an app on change management

Even though we are concentrating on the application of the S-curve to organisations and products/services, it has applications to empires, personal relationships, etc

"...the world keeps changing. It is one of the paradoxes of success that the things and the ways which got you where you are, are seldom the things to keep you there....the secret of constant growth is to start a new sigmoid curve before the first peters out..."

Charles Handy, 2002

"...good companies react quickly to change; great companies create the change......move before the wave; change before you have to...."

Robert Kriegel, 1996

"...Looking at the same businesses from a different shared perspective changed our mind-set..."

Jack Welch, 2001

The new can be a new product/service, new way of operating, a new strategy, new culture, etc that is different from the old. Sometimes it need a different people as some people will want to hold onto the old ways. Ideally

"...new ideas and new people have to coexist with the old until the second curve is established and the first begins to wane..."

Charles Handy, 2002

This is a time of great confusion with different groups of people and their ideas competing for the future

"...the discipline of the second curve requires that you always assume that you are near the peak of the first curve......and should therefore be starting to prepare a second curve...... McKinsey studied 208 companies over 18 years in order to discover those who were consistently successful. There are only 3 who lasted the course of the whole 18 years. 53% could not maintain their record for more than 2 years....Individuals should also work on the assumption that life will not continue as is for ever and that a new direction will be needed in two or three years....It will..... force one to challenge the assumptions underlying the first curve and to devise some possible alternatives.....The discipline of the second curve keeps one sceptical, curious and inventive - attitudes essential in a time of change and the best way of coping with the contradictions that accompany such a time..."

Charles Handy, 2002

One of the essentials for success with the second curve approach is that people are willing to let go of the past, ie break the emotional attachment to the past, irrespective of its success

Remember: there is no perfect answer in a changing world. Therefore we must be forever searching

Organisations and products have shrinking half-lives, eg

"Microsoft is always 2 years away from failure"

Bill Gates as quoted by AFRBoss, 2000

"Microsofts' chief technology officer has estimated that 20% of his company's in-house technical knowledge becomes obsolete each year"

Gary Hamel, 2000a

"Netscape started in 1994, went public in 1995 and was dumped in 1998 when it was sold to AOL. It had a life span of 4 years"

AFRBoss, 2000

Another way of looking at this is

"...the need to 'sense an emerging future" in order to meet the challenges of managing an increasingly technology-based economy. As the pace of technological development quickens, so does the rate of what the economist Joseph Schumpeter called "creative destruction" - products, companies, and even entire industries. This leads.....to continual "forming, configuring, locking in and decaying of structures." Little is predictable or repetitive. Problems are not well-defined. The rules of the game as well as the other players change rapidly as the stakes get increasingly higher. Overall, business operates less and less like "the halls of production of the old, repetitive manufacturing industry" and more and more like a kind of "casino of technology." In this kind of business environment, making decisions based on the habits of past experience is no longer optimal - or wise......business leaders, such as Bill Gates, Steve Jobs, and Sam Walton have succeeded in the new business environment because they know how to distance themselves from the "problem" and to avoid knee-jerk reactions. They have developed the capacity to avoid imposing old frameworks on new realities...

Peter Senge et al, 2005

Remember: all industries/organisations are facing change in one form or another. This change threatens the core activities (recurring activities that you perform to attract and retain stakeholders) and core assets (the resources including intangibles that support core activities). For example

- if both core assets and core activities are under threat, then everything is "up for grabs" (examples of industries include landline telephone, courier, travel agencies, etc)

- if core activities are under threat but core assets are not, stakeholder relationships are under threat (examples of industries include automobile dealerships, investment brokers, auction houses)

- if core activities are not under threat but core assets are, industry is constantly re-developing assets and resources (such industries include motion picture, sports team, investment banking, etc)

- if neither core assets nor core activities is under threat, then change is based upon incremental testing and adaptation to feedback (eg industry examples include online auctions, commercial airlines, long-haul trucking)

Another way of looking at the S-curve is via "focus-expand-redefine" cycle

"...the fate of fortune 500 companies in 1994......found that a decade later 153 of those companies had even gone bankrupt or been acquired, and another 130 had engineered a fundamental shift in their core cool business strategy. In other words, nearly six out of ten faced serious threat to their survival or independence during the decade, and only about half of this group were able to meet the threat successfully by redefining their core business.

Why do so many companies face the need to transform themselves? Think of the cycle that long-lived companies commonly go through: they prosper first by focusing relentlessly on what they do well, next expanding on that core to grow, and then, when the core has lost its relevance, by redefining themselves and focusing anew on different core strengths. It seems clear that this focus-expand-redefine cycle has accelerated over the decades. Companies move from one phase to another faster than they once did. The forces behind the acceleration are for the most part well known. New technologies, lower costs and shortened product life cycles. The competition - currently in China and India - shakeup all industries. Capital, innovation, and management talent flow more freely and more quickly around the globe"The average holding period for a share of common stock has declined from three years in the 1980s to nine months today. The average life span of companies has dropped from 14 years to just over ten, and the average tenure of CEOs has declined from 8 years a decade ago to less than five today..."

Chris Zook, 2007

A survey in 2004 of around 260 senior executives found

"...more than 80 percent of them indicated that the productive lives of the strategies were getting shorter. 72 percent believed that the leading competitors would be a different company in five years. Sixty-five percent believed that they would need to reconstruct the business model that served their primary customers..."

Chris Zook, 2007

It has been suggested (Brian Corrigan, 2012a) that technology acts in 3 waves, ie

"...the first discovers something, the next spreads its use and the third takes its availability for granted but uses it in ways that were never originally envisaged..."

Michael Malone as quoted by Brian Corrigan, 2012aSome examples are

For example electricity was developed to run mills but later on it was used to power new inventions like refrigeration and microwave ovens. Similarly, the Internet was first built for military and academic purposes; now it has worldwide applications beyond its initial purposes.

Some organisations become a victim of their own success and size. As their success grows so does the size of the organisation and the thinking changes from innovation to protecting the successful product, services, etc. Some examples include the watch industry in Switzerland, smart phone with Nokia, etc. The organisations become maintainers rather than innovators.

The Swiss watch manufacturers dominated this industry until the 1970s when the Japanese and Hong Kong watch manufacturers produced a cheap, quartz watch designed for the low-end, mass market. Meanwhile the Swiss continued to focus on thier traditionally mechanical watches in the higher end markets, ie they had a 97% share of this market but only 3% of the middle market and virtually zero in the mass market (leaving this entire segment to the Asian competitors). By the 1980s, most luxury Swiss brands were under great financial pressure, when Nicholas Hayek became CEO of SMH (which was a combination of the two biggest Swiss watchmakers). His strategy was to offer brands in all 3 market segments, ie mass, medium and luxury. Launching a new brand in the mass market was considered provocative and risky. Some thought this would cannibalise SMH's brands (Tissot, Certina, Hamilton, Mado, etc) in the middle market and could impact on luxury brands (Blancpain, Omega, Longines, Rado, etc)
Hayek was developing 3 separate, business models which involved giving each limited autonomy, in regard to product, design, communications and marketing decisions, but they were not stand-alone entities despite different organisational and brand cultures. Certainly there were the conflicts and trade-offs between 3 different strategies. On the other hand, finance, manufacturing, purchasing, HR, R&D, etc  were centralised under a single identity serving all SMH's brands, ie strong vertical integration policy in order to achieve scale to handle its Asian competitors.
This approach resulted in the development of Swatch (a new type of affordable Swiss watch for the mass market). The specifications of the new watch were demanding, ie cheap enough to compete with the Asian offerings but providing Swiss quality plus sufficient margins and economies of scale.
"...This forced engineers to entirely rethink the very idea of a timepiece and its manufacture; they were essentially deprived of the ability to apply their traditional watchmaking knowledge. The result was a watch made with far fewer components. Manufacturing was highly automated; moulding replaced screws, direct labour costs were driven down to less than 10%, and the watches were produced in large quantities. Innovative gorilla marketing concepts were used to bring the watch to market under several different designs...... the new product communicating a lifestyle message, rather than just telling time on the cheap..."
Alexander Osterwalder et al, 2010

Swatch provided of a high quality at a low price for a functional, fashionable product.; 45 m Swatches were sold in 5 years; by 2006, the firm celebrated sales of 333+ m watches sold. Watches are becoming a fashion statement as wrist wear; people have watches for different occasions; ending up with a watch wardrobe. Like fashion, the watch is no longer a necessity for keeping time. In fact there is a crossover with fashion houses like Chanel, Louis Vuitton, Drior, Herme's etc moving into watches as wrist wear. Traditional watch brands see this as an additional market; not as a threat.  For example, IWC has established a relationship with high-end men's Italian leather shoes, Santoni; similarly, Jaeger-LeCoultre has links with a foot-wear firm, Christian Louboutin; Hublot linked with fourth-generation Parisian shoemaker, Berluti, etc. They are all trying to find the perfect balance between the watches dial and the leather strap. In addition, some are linking watches with fashion fabric, eg using hand woven linen fibres as an alternative to carbon fibre with colours coming from natural pigments in orange blue, turquoise, purple and orange. (AFR Magazine, 2016) The next disruptive invention could be i) around "smart watches" using silicon’s unique properties like in smart phone. Companies like Samsung (GearS)

Innovation as a Basis for Re-Invention

Introduction

Most people like to work for growing organisations as they provide more advantages, such as promotional opportunities, resources for investments in new technology, new opportunities, etc. On the other hand,

"...Roughly one company in ten is able to sustain a kind of growth that translates into an above-average increase in shareholders' returns for more than a few years. Too often the very attempt to grow causes the entire corporation to crash. Consequently, most executives are in a no-win situation: it is demanded that they grow, but it's hard to know how to grow. Pursuing growth the wrong way can be worse than no growth at all......as most growth markets become saturated and mature, it is very hard act to continue to grow..."

Clayton Christensen et al, 2003

Some questions that need to be answered

- Why is it so hard to sustain success?

- Are there predictable reasons organisations stumble?

- How can you start an organisation that will topple the current industry leaders?

The most common rationale given for why organisations don't continue to grow is poor management, such as

- managers lacking the capabilities to handle the task and/or

- become more risk adverse as the organisation grows and feeling that creating new-growth businesses (innovation) is simply too unpredictable and risky

Furthermore, as Peter Drucker (1985) suggested, the required mindset for growth is one that searches for unanticipated success, rather than seeking to correct deviations from a plan.

It is interesting to note

"...if you are late entrant to a market, you need to be radically different to win over customers..."

Richard Branson, 2008

Remember that for managers

"...powerful and predictable forces act upon them. These forces include the need to move up-market to maintain profit margins; the need to satisfy existing customers; the forces of commoditization and decommoditization; the mandate to grow......revenue base;......the processes and values that define the capabilities of one business model simultaneously define disabilities of other business models......the predictability of these forces makes it possible......turn them to your advantage in seeking, exploiting, and sustaining new growth opportunities......you need to focus primarily on getting the initial condition right. If you start from a good place, then the choices that lead to success will look like the right choices..."

Clayton Christensen et al, 2003

Innovation decline in USA
"...over the last 30 years, the rate of start-up formation in the US has slowed markedly and the technology industry has come to be dominated by older companies. This presents a risk to innovation, because the most transformative leaps forward tend to come not from established firms but from entrepreneurs with little to lose. Indeed start ups......of the past several centuries, including the car, the aeroplane, the telegraph, the telephone, the computer, an Internet search engine. If the United States wishes to reclaim its status as an innovation hub, it must reform a wide swathe of policies, including those covering immigration, business regulation, healthcare and education to support new businesses......the ratio of new firms to all firms, or the start-up rate has been steadily decreasing. In 1978, start-ups - defined in the database as companies less than one-year-old - accounted for nearly 15% of all US firms; by 2011, the figure had slipped to just 8%. for the first time in three decades, business deaths exceeded business births......fewer start-ups has meant fewer high-growth firms......companies that experience three consecutive years of at least a 20% increase in the number of people employed..."

Robert Litan, 2015
This national downward decline is the same for all of the 50 USA states and almost all of the 366 largest metropolitan centres. This includes California, despite its innovation centres of Silicon Valley and Los Angeles Orange County Region


This downward trend has affected all major industries, even the life-science sector (pharmaceutical, medical-device businesses, etc). For example, new life science firms grew to roughly 3000 in 1997, but by 2001, they had fallen to 1995


All the above runs counter to the perception that the US economy is highly entrepreneurial. These statistics cover the period during the revolution of information technology that substantially lowered the cost of launching an expanding new businesses, thanks to cheaper software and hardware, a more global Internet and savings afforded by data storage, eg cloud


Generally, ageing firms become more risk averse, with innovation aiming for incremental improvements rather than creative destruction or disruption. Additionally, they tend to be larger, more bureaucratic and less flexible than start-ups when faced with changing technology and shifting consumer preferences. Generally, the older, more entrenched firms find it harder to compete with younger, more dynamic ones.
In the USA, immigrants tend to be less risk averse than the general population and are more likely to launch a business than local-born Americans, eg immigrants were behind 1 in 4 technology start-ups between 1995 and 2005. In 2005, companies led by immigrant entrepreneurs employed 450,000 workers and generated US $ 52 b. in sales (Robert Litan, 2015). On the other hand, the US government has made it difficult for the immigrants to stay in the United States


Some negative sides of innovation include
- the wealth/income inequalities that sometimes accompany technological changes. For example, the advances in robotics and information technology have increased demand for staff with strong technical backgrounds and reduced the need for unskilled labour.
- innovations in automation, robotics, data processing, etc will eliminate millions of jobs in the coming decades
To increase technological literacy, the education system needs to realise that writing a computer code could be just as important as learning English. Students will need to learn to code at the start of their schooling. At the same time as teaching these technical skills, the humanities and arts should not be neglected as the latter are important in developing the appropriate soft/people/behavioural skills for handling people.

Growth is linked with innovation (sustaining, incremental, breakthrough, disruptive, etc) manoeuvres and can help to re-invent/re-vitalise an organisation. But disruptive innovation needs to be treated differently to the others.

There is a vicious cycle of destruction and renewal.It is called creative destruction (Joseph Schumpeter) and disruptive innovation (Clayton Christensen). The current digital disruption is an example of it as it is changing the way we live, work, shop, bank,entertain, travel, talk or think, etc by providing cheap information and communications technology. A savvy entrepreneur needs nothing more than a laptop with a connection to the Internet and some good ideas to challenge traditional business models of successful company. Some examples include
i) Recruitment
In the 1990s with newspapers enjoyed a monopoly on job ads and recruitment firms charged high prices for their service, eg a percentage of first-year salary. On the other hand, online space was considerably cheaper and provided more detailed information to prospective recruits about the job, organisation, etc

ii) Quantum Computers
Quantum computers will operate in a completely different way from the current computers we are using. By using the counter intuitive properties of quantum mechanics, ie physical laws that describe the world at the atomic scale, quatum competers would operate millions of times faster than the best current computers. The quantum properties of tiny particles that make up atoms could be used to make an entirely new kind of computer that could perform thousands or millions of different computing operations at once. The current technology is using phosphorus atoms encased in silicon chips
The basic element of a quantum computer is a "qubit" which is the equivalent of a "bit" (a single unit of information) in a conventional computer, ie

"...a conventional computer has electric switches (called bits) which are either on or off. The switches in a quantum computer (called qubits) are partly on and partly off at the same time. Each qubit can act like many conventional bits, meaning qubit can do multiple operations at once. This makes its calculations thousands of times faster. To build a program of quantum computer, each of the qubits must be controlled while entangled, all moving in correlation with each other. What happens to one qubit affects every other one....... don't expect a quantum computer chip in your phone or desktop any time soon. They are very complex to operate, must be kept extremely cold and are not very good at everyday tasks such as e-mail..."

Tim Dodd, 2016

This operational scale would allow quantum computers to sift through large amounts of information to come up with solutions to complex problems, making it ideal for the era of big data. It has the potential to profoundly transform areas as diverse as
- data analytics & engineering (sift through huge amounts of data quickly and find solutions to extremely complex problems where each data point is influenced by many others, like a search engine, weather forecasting, climate change modelling, building complex structures, etc)
- drug design (for researchers seeking to understand complex biological and chemical processes, it will be a fast way to identify new medical cures)
- banking (most banks do a "Monte Carlo simulation" which assesses the risk in a whole investment portfolio, twice a day. With the speed of a quantum computer it could be done in real time, eg continuously
- traffic management (traffic planners will have the ability to follow what is happening in every street in a city in real time)
- code breaking (making today's Internet security obsolete) and weather forecasting; it would change business, medicines, contemporary life, etc. It has been estimated that around 40% of the modern economy will benefit from quantum computers.
Some potential negative impacts are around privacy and manipulation of thinking, eg the opinions and social networking patterns of millions of people could be mapped and used to build a strategy to influence public opinion and the consumer choice
iii) automobile. Some of the latest technology (software-focussed) impacting the automobile industry around doing things in real time so that is possible to be upgraded continuously so able to keep up with the rapid changes in smart phones and other interface devices. It includes
- increasing amounts of renewable parts in the car like recycled aluminium
- autonomous driving capabilities, ie self driving with the car making many decisions in order to enhance safety  
    i) incorporates automatic acceleration, braking and steering for parking, etc
    ii) responds to navigation information so able to adjust the engine, transmission and cruise control for upcoming corners or hills; uses car cameras to scan the road ahead and adapt the suspension in advance of obstacles  etc and road conditions like potholes
    iii) moulds the car's behaviour around the preferences of users, eg machine-learning technology
- alternative energy sources (electricity and hydrogen fuel cells (they combine hydrogen and oxygen to generate electricity and the only emission is water) replacing fossil fuels; zero tailpipe emissions; improved battery performance  with interactive charging systems to top up batteries)
- increased in-car connectivity like cloud, etc so that it is possible to synchronise calendars and destinations across devices, sending things from phone or desktop to car/cloud by using touch screens and voice control (listening and sending messages, etc)
- prestige
    i) gesture controls will impact on car's sound, ventilation and phone systems, etc, eg small holographic images react to hand gestures
    ii) more variety and customising cars to individual tastes
"...today I buy a car, tomorrow I buy mobility..."
Thomas Webber as quoted by Tony Davis, 2016


Current limitations of these new generation vehicles include limited computer power, poor maps (on 3D), lack of communication between vehicles and infrastructure, "hackability" (unauthorised outsiders able to get into the car's systems, etc), refilling stations, expense to produce, store and transport the highly inflammable hydrogen gas, etc

iii) 3-D (rapid prototyping)
Since its invention in mid-1980s, 3-D printing has been used by the likes of Boeing, Rolls-Royce and NASA to produce experimental prototypes in fallible plastics, which once perfected, would go into production and become metal components in very expensive machines.
With the original patents for this technology expiring in 2013, the price of 3-D printing machines has dropped significantly and interest has risen dramatically, eg every home would have a 3-D printer capable of printing espresso machines, typewriters, guns, etc.

"...the combination of robotic construction and 3-D printing is the future of the building industry..."

Coop Himmelbau as quoted by Stephen Dodd, 2016

Yet 3-D printing is still in its infancy, ie its equipment is relatively expensive and notoriously faliable; with a limited spectrum of materials usable, eg predominantly plastics with composite of wood, metals and stone.

iv) Professional Services. For decades professional services has been dominated by large global/national firms that charge a premium for their services. Yet some questions have been continually asked by clients about these behemoths' dominance in the professional services industry:
- Is it right that clients are paying steep fees for work done largely by junior associates?
- How can your success be measured by billable hours and not by quality of work?
- Do you really want to slug away for a decade or more to try to make partner?
Until recently there was no viable alternative. With the Internet there is a virtual marketplace, ie on-demand services online (on-demand talent economy or Uber-fication of professional services, ie find a professional with the push of a button) where they match clients with high quality, independent professionals with the skills, pricing and availability needed.

Some examples are
- UpCounsel for attorneys
- VouchedFor for accountants and financial advisers
- RecruitLoop for recruiters
- SkilledBridge for consulting
- Freelancer, Elancer, Odesk for freelance designers and web developers, etc
These are similar to matching people with short-term jobs like
- Airtasker (you can find somebody to assemble your IKEA furniture)
- Mad Paws (somebody to look after your pets)
- Helping (someone to clean your house within a couple of hours)

Disruptive innovations are most likely to succeed if there is a strong focus on satisfying under-appreciated customers' needs. In the professional services industry, many clients cannot find or afford services at the big firms and many professionals are looking at different way to offer, charge or deliver their expertise.

It is a way to take a service that has traditionally been expensive and complicated for many people, and make it accessible and affordable. It has been found that clients have 4 priorities, ie price, responsiveness, efficient discovery and transparency. For UpCounsel, which is experiencing transactional revenue growth of around 20% monthly (2015), its clients range from start-ups (help with trademarks, etc) to medium-size enterprises needing assistance with contracts, etc. An UpCounsel's client posts a brief and within an hour its platform has located several best matches for the client to make the final selection. Once the hiring decisions is  made, UpCounsel handles administration including billing. The client can check in real time how much the professional is charging and for what. This means that anybody can easily discover high-quality, community-rated professionals with the right skills for the job.

For large projects and assignments where multiple parties are involved, like multi-million dollar mergers, it is less clear how the virtual marketplace can compete owing to the mass in-person collaboration required. it is anticipated that the larger global firms still dominate this end of the market while the boutique and midmarket firms will suffer the most from online competition.
Skilledbridge started in 2013 and by 2015 it had a portfolio of more than 5,000 consultants who have years of experience in leading organisations

In the 1930s when Ronald Coase (Botsman, 2015c) stated that large organisations make sense when it is more efficient for buyers and sellers to coordinate activities through a centralised hierarchy than to purchase services directly. On the other hand, with the Internet's power to directly connect seller and buyer, there is less need for the traditional firm's structure.

It is claimed that
- 1 in 3 Americans are independent workers
- freelancers will outnumber full-time staff by 2020
- millennials change jobs on average 6.3 times between the age of 18 and 25 (Botsman, 2015c)

In addition to technology allowing people to work remotely, there is a mindset change about how people think about work and the notion of a good job. This mindset values independence, flexibility and freedom to do work in line to their interests and values. People feel in control of their destiny. This is different from working for a large firm where you are assign to projects regardless of your interests.

"...Millennials are willing to trade off a steady income and the benefits of full-time employment, healthcare to a fridge full of soda, or flexibility and autonomy..."

Rachael Neumann as quoted by Botsman, 2015c

The trend to a more flexible workforce means that the rules and regulations around taxes, insurance, sick pay and benefits, etc need to be revisited. Other areas that need revisiting are
- handling the risk associated with the assignment
- on demand jobs could lead to greater commodification or hyper-specialisation of labour
- income will become less predictable and secure, more prone to fluctuation

"...traditional firms should be worried, very worried. Never mind being the next Kodak, Blockbuster or Borders - today's challenge is to not be the next taxi or hotel company that misses out how fast and deep transformation is happening, because technology is pushing and pulling apart 20th-century models of labour and services..."

Botsman, 2015c

.Linked with the technology are the values and cultures that you promote in your organisation to maximise the benefits of the technology, ie working more effectively and efficiently, unlocking value, contributing to productivity, encouraging creativity and innovation, etc

. Some earlier technological changes have been very disruptive. Some examples:
- four centuries ago the development of a knitting machine received a negative reaction when demonstrated to Queen Elizabeth 1, ie "Consider what's the invention will do to my poor subjects! It will deprive them of employment, making them beggars!!!! It took another 2 centuries until the Industrial Revolution for factories to mass-produce textiles and to give ordinary people a rising standard of living and real wage increases.
- Henry Ford's car factory wiped out blacksmiths and farriers
- mass computing and communications that have made typists, telephone operators, etc dinosaurs
. It has been estimated that half of all current occupations in United States are vulnerable to computerisation. Are the modern economies adapting quickly enough to replace jobs lost to accelerating technology? In addition to the low-skilled jobs lost to automation, other occupations under threat are classified as white-collar/middle-class positions, especially those jobs that - rely on being able to sift through large amounts of information and collect the right bits of it
- administrative or retail work as it shifts tp an online presence or moves off-shore to low cost countries such as India
- repetitive tasks or jobs
Some professions under threat include accountants, auditors, supermarket cashiers, typists, bank tellers, loan offices, taxi drivers, waiters, nurses, insurance appraisers, archivists, bus drivers,lawyers, welders, etc:

"...if armed with blisteringly fast and sophisticated algorithms that can instantaneously scrutinise millions of pages of court evidence for the nugget that swings the case, why employ tens of thousands of junior lawyers to do the same..."

Michael Smith, 2015


A similar story of evolution:
- for accountants software is replacing many of the more routine and mundane operations;
- bus drivers superseded by driverless vehicles;
- journalists by social media (Twitter, YouTube, Facebook, etc);
- book reviewers by book buyers/readers


On the other hand, the new technology will create new jobs.
Remember: robots struggle with autonomous manipulation or the concept of undertaking tasks in random environments without human oversight. Jobs such as dentistry, recreational therapists, surgeons, farm hands, hairdressers, teachers, etc, are relatively safe, ie

"...if your occupation involves a great deal of creativity or social intelligence - the ability of interact with people, to negotiate or persuade......your job is relatively safe..."

Michael Osborne as quoted by Michael Smith, 2015
It is thought that there will be more losers than winners (this is maybe an explanation for an increasing disillusionment and radicalisation of people, especially among the unskilled, unemployed and impoverished populations, who are willing to turn to violent options "to turn the clock back")

Many of the emerging business models do not fit into the existing regulations. The organisations in these new models are increasingly decentralised and networked plus moving away from physical markets to open, borderless world's; thus making them hard to regulate. Governments worldwide are struggling to come to terms with the technological changes. For example, smart phones only came into existence in 2008 but their impact has been significant, eg
- turbocharging the digital revolution and industries like taxis, equipment & hire car to accommodation, office rentals, deliveries, freelance work, retail, music, media, etc
- this digital revolution will spread deeper into industries once thought immune, like universities, manufacturing, banking, etc
- the established firms and the whole world of work is being challenged by freelancing sites & distributed networks as government struggle with workplace laws to handle the new situations, like permanency versus casual/contract, etc
- both large organisations and governments are nervous about the decentralised networks and marketplaces that are not controlled centrally and prose a problem to regulate
- most government leaders and bureaucrats still have the mindset to understand markets in the physical sense that they know about rather than the total open, borderless world that we are moving into

Governments worldwide are struggling to come to terms with the technological changes. For example,  smart phones only came into existence in 2008 but their impact has been significant

"...they're already turbocharging the digital revolution and industries from taxis, equipment and hire car to accommodation, office rentals, deliveries, freelance work, retail, music and media. In the future, this digital revolution will spread deeper into industries once thought immune, such as universities and manufacturing. The established firms and the whole world of work are being turned upside down by freelancing sites and distributed networks......government grapples with workplace laws. Further on, ride sharing combined with autonomous cars could make millions of drivers redundant......what frightens large organisations and governments is that decentralised networks and marketplaces that don't have centralised controls are really tricky to regulate...... the problem is most government leaders still think of markets in the physical sense because that's what they know...... rather than the total open , borderless world that we are currently living in or moving towards..."

Ben Potter, 2015

Usually incumbents don't see the new entrants as competitors until it is too late, like the large telephony AT&T regarded Skype as a toy in 2003. Yet by 2013, Skype had 30% of the long-distance phone market!!!!

Other examples of disruptive technology impacts include Kodak and Swiss watch industry

Kodak
The patterns signalling Kodak's downfall started several decades before its collapse. In 1976 Kodak captured 90% of film sales and 85% of camera sales in the USA (Stefan Hajkowicz, 2015). The company's revenue peaked at US$ 16 b (1996). However, as the digital era progressed, Kodak's revenues from print film plummeted. The introduction of digital cameras, mobile phones that could capture, store and send images, development of Facebook (whose revenue would come from advertising), etc, was the wave of digitalisation that wiped out Kodak, ie in 2012 Kodak filed for Chapter 11 bankruptcy protection. It had no offloadable valuable assets or technology patents. While Fujifilm, which had witnessed its print film revenue drop by 60% of the total revenue, responded differently.

Swiss watch industry
In the early 20th century Switzerland dominated the world watch industry with high standards of manufacturing quality, cutting-edge technology, unparalleled time accuracy and cost-efficient production processes. The industry was steeped in tradition and focused on mechanical watches. In the early 1960s, a new range of electronic, digital and quartz analogue watches changed the industry. These new watches gave improved time accuracy compared wit mechanical devices. In 1969 Seiko released the first quartz wristwatch (Astron) and it began to dominate the world's watch industry.

Another wave of disruption came with digital watches using LED/LCD technology. This improved the functionality of the digital watches. In 1980 Seiko introduced a digital watch with a tiny inbuilt TV screen which allowed users to watch live broadcasts.
As a result since the 1960s Switzerland has lost its dominance in watchmaking; USA Japan and Hong Kong became the major players in the global market with new devices that improved functionality and time accuracy and lowered the cost to the consumer.
On the other hand, the Swiss watchmakers have revived their industry by using watches as a status symbol to achieve market differentiation.
This is an example of a megatrend, ie advanced technology and mass production followed by a counter trend around timeless quality.

Predictability involves understanding what caused what and why, ie cause and effect; there are 3 stages to this

i) describing the phenomenon you wish to understand (need more than 1 or 2 success stories)

ii) classifying the phenomena into categories, eg vertical and horizontal integration are examples of corporate diversification. This is a critical stage

iii) articulating a hypothesis that postulates what causes the phenomenon to occur. This illustrates how in different circumstances (situations or contexts) the same causal mechanism might result in different outcomes.

(NB Keep revisiting these 3 steps to refine predictability and what actions cause what results and under what circumstances)

"...The foundation for predictability only begins to be built when the researcher sees the same causal mechanisms create a different outcome from what he or she expected - an anomaly. This prompts the researcher to define what it was about the circumstance or circumstances in which the anomaly occurred that caused the identical mechanism to result in a different outcome......when......categories of circumstances are defined, things get predictable. We can state what will cause what and why, and can predict how the statement of causality might vary by circumstance..."

Clayton Christensen et al, 2003

On the other hand, business building is not perfectly predictable for the following reasons

i) nature of competitive marketplace - organisations need to behave unpredictably otherwise they would be relatively easy to beat

ii) any system can produce a large number of possible outcomes

iii) complexity theory suggests that even fully determined systems can generate completely random outcomes.

It has been suggested that many outcomes are unpredictable, as we do not understand the process!!!!!!!!!

Remember:

"...it actually is the discovery of phenomena that the existing theory cannot explain that enables researchers to build a better theory that is based upon a better classification system..."

Clayton Christensen et al, 2003

This is called anomaly-seeking research.

Furthermore, most product development efforts fail commercially, ie

"...Over 60 percent of all new product development efforts are scuttled before they ever reach the market. Of the 40 percent that do see the light of day, 40 percent fail to become profitable and are withdrawn from the market......three-quarters of the money spent in product development investment results in products that do not succeed commercially..."

Clayton Christensen et al, 2003

Part of the reason for this is inadequate market segmentation or categorization, ie poor process of identifying groups of customers that are similar enough that the same product or service will appeal to them all. Unfortunately most segmentation is done incorrectly, ie it is defined by the attributes of the products/services, such aswhat product type, or by price point, etc and customers, such as on demographic, or psychographic lines, etc. This can lead to the concept of a "one-size-fits-all" product/service which usually ends up being "one-size-fits-none". This attribute-based categorization can successfully identify correlations between attributes and outcomes, but it lacks a plausible statement of causality.

Categorization should be based on the notion that customers 'hire' products/services to do specific 'jobs' or outcomes, and only after that "job" is identified should other marketing-related challenges, such as brand marketing and product/service positioning, be addressed. This circumstance-based categorization brings into focus what features, functions and positioning will cause customers to buy a product/service. It requires an understanding of the thought process (including functional, promotional and social dimensions) and circumstances in which customers will buy or use products/services to do the "job-to-be-done", or produce an outcome that customers are seeking, effectively, immediately, reliably, conveniently and as inexpensively as possible. This means

"...Companies ......target their products at the circumstances in which customers find themselves, rather than at customers themselves......Put another way, the critical unit of analysis is the circumstance and not the customer..."

Clayton Christensen et al, 2003

The first-time developers of a new growth business need to assess what their target customers really are trying to do. The developers are searching for the disruptive foothold - the initial product or service that is the basis for the point of entry for new market disruption. For example, if there is a popular job-to-be-done, or outcomes that customers are seeking, which has not been correctly addressed, this can create a launching pad or platform for future growth. The challenge is how to identify these opportunities. Understanding the jobs-to-be-done is fundamental and can be done by carefully observing what people are trying to achieve for themselves and what they are saying about it. For example, Sonny's founder, Akio Morita, was very successful at studying (by observing, questioning and obtaining feedback) customers, and then developing the solution or outcome they were seeking to help do the job-to-be-done, or achieve the desired outcome. As a result of this approach

"...Between 1950 and 1982, Sony successfully built 12 different new product disruptive growth businesses. This included the original battery-powered pocket transistor radio, launched in 1955, and the first portable solid-state black-and-white television, in 1959. They also included videocassette players; portable video recorders;......Walkman, introduced in 1979; and 3.5-inch floppy disk drives, launched in 1981..."

Clayton Christensen et al, 2003

Sony, under Morita's leadership, used a group of around 5 people who continually searched for disruptive footholds by studying what people were trying to get done, ie

"...they were looking for ways that miniaturized, solid-state electronic technology might help a larger population of less-skilled and less-affluent people to accomplish, more conveniently and at less expense, the jobs they were trying to get done through awkward, unsatisfactory means..."

Clayton Christensen et al, 2003

In the early 1980's Morita started to withdraw from active management; at the same time Sony's disruptive odyssey came to an end. It is now focusing on sustaining technology, rather than disruptive innovations.

We need to understand the forces that shape innovation and thus growth, ie

"...what can make the process of innovation more predictable? It does not entail learning to predict what individuals might do. Rather, it comes from understanding that forces act upon the individuals involved in building businesses - forces that happily influence what managers choose and cannot choose to do..."

Clayton Christensen et al, 2003

Understanding how the managerial processes about ideas get shaped is critical. Middle level managers play a crucial role as they shepherd acceptable ideas into business plans, etc that are submitted to senior management for decision-making, funding, etc. The system mandates that middle managers support proposals with credible data on the potential of the markets that each idea targets. Suggestions from existing customers and the performance of similar products/services add credibility to any potential idea. Furthermore, other factors may be relevant:

- personal factors are involved, ie middle-level managers prefer to propose ideas that senior managers are likely to approve.

- turn-over rate of management positions, especially for talent - as most management development programs rarely leave talented middle managers in one position for longer than a few years, these managers want a reputation of delivering results and will be inclined to provide ideas that will pay off in the short-term. Also, to speed up the decision-making process, they proposeideas which resemble ideas that were approved and became successful in the past. These factors mitigate against innovation.

Initial conditions for successful growth include

- starting with a cost structure in which good profits can be earned at low price points and being able to later carry performance up-market

- being in a disruptive position relative to competitors so that they are motivated to flee rather than fight

- starting with a new set of customers who have not previously purchased in the marketplace so that they will be pleased with modest products/services

- getting beyond correlative assertions, such as "big organisations are slow to innovate", 'successful CEOs are promoted from within'

- targeting a job that customers are trying to get done

- moving to where the money will be, not where it is now

- assigning executives who have the right experience and putting them to work within processes and organisational values that are attuned to what needs to be done

- identifying the performance-defining components or subsystems that are important to the customer and attract profits. For example, with personal computers it is the microprocessor, the operating system and its applications.

- maintaining flexibility to respond as viable strategies emerge

- getting on board suppliers of capital who are patient with growth but want profit first

- not blindly duplicating or copying the best practices of successful organisations without understanding the local circumstances and situations. Remember

"...replicating their success is not about duplicating their attributes; it's about understanding how to generate lift. Good theories are circumstance-based. They describe how managers need to employ different strategies as circumstances change in order to achieve the needed results. The use of one-size-fits all processes and values historically has made the creation of growth torturous. One of the most valuable contributions you can make in the growth-creation process, therefore, is to keep looking for changing circumstances. If you do this, you can understand when and why changes need to be made long before the evidence is clear......When managers ask questions such as ' does this apply to my industry?' or 'does it apply to service businesses as well as product businesses?' They really are probing to understand the circumstances......industry-based or product/service-based categorisation schemes almost never constitute a useful foundation for reliable theory......the circumstances that matter are not what industry you are in. Rather, there was a mechanism - the resource allocation process - that caused the established leaders to win the competitive fights when an innovation was financially attractive to their business model. The same mechanism disabled the established leaders when they were attacked by disruptive innovators - whose products, profit models, and customers were not attractive..."

Clayton Christensen et al, 2003

This highlights the need to understand under what circumstances the preferred framework needs to be modified based on changing conditions.

(NB satisfying these conditions will lay the foundation for successful growth)

 

Firms like Microsoft, Google, Apple, Xerox have similar stories around use of disruptive technology, using current technologies in different ways plus some luck. The Xerox story is less well-known than the others. In late 1930's, 2 inventors (Chester Carlson - a physics graduate of the Californian Institute of technology, and Otto Kornie - a German refugee physicist) started working on a 5 step process called electro-photography (sensitising a photoconductive surface to light by giving an electrostatic charge; exposing the surface to a written page to form an electrostatic image; developing a latent image by dusting the service with a powder that would adhere only to the charged surface: transferring the image to some sort of paper; fixing the image by the application of heat). Each of these used available technologies but had never been used in this combination. Xerography had little foundation in previous scientific research but this combining of a rather odd lot of phenomena resulted in the biggest thing in imaging since the coming of photography. A mistake resulted in one of the biggest breakthrough. The photoconductive surface was coated with sulphur but lost its qualities after a few copies and became useless. This was solved by experimenting with increasing amounts of selenium (a nonmetallic element used chiefly in electrical resistors and as a colouring material to redden glass) until it replaced sulphur completely.
Xerox spent tens of millions of US dollars on developing this process. It is of interest to note that the name Xerox was thought to be unsuitable by the firm's consultants, owing to difficulty in pronouncing it, the link with antifreeze, and its sounding like "zero"!!!!!! (see volume 5 under Po section for more on Xerox)
NB Xerox has donated around 1.5 % of its net income before taxes to not-for-profit groups like charities, educational organisations, etc and taken a controversial stand on public issues of major concern irrespective of the impact on customers, eg establishing the United Nations, etc

Twenty management practices that work against innovation and growth

1. Undifferentiated, commoditised, "one-size-fits-all" solutions -

this is based on shoddy categorisation and inadequate understanding of what changing circumstances can do; it can lead to one-size-fits-none. Need to remember:

"...People don't want to buy a quarter-inch drill. They want a quarter-inch hole..."

Ted Levitt as quoted by Clayton Christensen et al, 2003

Usually by adding functions, features, etc there is a technological trade-off, ie as it does more things, it does each one less effectively and efficiently.

The sequence to commoditisation is

i) at the start of a new market an organisation develops a proprietary product/service that, while not good enough, comes closer to satisfying customers' needs than any of its competitors. It does this through a proprietary architecture and has attractive profit margins

ii) as an organisation endeavours to keep ahead of its direct competitors, it eventually "overshoots" the functionality and reliability that the customer in the lower tiers of the market can utilize

iii) this results in a change in the order of competition in those tiers that

- starts a movement towards modular architecture, which then

- facilitates the disintegration of the industry, which in turn

- makes it very hard to differentiate the performance or costs of the product/service when compared with competitors who have access to the same components that are assembled to the same standards

This condition begins at the bottom of the market where functional overshoot occurs first, and then moves into the higher tiers of the market.

For traditional players, there is link between disruption and commoditisation: the disruptive innovation will capture markets while commoditisation will steal profits. Sometimes, as commoditisation starts, it initiates a reciprocal process of de-commoditisation, ie it occurs in the value chain where attractive profits were hard to obtain in the past and are now freed up.

The reciprocal process of de-commoditisation involves

"...i) the low cost strategy of modular product assemblers is only viable as long as they are competing against high-cost opponents. This means that as soon as they drive the high-cost suppliers of proprietary products out of a tier of the market, they must move up market to take them on again in order to continue to earn attractive profits.

ii) because the mechanism that constrains or determines how rapidly they can move up-market is the performance-defining subsystems, these elements become not good enough......

iii) competition among subsystem suppliers causes their engineers to devise designs that are increasingly proprietary and interdependent. They must do this as they strive to enable their customers to deliver better performance in their end-use products than the customers could if they used competitors' subsystems.

iv) the leading providers of the subsystems therefore find themselves selling differentiated, proprietary products with attractive profitability.

v) this creation of profitable, proprietary product is the beginning, of course, of the next cycle of commoditization and de-commoditization..."

Clayton Christensen et al, 2003

An example of this process is the personal computer industry in the 1990s. Initially money flowed from the customer to the organisations that designed and assembled computers; later on, less and less of the total potential profit stayed with the computer makers - most of it flowed through to the suppliers, such as Microsoft, Intel, etc. At different times, circumstances will make different points on the value-adding chain more profitable and others less profitable. Remember:

"...the companies that are positioned at a spot in the value chain where the performance is not be good enough to capture the profit. That is the circumstances where differentiated products, scale-based cost advantages, and high entry barriers can be created......the processes of commoditization and de-commoditization are continuously at work, causing the place where money will be to shift across the value chain over time..."

Clayton Christensen et al, 2003

2. Usage of biological evolution to explain unpredictability and randomness

- biological evolution explains mutations that arise in what appears to be random ways.

"...Evolutionary theory posits that whether a mutant organism thrives or dies depends on its fit with the 'selection environment' - the conditions within which it must compete against other organisms for resources required to thrive. Hence, believing that good and bad innovations pop-up randomly, these researchers advise corporations to focus on creating a selection environment in which viable new business ideas are culled from the bad as quickly as possible......if the process is not intrinsically random......then addressing only the context is treating the symptoms, not the source, of the problem..."

Clayton Christensen et al, 2003

Remember: the acceptance of randomness in innovation is not a stepping-stone on the way to greater understanding and business success; it can be a barrier!!!!!!

3. "Best-by-consensus"

- using attribute-based categories, such as incremental vs. radical change and product vs. process change. However, there are too many attributes to any phenomena to just select a few. There needs to be external validity checks on the soundness of categorisation schemes for usability in other industries. These validity checks can define the areas where the categorises are applicable or not, ie boundary conditions.

4. Defining markets by attribute-based or customer-based demographics or organisational boundaries

- this is best illustrated by the hiring of market researchers to quantify the size of opportunities rather than to understand the customer's desire to perform a job or to achieve a certain outcome. This promotes a headlong, rush to undifferentiated, one-size-fits-all products/services, like the Swiss Army knife, that has a proliferation of features and functions, etc but performs specific jobs poorly, ie a good knife, terrible scissors, an OK bottle opener and "next to useless" screwdriver. Need to change to circumstance-based analysis, ie job-to-be-done. An example is the handheld wireless device: the job-to-be-done or outcome that customers are seeking is the more productive use of small bits of time, ie make-me-productive-in-small segments-of-time.

5. Powerful investor pressure to increase or maintain returns on current assets

- many organisations have made large investments in assets, including infrastructure, and are keen to realise an adequate return on their investments. This mindset can result in a blind focus on the current situation and not the future circumstances to where the money will be. For example, most traditional telecommunication organisations have large investments in overhead phone lines and associated structures, yet the future is moving away from fixed phone lines. Many of these organisations are still showing a preference for the fixed phone lines owing to their desire for a decent return on their investments. A better investment strategy for future success would be focusing on the innovations away from fixed phone lines, etc and moving away from their current assets, ie selling them or finding alternative uses for them. This is sometime called the "ROA-maximizing death spiral trap". Ideally this situation is best handled by getting rid of the assets by outsourcing.

6. Traditional approach of going with new technology to existing, large and known markets

- however, exciting growth markets of tomorrow are small today. Owing to their small size initially, they appear less attractive in the short term, but they have the long-term potential.

7.Under-estimating the importance of customers at the low end of the market as the entry point for disruptive innovations

- and believing that these current users of mainstream products/services are not interested in paying a premium for improved performance products/services, ie

"...The key to success with low-end disruptions is to devise a business model that can give attractive returns at the discount prices required to win business at the low-end..."

Clayton Christensen et al, 2003

8. The alternative is to look for new market customers (non-customers)

- this can be harder than winning business at the lower end of the current market, especially as non-customers may consider that it isn't a job that needs to be done. A more productive area can be where people use others, ie tradespeople, to do a particular job as it may be too expensive or too complicated. Making the product/service less complicated, more convenient, less expensive, etc can attract new consumers. For example, Sony's introduction of the world's first battery-powered transistor radio (1995) allowed people who had no radio to buy one. Similarly, the introduction of Sony's 12 inch black-and-white portable television (1959) allowed people who had no television to obtain one. As the alternative was no television or no radio, quality was not an issue. Furthermore, it allowed the discount retailers to become the preferred distribution channels as there was limited follow-up service required compared with the traditional radios using vacuum tubes, etc

9. Innovator's dilemma

- involves some basic questions, ie

"...Should we invest to protect the least profitable end of our business, so we can retain our least loyal, most price sensitive customers' Or should we invest to strengthen our position in the most profitable tiers of our business, with customers who reward us with premium prices for better products.....the source of a dilemma: sustaining innovations are so important and attractive, relative to disruptive ones, that the very best sustaining companies systematically ignore disruptive threats and opportunities until the game is over..."

Clayton Christensen et al, 2003

Furthermore, as part of the innovator's dilemma, every organisation is preparing the way for its own disruption. Most organisations move into the high-margin tiers of the markets and shed least profitable products at the low end as a way to keep their margins strong and stock price healthy. Otherwise, if they stagnate, they are competing against hard-to-differentiate products and against competitors whose costs are comparable.

Solutions to the innovator's dilemma

- never follow strategies that target customers and markets that look attractive to an established competitor

- focus on customers who are looking for simple, inexpensive products/services as an alternative to having nothing.

- focus on exploring whether a low-end disruption is feasible, ie

"...devise a business model that can attract profits at the discount prices required to get the customers at the low-end of the market, who cannot use all the functionality for which they currently must pay..."

Clayton Christensen et al, 2003

- focus on helping customers get the job done more conventionally and inexpensively

- need to segment the market in ways that mirror the jobs that customers are trying to get done. Don't focus product/service or marketing plans on market segments whose boundaries mirror your organisation's boundaries; be careful about targeting markets that are segmented along traditional lines or for which data are already available, eg product service type, price point, or demographic category.

- don't assume that competition will not change and that success of the past will continue into the future; focus on the low-end of the market for opportunities

- be wary of following industry standards as the basis for comparison

-- be wary of using outsourcing/partnership /alliance, etc as this can remove you from face-to-face contact with customers

- focus on developing competencies in areas where the money will be in the future

- ideally the venture should not fit your organisation's core competencies; 3 questions will help check this aspect

i) Do you have the resources to succeed?

ii) Will your processes - the way you have learned to work together to succeed in your established businesses - facilitate what needs to be done to succeed in a new business?

iii) Will your values, all the criteria that staff members use to prioritise one thing over another, enable the critical people to give needed priority to this initiative when compared with other initiatives that are competing for time, money and talent?

Use the answers to these questions to choose the most apt organisational structure and home for the new venture. Furthermore, use these 3 questions on different parts of the current supply chain.

- in choosing the management team for the new venture, don't look for attributes or the magnitude of past responsibilities; instead look for staff who have had to handle problems similar to what the new venture will confront

- maintain a flexible approach in terms of strategy as expressed by products/services, customers and applications

- be impatient for profit. If it is suggested that the organisation will initially suffer substantial losses, then it is a case of an incorrect strategy, such as a disruptive technology being treated like a sustaining technology in established markets

- be patient for growth

10. Not understanding product architecture and interfaces including interdependence and modularity

- "...A product's architecture determines its constituent components and subsystems and defines how they must interact - fit and work together - in order to achieve the targeted functionality. The place where any two components fit together is called an interface. Interfaces exist within a product, as well as between stages in the value added chain. For example, there is an interface between design and manufacturing, and another between manufacturing and distribution. And architecture that is interdependent at an interface in one part cannot be created independently of the other part......when there is an interface across which there are unpredictable interdependencies, then the same organisation must simultaneously develop both of the components if it hopes to develop either component. Interdependent architectures optimize performance, in terms of functionality and reliability. By definition, these architectures are proprietary because each company will develop is own interdependence designed to optimize performance in a different way..."

Clayton Christensen et al, 2003

Independent architecture is the same as optimized and proprietary architecture.

"...In contrast, a modular interface is a clean one, in which there are no unpredictable interdependencies across components or stages of the value chain. Modular components fit and work together in well understood and highly defined ways. A modular architecture specifies the fit and function of all elements so completely that it does not matter who makes the components or subsystems, as long as they meet the specification site. Modular components can be developed in independent workgroups or by different companies working at arm's-length. Modular architecture optimizes flexibility, but because they require tight specification, they give engineers fewer degrees of freedom in design. As a result, modular flexibility comes at the sacrifice of performance. Pure modularity and interdependence are at the ends of the spectrum: most products fall somewhere between these extremes......companies are more likely to succeed when they match product architecture to the competitive circumstances..."

Clayton Christensen et al, 2003

It is of interest to note that introducing radical new technology is not as easy as imposing new technology on the old, as usually the new has unexpected ramifications, such as the transition from analogue to digital for all optic-telecommunications networks. Furthermore, integration is the best way to handle all of the interdependencies that need to be managed. For these reasons IBM initially dominated the computer industry by virtue of its integration; similarly for Ford and General Motors in the automobile industry. These firms enjoyed near monopoly power; their market dominance was the result of the not-good-enough circumstance, which mandated interdependent product or value chain architectures and vertical integration. This dominance was only temporary as they had to compete to make the best possible products and, as a result, made products that were more than the market required in functionality and reliability, ie they overshot.

Customers are happy to accept improved products but unwilling to pay a premium price unless there is improvement in speed, convenience, functionality and customisation. When this occurs there is an evolution in product architecture from interdependent, proprietary architecture that was OK in the not-good-enough era to broad modular designs in an era of performance surplus. Modularity becomes important because it enables independent, non-integrated organisations to sell, buy and assemble parts and subsystems. The modular system allows outsourcing and allows firms to mix-and-match components from the best suppliers in order to respond to the specific needs of individual customers. This sequence repeats itself with the introduction of new technology. For example, in personal computers, Apple computer was most integrated company with proprietary architecture and initially had the dominant position in the market. Ultimately, when functionality of desktop computers became good enough, IBM's modular architecture became dominant. Thus

"...Apple's proprietary architecture, which in the not-good-enough circumstance was a competitive strength, became a competitive liability in the more-than-good-enough circumstance. Apple as a consequence was relegated to niche-player status as a gross explosion in personal computers was captured by the non integrated providers of modular machines..."

Clayton Christensen et al, 2003

Similar sequences will occur with the next generation of disruptive computer products, like notebook computers and hand-held wireless devices, ie organisations which are most successful initially will have optimized, interdependent architectures. By contrast, those organisations whose strategy is prematurely modular will struggle in the early years when performance is the basis of competition. However, before long, architecture and energy structures will evolve toward openness and disintegration.

The drivers of this sequence are

i) the pace of technological improvements exceeds the ability of customers to utilize it, ie overshooting of customer needs

ii) as a result, the basis for competition changes with improvements in functionality and reliability becoming more customised; yet, simultaneously, customers become less willing to pay premium prices for these improvements.

iii) competitive pressures force organisations to compete on responsiveness and speed. To handle this, their products/services evolve from being proprietary and interdependent to becoming modular

iv) modularity encourages the disintegration of the industry as non-integrated organisations out-compete the integrated traditional players. Initially integration was a competitive necessity; it later becomes a competitive disadvantage.

NB

"...the circumstances of performance gaps and performance surpluses drive the viability of these strategies of architecture and integration..."

Clayton Christensen et al, 2003

Furthermore,

- customers' needs change but generally at a slower pace than the technological improvements

- basis for success, ie attracting unsatisfied customers, varies at different tiers of the market, ie at the low tiers, it is speed, flexibility and low-cost.

11. Need to understand the 3 conditions for competing in a modular world, ie non-integrated specialist

i) specificability, ie specifications known

ii) verifiability, ie able to measure attributes so that specifications can be verified

iii) predictability, ie interdependencies across the customer-supply interface are known

If these 3 conditions are satisfied, then there is sufficient information for an efficient market to emerge at the interface

12. Keeping development of disruptive innovations in an established organisation and using the current supply chain that is organized for traditional product/service categories

- established organisation and current supply chain players have too much interest in maintaining the status quo to take advantage of disruptive innovations. Sometimes, even for the development of sustaining innovations, it is best to start a new organisation. Usually these new, focused organisations can develop new products/services better than larger organisations. One example is in the health-care industry where the new sustaining innovations are developed for sale to other industry players.

Remember:

"...established companies are prone to cram disruptive ideas into the mainstream market, forcing them to compete against consumption on a sustaining-technology basis......an organisation's processes and values ensure that it can only implement sustaining innovations..."

Clayton Christensen et al, 2003

If this happens, the chance of success with the disruptive innovation is very low!!!!

13. Fear of focus

- management prefers to have a product/service that has a general, rather than specific, range of use, ie need to satisfy a specific job-to-be-done or outcome that customers are seeking.

14. Management's demand for quantification of opportunities

- usually market research is done in the resource allocation process to quantify the size of the opportunities, not to understand customers nor how markets work. This quantifying focus incorrectly assumes that the customer's world is structured in the same way that the data is aggregated, under headings of products, customers and organisational units, ie how it is sold, how profitable each is, which customers are buying which products/service, and what costs and revenues are associated with servicing each customer or business units. This incorrect market segmentation causes managers to aim innovations at phantom targets. For example, framing markets in terms of customer demographics, ie averaging across several different jobs-to-be-done, or outcomes that customers are seeking, that arise in customers' lives inevitably produces a one-size-fits-all product that rarely leaves the customers satisfied. Furthermore, defining markets in terms of an organisation's boundaries further restricts innovation from developing products/services that will truly help the customers execute the jobs-to-be-done or provide outcomes that they are seeking.

"...the solution is not to use data that is collected for historical performance measurement purposes in the processes of new-product development. Keep such data quarantined: they are the wrong data for the job. The size and nature of job-based or circumstance-based market categories actually can be quantified, but this entails a different research process and statistical methodology..."

Clayton Christensen et al, 2003

15. Advertising (including brands) or product category by market segmentation

- such as age, gender, lifestyle, geography, industry, size of business, etc. Branding efforts that concentrate on the products/services/attributes being flexible enough to do many jobs can result in misdirected or undirected effort. It is best to define the circumstances which get the job done which can then be communicated with a 'purpose' brand. Therefore, when the customers think about themselves in those circumstances: they will think instinctively of the brand and know what to buy in order to get the job done, or achieve the outcomes that they seeking. Customers pay a significant premium for a brand which produces an outcome they desire. An example of purpose branding is the Marriott Hotel Chain where its hotels brand themselves differently depending on the market segments they are targeting: Courtyard Hotels are the hotels "designed by business travellers for business travellers"; the Fairfield Inns are a good holiday place for a family; Residents' Inns are a home-away-from-home.

Brands are at their peak when they are created at stages of the value-added chain where products/services are not-yet-good-enough. The aim of brands is to help create price premiums. On the other hand, when competitors' products/services are more than adequate, any price premium disappears. Yet shifts in the value chain can create opportunities for branding. For example, initially computer systems were complex and unreliable. IBM, with its superior service capabilities, could charge a price premium up to 40 percent compared with competitor's comparable equipment.

Remember: the movement of branding power in a market that has many tiers is a process, not an event. Thus branding is aimed at customers who are still not satisfied with functionality and reliability. On other hand, where speed, convenience and responsiveness drive competitive success, profitable brands are found at the levels of subsystem and distribution channels - away from the product/service.

16. That differentiation and/or low costs are growth strategies

- differentiation is destroyed by the mechanism that leads to modularization and disintegration. Low cost strategies are only viable as long as there are not enough low cost competitors to satisfy the market.

17. Using categories of core competency to decide whether to insource or outsource

- this means if it is a core competency, it is performed inside the organisation; in contrast non-core activities are sent outside. The problem with this is that what is currently non-core may be core in the future, and vice versa.

The classic example of this is IBM's decision to outsource the micro processor for its PC business to Intel and its operating system to Microsoft. IBM made these decisions in the early 1990s so that they could focus on what they do best - designing, assembling and marketing computer systems. At the time these appeared good decisions. Subsequently, these decisions resulted in most of the future profits of the industry going to Intel and Microsoft. To avoid these outcomes, the following questions should be asked

"...What do we need to master today, and want will we need to master in the future, in order to excel on a trajectory of improvement that customers will define as important. The answer begins with the job-to-be-done approach: customers will not buy our product unless it solves an important problem for them..."

Clayton Christensen et al, 2003

Furthermore, core competence is an inward-looking notion. An alternative notion addressing competitiveness, ie what customers value, rather than what you think you are good at. Competitiveness involves a willingness and ability to learn new things, rather than clinging hopefully to past successes.

When the functionality and reliability of a product/service becomes more than good enough, the basis of competition changes.

"...the customer interface is a place in the value chain with the ability to excel.....Hence, companies that are integrated in a proprietary way across the interface to the customer can only compete is not-good-enough dimensions more effectively......than in those firms that interface with customers in an arm's-length, modular manner......why Dell computer was more successful than Compaq during the 1990s. Dell was integrated across an important not-good-enough interface, whereas Compaq was not......the proper cost accounting would show that Dell's profit from retail operations are far greater than profits from its assembly operations..."

Clayton Christensen et al, 2003

18. Not realising that

"...An organisation's capabilities become its disabilities when disruption is afoot..."

Clayton Christensen et al, 2003

Three factors (resources, processes and values) comprise the RPV framework, which defines an organisation's capability (what it can and cannot accomplish).

The RPV framework:

i) Resources - includes people, equipment, technology, product designs, brands, information, cash, relationship with suppliers/distributors/customers. Of these resources, the most critical is the people, especially managers; failure will occur if the wrong people are chosen to lead the venture. The selection process is very difficult to get right. For example, someone who has a successful track record and the right attributes for the current business may not necessarily handle a new business venture. It is better to look for people who have the skills, intuition and experience that is similar to the new business venture, ie can handle unpredictable situations. Most existing managers are not suitable as their experience is based upon

"...finely honed operational skills in managing quality programs, process improvement teams, and cost-control efforts......many managers who are intensely focused on delivering ever improving results often are the worst at developing next-generation management bench strength. It takes extraordinary discipline and vision on the part of senior executives to balance the tension between putting in fully qualified employees to drive results now versus giving learning opportunities to high-potential employees who need development..."

Clayton Christensen et al, 2003

This can be a case for bringing in outside managers and/or outsourcing activities.

Starting a new business venture involves problems that are very different from those in a well-established organisation. In fact, failure and bouncing back from failure are critical experiences in developing the necessary skills to handle a new business.

"...The school-of-experience theory, however, says that potential should not be measured by attributes, but rather by the ability to acquire the attributes and skills needed for future situations......the ability to learn what needs to be learned.....focusing on ability to learn, it is possible to avoid......the infinite list of competencies important for today are those that will be required in the future. Performance appraisal......focus on learning-orientated measures such as 'seeks opportunities to learn,' seeks and uses feedback,' 'asks the right questions,' 'looks at things from new perspectives,' and 'learns from mistakes'......the quest is to determine whether an employee is willing to learn new skills..."

Clayton Christensen et al, 2003

Of the capabilities in the initial stages of a new venture, resources (especially people) are critical. For example, the attitudes and actions of a founder are critical to initial success. However, over time there is a shift to the processes and values. Sometimes a new venture starts well but will falter if the founder and/or management fail to institute processes and/or values, ie

"...Success is easier to sustain when the locus of capability to innovate successfully migrates from resources to processes and values..."

Clayton Christensen et al, 2003

Furthermore,

"...once members of the organisation begin to adopt ways of working and criteria for making decisions by assumptions, rather than by conscious decision, then those processes and values come to constitute the organisation's culture......culture is a powerful management tool......culture enables employees to act autonomously and causes them to act consistently..."

Clayton Christensen et al, 2003

However, to handle new problems, challenges, etc it is easier if the organisation's capabilities reside primarily in the people; if the capabilities reside more in processes and values so that they have become embedded in the culture, change can be very difficult to achieve.

ii) Processes - organisations create value by transforming resources into products/ services of great value. The transformational patterns of interaction, coordination, communications and decision-making are described as processes. Processes can be

- formal (explicitly defined, visibly documented and conscientiously followed)

- informal ( habitual routines or ways of working that have worked over time)

- cultural (ways of working that people have unconsciously followed as they are effective)

Remember: a process that works in one situation is not necessarily effective in another situation. In contrast to many resources being flexible, processes by their very nature are not meant to change. Processes need to be aligned with their task.

"...very often the cause of a new venture's failure is the wrong processes were used to build it..."

Clayton Christensen et al, 2003

More often than not the processes that support the investment decisions, such as the way market research is conducted, translating analysis into financial projections, negotiations of budgets and plans, etc are the problem: processes, rather than logistics, development, production, customer service, etc

iii) Values - the organisation's values are the standards by which staff make continuous prioritisation decisions around resources, products/services, processes, etc.

"...where as resources and processes are often enablers that define what an organisation can do, values often represent constraints - they define what the organisation cannot do..."

Clayton Christensen et al, 2003

Generally, financial indicators revolve around acceptable gross margins and the size of the business in order to be interesting. As an organisation grows, it can lose the capability of entering into small emerging markets as they are too small.

Unless large organisations are flexible, size becomes a disability in creating new growth businesses.

The RPV framework can be used to help integrate acquired organisations, and the following questions will help identify if you are buying resources, and/or processes, and/or values

"...What is it that really makes this company that I just bought so expensive? Do I justify the price because of its resources - its people, products, technology, or market position? Or was a substantial portion of its worth created by its processes and values - its unique way of working and decision-making that enabled the company to understand and satisfy customers; develop, make, and deliver new products in a timely way; and to do so within a cost structure that gives it disruptive potential?..."

Clayton Christensen et al, 2003

If the processes and values were the reason for the acquisition's historical success, it is better strategy to leave it as a stand-alone business. On the other hand, if the organisation's resources were the primary rationale for acquisition, then integrating it into the parent is a good idea so that the acquired people, products, technology, customers, etc can leverage off the parent's existing capabilities, such as processes

19. Factors that influence incorrect allocation of money

The factors are

i) too much focus on successful core businesses - thus no money diverted to new growth activities

ii) growth gap - this refers to the difference between investors' expectations as expressed in present value calculations and the current share price. Generally, senior management expects to meet investors' expectations using sustaining innovations rather than disruptive innovations; the latter's new revenues and profits are unknown. Yet

"...Creating new disruptive businesses is the only way in the long-term to continue creating shareholder value..."

Clayton Christensen et al, 2003

Remember: investors expect organisations to continue to grow

iii) impatience for growth

"...When the corporation's investment capital becomes impatient for growth, good money becomes bad with the subsequent cascade of inevitable incorrect decisions..."

Clayton Christensen et al, 2003

Most disruptive businesses will initially not grow very quickly as they need to compete against non-consumption and follow an emergent strategy process. This will work against disruptive innovations being selected

iv) tolerance of initial losses for the sake of growth, ie impatient for growth but patient for profit - as sustaining innovations will be competing in established markets, executives accept the potential for initial loss before growth will occur. Disruptive innovations, in contrast, are more likely to be immediately profitable and yet have small initial growth

v) mounting losses - this results in members of the management team being changed and an unrealistic focus on immediate growth that will favour sustaining over disruptive innovations

20. How to manage this dilemma of investing for growth?

- most shareholders want regular, strong, consistent returns as expressed by dividends and share price increases but to invest for growth can mean a temporary decline in these returns.

Remember: current financial outcomes are results of past investment decisions.

"...Financial results measure how healthy the business was, not how healthy the business is..."

Clayton Christensen et al, 2003

Past financial data is not necessarily a good indicator for the future

Ways to handle this include

i) start early - start new growth businesses while the organisation is financially healthy, ie core businesses are performing well. Waiting until current business slows may mean that the resources are no longer available. Furthermore, need to be careful of the strategy of aiming for growth by acquisition. Usually the decision is driven by numbers, such as discounted cash flow projections, and an assessment of whether the business is undervalued or fixable or can yield cost savings through synergies with an existing business. These are not the best techniques for decision-making as they are based on historical evidence rather than a general strategy for creating and sustaining and organisation's growth (see earlier).

ii) start small - new growth opportunities should be launched as new small business units that are patient for growth

"...A decentralized company can maintain the values required to see and enthusiastically pursue disruptive innovations far longer than can a monolithic, centralized one, because the size of a disruptive venture must reach to make a difference to a small business unit......in the multi-business-unit there are more managers seeking disruptive growth opportunities, and more opportunities will look attractive to them......most of the companies that appear to have transformed themselves over the past 30 years or so - companies such as Hewlett-Packard, Johnson and Johnson, and General Electric, for example - have been composed of a large number of smaller, relatively autonomous business units. These corporations have not transformed themselves by transforming the business models of their existing business units into disruptive growth businesses. The transformation was achieved by creating new disruptive business units and by shutting down or selling off mature ones..."

Clayton Christensen et al, 2003

iii) demand early success - be impatient for profit. Generating profit quickly and limiting expenses does 2 things, ie

a) accelerates the emergent strategy process by forcing the venture to test assumptions as quickly as possible; with quick feedback on the success or otherwise of the venture

b) by becoming profitable, the venture protects itself from decision makers changing their minds, especially if core business is not performing well

A disruptive business model is a valuable corporate asset

Disruptive business models as used by the likes of Amazon (books), PayPal (payment), Uber (taxi), Airbnb (accommodation), etc are moving into industries in which there is
- charging of excessive fees and/or
- making of excessive profits
and/or
- poor customer service/high customer dissatisfaction and/or
- under-utilised assets and/or

- using out of date technology.

Some examples of industries under threat for the above reasons are:

- the data intelligence/analysts industry, like Thomas Reuters, Bloomberg, Gartner, etc, that have been in the industry for decades and built a US$ 10+ b. market. They have had little impetus to change owing to their market dominance combined with their public shareholders' expectations from this cash cow, ie short-term profit and the dividends. Yet almost all customers are dissatisfied. This has provided an opportunity for a disruptor, like FiscalNote (started in 2013 and worth US$ 18 m. in late 2015), to come in to differentiate itself by speed and breadth of information delivered, its superior design platform and customer service disrupt the research divisions at analyst companies. These disrupters are using their ability to predict what customers will want. (Rachel Botsman, 2015b)

- the taxi industry.  Uber, a technology-based disruptor that provides a ride-sharing service, is doing what years of inquiries, complaints reforms, etc have not been able to do to a monopolistic industry, ie taxi. Customers in the taxi industry are fed up with delays, bad drivers, excessive fees and poor service. Uber's popularity and increasing protest of established taxi licence holders about Uber are putting pressure on regulators and state transport authorities to find a solution. In addition to Uber, booking and payment apps, like goCatch and ingogo, are providing alternate payment systems to the likes of Cabcharge. Cabcharge has dominated the Australian taxi industry since 1976 and charges a flat 10% fee on every fare paid via its eftpos terminals (in 2015 this was dropped to 5% in some States).

Uber adopts combative tactics. It targets "poorly serviced" cities by giving drivers iPhones, with the Uber app installed. The legal Uber black posh-car service enters the market first; once established, Uber X is introduced, (Jessica Sier, 2016b)


These models use the latest technology to generate an asset-light approach, with low overheads.

"...A disruptive business model that can generate attractive profits at a discount price required to win business at the low end is an extraordinarily valuable growth asset. When its executives carry the business model upmarket to make high-performance products that sell at high price points, much of the increment in pricing falls to the bottom line - and it continues to fall there as long as the disruptor can keep moving up, competing at the margin against the higher-costs disruptee. When a company tries to take a high-cost business model down market to sell products at lower price points, almost none of incremental revenue will fulfill its bottom line. It gets......into overheads. This is why......established burdens that have to capture the growth created by disruption need to do so within an autonomous business with a cost structure that offers as much headroom as possible for subsequent profitable migration upmarket......disruption does not guarantee success, but it sure helps......following a strategy of disruption increases the odds of creating a successful growth business from 6 percent to 37 percent......is also clear what executives who seek to create new growth business should do: target products and markets that the established companies are motivated to ignore or run away from. Many of the most profitable growth trajectories in history have been initiated by disruptive innovations..."

Clayton Christensen et al, 2003

Does the innovation have potential to be disruptive

Three sets of questions that will determine whether an innovation has the potential to be disruptive

i) new-market disruptive

- Is there a large population of people who historically have not had the money, equipment or skill to do this job for themselves, and as result have gone without it altogether or have needed to pay someone with more expertise to do it for them?

- Will the product/service be more convenient, more effective, more reliable, simpler and lower-priced than the current available product/service?

- Will organisations providing the product/service be able to stay connected with a given job as improvements are made?

- Can a purpose brand be developed so that the customers know what to buy?

ii) potential for low-end market disruption

- Are the customers at the low end of the market happy to purchase the product with adequate but lower performance than what competitors offer, ie trade-off some performance attributes (like slower speed, less reliable, more basic, etc), in exchange for a lower price?

- Can you create a business model that enables you to earn attractive profits at discount prices required to win the business of these currently over-service customers at the low end?

iii) degree of disruption

- Is there a similar impact of the innovative disruption on all the significant players in the industry?

Remember: if one or more significant player in the industry will not be disrupted by the innovation, then the entrant is unlikely to win.

There are 4 elements to developing new market disruption

"...i) the target customers are trying to get a job done, but because they lack the money or skill, a simple, inexpensive solution has been beyond reach

ii) these customers will compare the disruptive product to having nothing at all. As a result, they are delighted to buy it, even though it may not be as good as other products available at high prices to current users with deeper expertise in the original value network. The performance hurdle required to delight such new market customers is quite modest.

iii) the technology that enables the disruption might be sophisticated, but disrupters deploy it to make the purchase and use of the product simple, convenient, and foolproof. It is this 'foolproofedness' that creates new growth by allowing people with less money and training to begin consuming

iv) the disruptive innovation creates a whole new value network. The new consumer typically purchases the product through new channels and uses the product in new venues..."

Clayton Christensen et al, 2003

In other words,

"...What kind of customer will provide the most solid foundation future growth? You want customers who have long wanted your product but were not able to get one until you arrived on the scene. You want to be able to easily delight these customers, and you want them to need you. You want customers you can have all to yourself, protected from advances of competitors. And you want your customers to be so attractive to those you work with everyone in your value network is motivated to co-operate in pursuing the opportunity..."

Clayton Christensen et al, 2003

Furthermore, in the organisation's resource allocation process

"...Managers need to frame the disruption as a threat in order to secure resource commitments, and then switch the framing of the team charged with building the business to be one of a search for growth opportunities. Carefully managing this process in order to focus on those ideal customers can give new growth ventures a solid foundation for future growth..."

Clayton Christensen et al, 2003

In addition, the current competition views the entrants in the emerging market as irrelevant to their own well-being. Initially the new growth market has minimal impact on the mainstream market. In fact, the traditional players will prosper for a while because of the disruption as they will concentrate on the more profitable segments of the market. This allows the disruptive strategy to get a foothold and eventually topple the traditional players (including the distribution channels). Sometimes traditional players will try to compete head-on with the disruptor; again, most will fail.

This can be explained by the mindset of seeing a disruptive innovation as a threat rather than an opportunity. This is sometimes called 'threat rigidity', which means having less flexibility and becoming more 'command and control' orientated, ie refocusing everything on countering the threat in order to survive by protecting their current customers and business. To deal constructively with this scenario, the mindset needs to change so the situation is seen as an opportunity. An ideal strategy is to set up an autonomous business unit. For example, soon after the newspapers went online, some players took the online business out of the organisation and set it up as an autonomous organisation to handle the Internet.

This is a good example of an 'asymmetry of perception' with a new entrant seeing the situation as an opportunity while the established players see it as a threat. Furthermore, the disruptive innovation should be treated separately from a sustaining innovation opportunity.

Remember: in the resource allocation process, for disruptive innovations it is better to handle budget considerations based on the innovations fitting with a pattern (see above points i to iv), not numbers, ie

"...Fit constitutes a much more available predictor of success than do numbers in the uncertain environment of new market disruptions. If a project fits the pattern, executives can approve it with confidence that the initial conditions are conducive to successful growth..."

Clayton Christensen et al, 2003

Some examples of sustaining and disruptive innovations included

- high speed photocopier business (in the 1970s and 80's IBM and Kodak attempted to defeat Xerox. These companies were far bigger yet they failed to defeat Xerox in a sustaining technology competition. On the other hand, Xerox was beaten more recently with a disruptive innovation that included tabletop copiers)

- computers (corporate giants, such as RCA, General Electric and AT&T, who threw massive resources into the battle, failed to stop IBM in the development of sustaining-technology of mainframe computers. In the end, it was the disruptive personal computer makers, not the major corporations, which successfully competed with IBM. The centralised large computer changed to personalised computing (desktop to laptop), then to interconnected or cloud model and mobile phones)

- phones (landlines to mobile phones, etc, eg in Africa, there were around 10 m. fixed landlines in 2000 & in 2014 there are 700 m. mobiles; in early 2014, more mobile phones than world population (around 7 b. ); smart phones around 1.75 b. users. Smart phones are phones and have encouraging the use of apps over text, mobile Internet & are as powerful as best computer in 1987).

- power (use of solar power, with leasing option to reduce initial capital investment, is putting increasing pressure on the traditional power generator utilities. Solar is cheaper and customers are signing up for decades under the leasing option. Furthermore, total power usage is declining which is putting additional pressure on traditional suppliers to increase prices to cover their costs and this is making solar more attractive. The only drawback to solar's progress has been is the need to develop cheaper electricity storage that will allow solar generators to store the energy they generate and provide for use as required. Recent technological advances in batteries which store solar power is creating the possibility of home owners being able to divert their own solar power reserves to neighbours; energy is heading towards an interconnected system.. This could make it unnecessary to be connected to mainstream electricity networks.)

Further developments include water is being replaced with carbon dioxide to generating steam from solar energy.  Also, using utility solar (concentrated solar power - CSP) which uses the sun's heat rather than its light. CSP concentrates heat from the field of heliostat mirrors that are slightly curved to initially create the concentration and are controlled by actuators that track the sun.


"...The sun's heat is reflected upwards at a receiver, a 4.5 metre square hole at the top of the Tower that contains pipes.  When water runs through the red hot pipes it turns to steam which drives a turbine..."
Robbie McNaughton as quoted by Mark Abernethy, 2016


Some of the challenges are around the heat not melting everything, plus storage (so that it can handle peak loads and provide power when the sun is not shining) and efficiency (salt has a natural limit of 590 degrees which is well below temperatures to create optimum thermal efficiency). To help with storage, the heat is stored in molten salt, ie it is heated by the solar receiver and when the sun goes down, heat from the stored salt is used to drive the turbines.
Efforts are now being focused on using carbon dioxide, ie heat carbon dioxide to 720 degrees so that able to run carbon dioxide turbine at greater than 50% thermal efficiency (water and salt run at just around 40%).


"...storing the heat is done through a steel tank at the base of the tower in which special ceramic balls are heated by the initial solar process, a secret heat-transfer liquid is run down the tank into a heat-exchanger, from which a turbine can be driven when there's no sun..."
Robbie McNaughton as quoted by Mark Abernethy, 2016


To be commercially viable techniques, they need to produce at least 500 MW

Some examples of disruptive innovations creating new customers/new markets for products/services that were more convenient and/or low priced, etc were

- smart phones are replacing personal computers that replaced the main frames

- Sony's first battery powered transistor public radio that replaced the immobile plug-in wireless

- Canon's desktop photocopiers that replaced the large photocopiers that needed a technician to operate

- Japanese auto makers (Toyota, Honda, etc ) followed by the Koreans' (Hyundai, Kia, etc) entry into the North American market at the low-end of the market via fuel economy and low purchase price

- the minimills in the US steel industry

- discount retailing (Wal-Mart and Kmart) competing against the department stores

- plastic makers (Dow, Dupont and General Electric, etc) continue to displace steel

- VOIP (Skype, etc) considerably cheaper than the traditional land lines and mobile phones despite poorer quality and the need for computer linkage.

- pre-paid phones (Virgin and others) created a new market for low income customers (including young people) who were ignored by traditional phone firms as these people were not creditworthy enough to have accounts.

- digitalisation including downloading of the music from the Internet and communications (Apple's iPod)

- drones and autonomous cars delivering products

- 3-D printing upending manufacturing

- predictive algorithms causing upheaval in insurance and banking

 

Organisations need to have the right culture to handle the new technological changes. The "right culture" includes encouraging and reinforcing innovation, taking some risks and tolerating experiments that fail. This is the culture that ultimately drives innovation.

(NB The music industry is a good example of technology changing the business model from wax cylinders in 1880s; 78rpm recording discs in 1910s; flexible vinyl long player, eg single and EP (extended player) after WW2; analoguewith plastic records (singles, eg 7 inch and LP - long plays) and cassette players and recorders (encouraged home taping from the radio or original LP) in 1960s; more recently, digitalisation via computer software is facilitating mixing of albums and soundtracks, compact disc (CD) with disc pressing technology, DVD, videos (VHD), video games, starting with Pac-Man and developing into the home computer games; Internet (digital downloading, social networking, such as YouTube, MySpace, etc), and Apple's iPod - combining communications (mobile phone, etc) and music recording/playing (2007s)

- Video streaming impact on TV industry (For example, Netflix is "over-the-top" video streaming that is a threat to all forms of television, including free- to-air). In the first 3 months of 2015, Netflix added 4.9 m. viewers to reach 62 m. worldwide; with share price hitting $US 562. Its market capitalisation is US $34 b. and this is greater than CBS (highest ranking US TV broadcast network that has been in business for decades). Next areas for Netflix to focus on include Japan & China.

Netflix is a virtual private network (VPN) is an extended private network across a public network like the Internet (Max Mason, 2015). It enables a computer or a network enabled-device to send and receive data across shared or public networks as if it were directly connected to the private network, while benefiting from the functionality, security and management policies of the private network. It is a virtual point-to-point connection through the use of dedicated connections. The best way to handle the VPN is true global licensing.

The TV channels are no longer just competing with each other; they are competing with the past. Owing to the vast libraries of content available online, ie

 "...if you make a new TV show, you are really competing with every TV show that has been made before...:
James Murdoch as quoted by Dominic White, 2014a

This has coincided with great reductions in the price for quality digital equipment, eg DSLR video cameras are now just a couple of thousand dollars.
Users pay a monthly subscription. Next likely development is to include advertising as happened with cable TV.
It encourages "binge viewing" with its downloading of all episodes of, for example House of Cards as against the release of one episode at a time of scripted TV. This is forcing the TV channels to re-examine theor traditional ways of doing thing. For example in Australia
i) it is cheaper to use shows from US or Britain than commission original content
ii) there is an increasing focus on live news, event television and sporting rights to guarantee big audiences
iii) commission one reality show and continually replay it until viewers tire of it
iv) as people are time poor but own mobiles, ie able to access content in many different ways like Netflix, Amazon, tablets, etc
NB The market dictates what it wants, ie

"...People have remotes, they watch what they want to and all the networks provide a wide range of programming..."
Beverley McGarvey as quoted by Dominic White, 2014a

- shared /collaborative/on-demand  economy & organisations

It is based on the old notion of rural/village sharing or bartering of capital stock but using the latest technology (smart phones, connectivity, internet, etc.

It has capital-light, technology-driven ability to unlock value what were previous;y neglected or under-utilised goods & services

It is definately a productivity driver & will create more value in the broader economy than it destroys. Industries already in the sharing economy include global holidays & short-term property rental, car sharing networks, skills exchanges, crowd financing for banking & investment, shared workspaces, new marketplaces for unwanted goods, etc.

"...The share is shaking things up the world over; how it's empowering communities to make real changes, and that it is taking the efficiencies of an interconnected digital space and applying them to real-world problems......it's an ecosystem built around sharing services and resources - or, its people exchanging things they have and skills they possess......it offers undeniable efficiencies: if you happen to have a spare room just sitting there, a property with unused parking space, a video camera you barely use, or a car that remains under driven for most of the day, then there is a way to make a little cash by connecting with somebody who is prepared to pay for short-term use..."
Andrew P Street, 2014


Some examples include taxi (Uber), Airbnb (accommodation), life-style hints (Lifehacker ), knowledge/communications (TED), etc; the hiring tools (OpenShed, Freegler, Friends with Things, etc); odd jobs (Airtasker); locating a car park (Parkhound, Parking Made Easy, FindACarPark, etc)
Organisations developing this concept vary from those seeking to redistribute resources in a more effective way to those seeking to make money out of developing the possibilities created by the new technology by either creating new markets or entering existing markets.
It works by buyers and sellers registering; they are rated on the quality of the interactions and those that don't reach of a prescribed standard are banned. It relies on communities acting ethically and honestly; with users rating one another.

To the established firms in this space already competition is appearing like Uber competitiors include Backseat, RideSurfing, Coseats, Transfercar, etc; for Airbnb, competitors include VRBO

The taxi industry pays massive fees to operate, has a stringent licensing system and makes huge investments in fleets of vehicles and comprehensive radio and digital networks. On the other hand, its major threat, Uber provides a relatively unregulated car share service which has little accountability and responsibility but provides good customer service. Similarly for Airbnb, where in New York there are rental restriction laws that prohibit renters from subletting their apartments for less than 30 days at a time; in California it is legal to be a squatter after residing for more than 30 days.


"...it's going to take the legal system awhile to catch up with the realities of this new model..."
Andrew P Street, 2014


Our current legal system is based around ownership of goods and the resultant accountabilities and responsibilities. In contrast to this status quo, a collective ownership model is a burgeoning legal headache. Examples of activities challenging the status quo include food sharing networks and neighbourhood power generation like solar leasing.


It is expected that a shared economy will work best in neighbourhoods/communities that already have a level of trust and accountability.
Part of the problem is that governments, bureaucrats and society, etc look at handling future problems with our past or present mindset. Just because something worked in the past, there is no guarantee that it will work now and/or in the future. There is a need to look with "new eyes" at the challenges created by on-demand/shared economy.

. Henry Ford mass production of cars is a good example of the concept of the on-demand economy. Henry Ford's moving assembly line with mass labour to make building cars much cheaper and quicker, with the result that automobiles moved from being a rich man's toy to transport for the masses. Just as Henry Ford gave the masses access to a motor car, current day entrepreneurs are trying to supply to a wider audience the luxuries that were once the preserve of the wealthy and elite. Some examples
- Uber provides chauffeurs
- Handy supplies cleaners
- SpoonRocket delivers restaurant meals to your door
- Instacart keep your fridge stocked
- Click on the Midicast app and a doctor will visit within 2 hours
- Axiom will supply a lawyer
- Freelancer.com & Elance-oDesk Link up to 9.3 m. workers for hire with 3.7 m. firms
The on-demand economy has profound implications for everything from the organisation of work to the nature of social contract in a capitalistic society. For example, since the 1970s, the dominance of the firms and the trade unions in manufacturing has changed with many jobs being automated or outsourced overseas; corporations have abandoned the notion of providing lifetime employment with one organisation. It is estimated that around 50 m. American workers already work as free-lancers (The Economist, 2015a). The two major forces driving this are
i) technology - cheap computing power that allows home-made videos to rival products from Hollywood studios, 3-D printers manufacture products, shared economy allows society to tap and rent under-utilised resources such as your spare room, vehicle, etc
ii) changing social habits - people used to be divided into those that own the means of production and those that work for them. Recently, the divide is between people who have money, but no time, and people who have time but no money. This gives workers more flexibility in how and when they work. On the other hand, it reduces security as fewer workers are being employed full-time with guaranteed pay and benefits. For example, the Uber drivers get paid only when they work, and are responsible for their own pensions and healthcare. Risk previously borne by companies is being pushed back to the individual.
Linked with this is the fact that the transactional cost of using an outsider to fix something, rather than in-house, is falling.
. The battle with the on-demand economy around safety and regulatory issues is all described as "teething problems" of a new industry
. On-demand economy gives consumers greater choice, with society gaining because otherwise idle resources are put to use, eg if not for Uber, most of its cars would be parked and idle in garages
. Regulators have not caught up with the new situation of the on-demand economy: with most laws, rules and regulations still give preference to full-time employees and treat freelancers as second-class citizens.

The shared economy and Internet is increasing the numbers of freelancers, eg self-employed, one person micro-businesses, start-ups, etc, who are facing greater risks and uncertainty than more permanent employees, eg nine-to-five workers on longer-term contracts with benefits like training, pensions, insurance, healthcare, etc
It is estimated that around 1/3 of the US workforce does some freelance work (2014); similar for the UK where the greatest growth areas is self employment that has emerged not from among low-pay contract workers but senior managers and directors. The challenge of freelancers is that it can be seen and used as a cheap form of direct employment as companies avoid paying employment taxes and indirect benefits (health, pensions, training, etc) while treating them like an employee

Uber
is an example of an organisation in the shared economy. It is asmart phone application for car service booking & on-demand ride sharing. It started in May, 2010 by 2 people (Garret Camp & Travis Kalanick); in 2015 in 50 countries & 260 cities globally; 900 staff. It tapped into dis-satisfaction with normal taxi operators, ie not being able to find a taxi when it is needed. It has been praised for challenging anti-competitive behaviour of taxi firms (Harper's Competition Review, Australia, 2014). It offers a cheaper, technologically-savvy, customer-friendly, more reliable service than a normal taxi service; it provides an extremely simple service whose implementation is technically brilliant and easy-to-use. Uber is car pooling at the push of a button. By using a computer platform that connects passengers directly with drivers so that passengers order & pay for a car using their phone with geo-locating technology connecting them to nearest available vehicle; fares fixed directly with driver. Its app provides free traffic information, driver-source information about location of people requesting cabs, the ability to securely process credit cards via smart phones and comprehensive stats and reporting on fares

Uber is not only cheaper, but provides a better service than its competitors like taxis. It claims 50,000 new drivers join every month (Samantha Hutchinson, 2014). The company is a mirror image of its founder, ie aggressive, ruthless and overly ambitious.

Uber is aiming to become a kind of global transportation service that will formally allow city dwellers to not own a car; in addition to taking people from place to place, it will transport goods and its has the potential to use driverless vehicles. Like other digital giants including Google, Facebook, Apple, Airbnb, etc, they have global ambitions; more than just a niche market. This has happened because of globalisation combining with digitalisation. Uber can be very arrogant in its approach and has found itself at loggerheads with countless cities around the world because its business model violates local laws, rules and regulations.

Uber ride sharing services are causing problems for legislators and regulators plus the traditional players in the taxi industry. The challenge is to force the Uber drivers into the regulatory system without destroying competitive tensions that Uber has brought to the taxi industry. The public who are annoyed with the delays, bad drivers and poor service have welcomed the likes of Uber using the latest available technology like apps. The only group that gets upset are the established taxi operators and their organisations

"... Disruptive technology-based services are doing what took years of inquiries, complaints and reforms haven't - tearing apart a monopolistic industry in record speed..."

Jessica Sier, (2015),

Regulations governing the taxi industry were developed before iPhones and GPS technologies were available. The regulators are struggling to catch up!!!

Linked with ride sharing are mobile booking and payment apps like goCatch and ingogo that are alternatives to Cabcharge which has been dominating the taxi industry since 1976 and charges a 10% fee; recently this fell to 5% in Victoria and New South Wales

Uber's model involves giving taxi drivers iPhones with the Uber app installed; the legal Uber Black posh car-service enters a market first; once Uber Black and Uber taxi take hold, then UberX is introduced

Uber's founding vision was "everybody's private driver"; its mission statement is "transportation as reliable as running water, everywhere for everyone". more recently the concept of a "perpetual ride", ie a driver would always have a customer in the car. In order to achieve its vision and mission, Uber needs to achieve price leadership and continually search for ways to deliver transportation at lowest prices, ie deliver the highest possible value to the customer at the lower price. Also, as the demand is highly elastic, ie as prices fall. the demand increases significantly, the lower prices deliver a much better value proposition to the passenger. Many cities have witnessed more than 6 price cuts in a 2 year period resulting in Uber's fares being 40 to 50% below that of the local taxis. Uber's lowers fares are backed up by income guarantees for drivers

As Uber has accessto an immense historical base of supply and demand curves at different price points, it can predict how the markets will evolved

Uber's technology goes beyond smart phone application. There are intelligent systems that provide demand predictions, congestion predictions, supply matching, supplied positioning dispatch, dynamic pricing, etc. It has data from 1+ m. rides per day to draw from. Its app provides free information, ie comprehensive stats on traffic information, about location of people requesting cabs, the ability to securely process credit cards via smart phones and reporting on fares

UberPool - a single car is like a bus, ie collecting and dropping passengers who travel in the same direction, eg ride-sharing (with each driver averaging more than a single passenger per trip). This has resulted in behavioural changes with many passengers traveling the same route regularly like 5 days a week.

Uber uses 3 models, ie

i) uses professional drivers with luxury vehicles

ii) UberX uses anyone over 24 years old with a licence, no criminal record and a four door car

iii) UberPool (ride sharing with more than one passenger going in the same direction plus collecting passengers en route like a bus; results in

- more income for driver

- lower fare for passengers

- higher revenue turnover fore Uber

NB To computerise Uber Pool, with its many permutations, requires "desiccated heuristic approximation" methods that have to solve challenges around

- multiple potential drivers who are constantly entering and leaving the system

- destinations are dynamic

- vehicles have limited seating capacity

- new requests for rides at continually coming in

Positive impact of Uber, ie
- creating jobs
- raising local taxes
- reducing car ownership
- reducing drinking and driving
- reducing the need for parking
- reducing congestion on the roads
- fewer cars on the road lowers pollution, ie carbon emissions
- more effective utilisation of an underutilised resource, ie private car (most private cars are idle around 95% of the time)
- application beyond just transporting people into broader logistics, ie multiple stops with multiple cargoes

The taxi industry's response to Uber is a good example of how traditional firms can react to a threatening new player. The taxi industry has put pressure on governments worldwide to react negatively to Uber, ie uses current laws, rules and regulations to try and to protect its traditional position. This is doomed to fail as the public has a strong desire for a better taxi service, which currently regarded as inefficient, and the public scepticism of government regulations. The regulator's main roles are around market competition and public safety; Uber is increasing market competition and the public don't agree with the argument that it is unsafe

Uber has weathered rolling taxi strikes (New York, London, Paris, Canberra and Melbourne), violent attacks by taxi-drivers (Brisbane) and slow-moving State government regulation (partly due the powerful taxi lobbies); they are forcing governments to rethink existing taxi regulation and traditional transport structures.

The way Uber operates is to challenge the law and use customer and drivers support to pressure governments to accommodate them. Generally they use the UberBlack platform (using private hire car drivers) to enter a new market. Once established they then expand to recruit existing cab drivers. This is followed by UberX which bypasses the expensive barriers to entry in the taxi industry with drivers receiving 75% of each fare. UberX can be up to 40% cheaper than traditional taxis. Despite its unregulated status, it has conducted around 10 million journeys in Australia and has around 1 million clients (2015).

Sometimes traditional players partnering with their potential disruptor, ie frenemies - this is a shift in attitude from disdain several years ago to a greater willingness to partnering with disrupters; some examples include

- Google introduced. Apple Pay (a mobile payment service) that uses existing bank and credit card system

 - American Express moved into Silicon Valley focusing on innovation in big data, cloud computing, social networks, online retailing and mobile payments

- Citigroup has a venture capital group that invests in companies that have the potential to disrupt and transform financial services like LoopPay , which has a technology that allows mobile devices to convey payment data to existing magnetic card readers
- Wells Fargo established a "start-up accelerator" to invest in firms that develop tools for the financial industry
- SunTrust Banks acquired the online lender Firstagain (2012) and renamed it as LightStream (2013); it offers unsecured personal loans of up to $100,000
- MUFG Union Bank uses Lending Club to offer unsecured loans to its mortgage customers
- MasterCard is linked with Behalf, which makes quick credit decisions by using limited information that includes crunching data from social media and online sources to determine the risks

. The catalyst for working with potential disrupters was the advent of Square (a mobile payment service started in 2010). More recently P2P are more threatening as they offer loans at rates below those of credit cards and banks, and offer investors returns above what they would get on bank deposits

At the same time, as new technology enters the real world, it can be potentially misunderstood by governments and their agencies. For example, when the car first appeared, it was banned from roads as it would disturb horses!!!!!

 Some people are using design thinking as a methodology that helps people develop the technology into products that are more acceptable to the public. It involves creating prototypes of the product and testing with consumers as a basis for continuous improvement and for their acceptance. For example, Airbnb's founders spent nights at the homes of their first users to test the suitability of their product, etc

 Disruptive technological advances are making fantasy into possibility and launching entire new industries like

 

- iPhones making the phone into a minicomputer

 

- Driverless cars

 

- all the world's knowledge condensed into an easily accessible digital map

 

- algorithms controlling 70% of all trading on the stock market

 

- development of drones for commercial use such as deliveries, data collection, etc

 

- artificial intelligence, etc

 

"...the digital revolution isn't just altering specific sectors of the economy, it is changing the way we think and live..."

 Thomas Schulz, 2015

 

Each of these disruptors created a new value chain and usually worked with new customers, rather than the incumbents.This has been true through-out history, ie transport. In the 18th century, the development of canals resulted in a monumental change in transporting goods. Previously goods traveled overland by road by horse and dray; this transport method of necessarily limited quantities was very slow and dangerous, ie rough roads limited the types of goods that could be transported effectively; the goods need to be unbreakable. The use of canals, however, resulted in larger quantities of goods being transported more quickly, with less breakage risk. It is estimated (Simon Winchester, 2001) that transport costs were halved by using canals This was followed by the introduction of railways. The railway network has all the benefits of the canals, was quicker and able to carry larger quantities. Thus the effectiveness advantages of canals disappeared. Now they are tourist attractions.

 

Some disruptions are hybrids that combine new markets and low-end approaches. Examples include

- Southwest Airlines (initially targeted customers who were not flying (previously used cars or buses or trains) and eventually pulled customers out of the lower end of the airline industry).

- Charles Schwab (stockbroking- stole customers from the full-service brokers with discounted trading fees and created a new market by enabling people who historically did not own shares to become share investors and traders).

- VOIP (considerable cheaper than traditional land-line and mobile phones despite poorer performance quality)

In fact the fundamental driver of Japan's economic miracle of the 1960s to the 1990s was disruptive organisations like Sony, Toyota, Nippon Steel, Canon, Honda, etc. who successfully competed against America's most successful organisations like General Motors, etc. Now they are producing some of the world's highest quality products for their respective markets ie they have moved to the high end of the market where there is limited growth. This partly explains the stagnating economy in Japan.

Many successful organisations have been disruptive at least once. These include IBM, Intel, Microsoft, Hewlett-Packard, Johnson & Johnson, Cisco, Southwest Airlines, Apple, Google, etc. Some like Sony have done it many times.

In the case of Southwest Airlines, as a market disrupter it attracted new customers who would not normally fly. Furthermore, the airline targeted non-major airports, thus staying away from head-on competition against the major airlines. On the other hand, other "low-fare" airlines, which fly to the major airports, have since created the "chronic unprofitability" situation in the industry.

How technology around the mobile phone has changed the game for Microsoft, Apple and Google

The iPod and iTunes changed the way people purchased, listen to and stored music by replacing CDs and MP3 players; similarly, iPhone was a disruptive innovation as it was a true mobile computer, it

- collapsed the power of a desktop computer into mobile phone with powerful operating systems

- integrated Wi-Fi and mobile Internet access

- allowed software writers to operate on it

- introduced centralised app stores where Apple could manage and distribute all mobile computer programs

- changed the keypad and freed more space for a larger screen

- included sensors like GPS (tell you where you are), magnometer (tells which direction is North), accelerometer (detects iPhone mobility), etc

- allowed further development of apps

By using the android system, Google ran an open source software approach, ie anybody in the world, including smart phone manufacturers like Samsung, BlackBerry, etc, could use the android software and tailor it to their own particular needs. This was different from Apple with its iOS system only operating on Apple-made hardware

Technology companies are rising and falling faster. The development of android and iOS destroyed Microsoft's near monopoly in operating systems in a mere 5 years with people adopting mobile computing more than 3 times faster than they did a desktop. It took around 15 years for Microsoft to dominate the desktop market after starting in the 1980s. Also, 2013 marked the worst decline in global PC shipments in history, ie 7 consecutive quarters of decreasing orders,

As consumers, businesses and computers are becoming more mobile and data intensive, the likes of Microsoft, Apple and Google are becoming vulnerable to smaller, nimbler competitors. For example, the once invincible Microsoft failed in its attempt to take on Apple's iPad. It is hoping to counter this through the purchase of Nokia (US $7 b.) to protect its core business (Windows Operating System, Office & Software, etc) from the likes of Apple, Google, etc. This acquisition turned another industry icon into a footnote in history books.

People wanted computers to be mobile, ie

Many people only ever interact and see the mobile version of a business. Therefore one needs a mobile strategy and to think differently about content and experiences. Mobile design is very different from desktop, eg the mobile relies on finger taps and swipes, not mouse clicks; it is faster and simpler; different screen size, screen orientations, display densities, etc. Gestures and touch interfaces make things easier and create ways to shortcut and leapfrog mouse clicks and keyboard commands. On the other hand, the size of the iPhone provides constraint.


Do not assume that because it works on the desktop it is suitable for the mobile. Some thoughts on getting the mobile experience right and how to avoid common mistakes, ie
- observe how people behave, rather than trying to anticipate users behaviour; for example bring users into your office to test whether the way you thought they would use a feature is true.
- observe people using your services in their world: can they figure it out on their own? Where do they get stuck? Understand where people get frustrated, etc
- use the service yourself, so that you know it inside out, ie empathise
NB Mobiles provide new tools but also force you to be selective. The platform provides a new level of design rigour that is totally different from the Web

Some user numbers in China (2014)
"...China ended 2014 with 618 million Internet users, of which 500 million were mobile Internet users. 81% of Chinese are now accessing the Internet via mobile. Mobile Internet browsing as a percentage of total Internet browsing has reached 23% by January 2014 - this is a 83% increase in just one year. If the above trend continues, then mobile is going to represent the majority of all personal computing platforms by 2016. In 2015, the number of smart phone users is expected to hit 2 billion. The lower cost of mobile devices combined with the growth of mobile broadband networks will actually see the next billion people who come online bypass desktop computing entirely and go straight to mobiles..."

George Berkowski, 2014

 - QQ (chat service) has 500m. users
- Qzone (social network arm of QQ) has 600m. monthly active users
- WeChat ( messaging app like WhatsApp) has 270+m. users
- Mo Mo ( social dating app) has 100+m. users
- Taobao (Internet shopping site) is twice the size of eBay and Amazon combine\

Chinese disposable income trebled over the 8 year period from 2005 to 2013

"...A typical smart phone user looks at their phone around 150 times per day. In 2013, the average consumer spent an average of two hours and 38 min per day on their smart phone and tablet. That accounts for a whopping 70% of their waking time - that's almost one fifth of the time we spend with their eyes open. Those consumers spend 80% of that time using apps and only 20% on mobile Web. Apps offer the better mobile experience - and a result holds four times more of our daily attention than the mobile web. Almost 60% of our time on games, Facebook or entertainment-related apps..."

George Berkowski, 2014

On average a person checks their smart phone around 150 times per day (Mobile Almanac as quoted by George Berkowski, 2014). this is broken down into
- message related ( 23 times per day) ( WhatsApp, Tango, Viper, Snapchat, Line & WeChat, etc)
- voice-call related (22 times per day) (Skype ( Microsoft), Viper, Hangout (Google), Facetime (Apple), etc
- clock (18 times per day)
- music player (13 times per day) (iTunes, Spotify, Pandora, etc)
- gaming (12 times per day) (Nintendo Game Boy, Sega Game Gear, Sony PSP, Angry Birds, Candy Crush, Clash of Clans, Puzzles, Dragons, Hay Day, etc)
- social media (9 times per day) (Facebook, Twitter, Pinteret, Weibo, etc)
- alarm (8 times per day) (Sleep cycle, etc)
- camera (8 times per day) (Instagram, etc)
- news & alerts (6 times per day) (Flipboard, etc)
- calendar (5 times per day)
- search (excludes internet) (3 times per day)
- other random web browsing (3 times per day)
- charging phone (3 times per day)
- voicemail (1 times per day) (Apple, Spinvox, etc)
- other miscellaneous uses (10 times per day)

· Facebook's app and Apple's Safari dominate mobile web browsing

· Apple and Google are the middlemen (taking up to 30% of revenue); they dominate with about 90% of 102 b. apps that were downloaded in 2013. Extra income sources

i) the transactions income from apps when you enter your credit card information directly

ii) in-app purchases, ie extension of pay-before-you-download model; it made downloading the app free (plus encouraged more people to do it) and gave the app developer the opportunity to sell other services or products with the app. For example, "Clash of Clans" game makes 100% of its revenue via app payments, ie US $890 m. In 2013, similarly, e-commerce via mobile apps account for an estimated US $ 43.2 b. in mobile sales; up from US $ 21 b. (2012).

"...This means that mobile represented around 13% of the US$ 260 billion total e-retail sales in 2013. Amazon doubled its mobile sales in 2013 to $ 8 billion, with eBay doing $ 8.8 billion..."

George Berkowski, 2014

iii) advertising via app magazine

· The app stores were very popular with developers as they could

- build up massive audiences

- make it easier for users to make purchases with credit card details, ie a single click

- the app store owner manages everything to do with the accounts, payments and any hassles, such as fraud & chargebacks

· Facebook's app and Apple's Safari dominate mobile web browsing

App (an example of mobile-centric business model)
Introduction
What happens to App firms
Successful (worth US 1+ b.) 0.07%
Successful (reach IPO stage) 11.00% (takes an average 7 years)
- survive 3 years 60.00%
- survive 10 years 35.00%
Fail (loss all money invested) 39.00%
(National Venture Capital Association as quoted by George Berkowski, 2014)
This requires the following expertise (not necessarily in order of importance)
- entrepreneurial flair (understand what people want and need)
- development of better products and services
- great leadership
- constant innovation
- spontaneity
- superb execution
- good people skills
- thinking big
- time
- luck
- timing
- perseverance
- mass appeal
- simple
- speed
- convenience, ie to use and pay for
- usefulness
- understanding of technology
- failure is a learning experience
- refusal to take no as an answer

Need to determine if there is a big problem(s) causing, for example, frustration, etc and create solutions to it or them. Solutions will come via disruptive thinking and reinvention, solid execution, management of complexity.

- Problem-solving. One of the best ways to link in problem-solving is with understanding the 76 universals (comprise those features of culture, society, language, behaviour and psyche for which there are no exceptions, ie common to all human cultures). They are

"...age, grading, athletic sports, bodily adornments, calendar, cleanliness training, community organisation, cooking, cooperative labour, cosmology (the study of the universe), courtship, dancing, decorative art, divination (predicting the future), division of labour, dream interpretation, education, eschatology ( what happens at the end of the world), ethics, ethno-botany (relationship between humans and plants), etiquette, faith healing, family feasting, fire making, folklore, food taboos, funeral rites, games, gestures, gift giving, government, greetings, hailing taxis, hairstyles, hospitality, housing, hygiene, incest, taboos, inheritance rules, joking, kin groups, kinship nomenclature (system of categorising relatives), language, law, luck superstitions, magic, marriage, mealtimes, medicine, obstetrics, pregnancy usages (childbirth rituals), penal sanctions ( punishment for crimes), personal names, population policy, postnatal care, property rights, propitiation of supernatural beings, puberty customs, religious rituals, residence rules, sexual restrictions, sole conceptions, status differentiation, surgery, toolmaking, trade, visiting, weather & weaving..."
Donald Brown, Uni. of California as quoted by George Berkowski, 2014


Use sharing to develop expertise in problem-solving that is hard to copy, simple, disruptive, step change, ie solves existing problems differently from other traditional ways.

Developing the basic business model using an apps as an example

1. Identifying business opportunities
a) find problems that people want solved in a large market by developing innovative solutions that are hard to replicate
b) define and design a business model with suitable products and/or services that solve the people's problems
c) appreciate the importance of timing and luck; people's attention is a limited commodity
2. Conduct p
ilot run on target market to test idea(s)
a) check product-market fit, assumptions, etc
b) develop the "wow" factor for users, ie determine an excellent product-market fit
c) importance of first impressions*i, eg domain name, taglines, icons, logos, names, etc
d) developing awareness*v via multi-interfaces/channels/media, etc eg
- press kit (information on company/app, photos, logos, screenshots, videos, etc)
- mobile (smart phone), tablet, desktop, webpage, etc
- social media like Twitter, You Tube, Facebook, Blogs, LinkedIn, Pinterest, Google, etc
- e-mail contact list, etc
- professional societies
- educational markets
NB focus on high-volume, high conversion and low-cost channels
e) test every step so that it is solution-and-user-friendly plus simple, efficient, effective, cheap, convenient, quick, findable*iv, etc
NB Don't build something clever - build what people want, ie user-centric/solution-centric; give people what they want, when they need it, ie instant gratification; around 26% users only visit once
3. Based on the results of the pilot run, develop and implement strategies that build and market products/services; users find convenient, solution-centric and are willing to pay a price for that is less than the benefits to them but greater than your costs by
a) understanding the target audience and who the early adopters are in this group
b) focusing on customer's retention & referral with appropriate rewards
c) differentiating plus adapting faster than any competitor
d) growing the business to first gain, and then maintain, a sustainable and profitable market position
e) developing a suitable company/organisational structure
f) develop suitable name, brand, style and design*ii
g) developing data-driven decision-making from appropriate, automatic, performance-related feedback from analytics*iii, ie trends, users' behaviours like why and how people use the app, who is using, where users originate (country, organisation, profession, job title, etc) etc
h) establishing suitable payment systems like currencies, PayPal, credit cards, bank deposits, etc
i) some important questions
- what products/services are you building?
- are the products/services solving the right problem?
- who are target users and is it delivering value to them?
- what is the app going to look like?
- what percentage of users are repeat users (aim for greater than 40%)?
- what is the rate of referral, ie would you recommend it to a friend?
j) keep away from "cookie cutters"
k) start B testing
4. Recruit a good team of people with complementary management, execution and technical skills that fit the strategy and organisational structure; skills to cover
a) product(s)/service(s), eg change management, etc
b) industry expertise
c) technology (software, research and development, etc)
d) marketing (promotion, advertising, social media, market surveys, collection and analyses of performance analytics, understanding trends, understanding target audience, etc)
e) finance (raising money, etc)
f) accountancy (accounts, tax, debtors/creditors, etc)
g) management (HR, people handling, communications, delegation, training, etc)
h) customer service (handling complaints, exceed expectations, etc),
i) business development (products/services, technical, analytics, etc)
NB This team is flexible and learns as it goes but has a shared vision and members are passionate about what they are doing; a culture of experimentation dominates and encourage people to innovate, create and disrupt; invest in people, not infrastructure; 80% of time on improvements and 20% on innovation
5.
Continually improve business models/products/services
a) use regular feedback (including analytics, etc) as basis for data-driven decision-making
b) need to follow sequence of build (prototypes, etc), measure (feedback, etc) and improve (change, modify, etc)
c) review relevant literature like journals, etc
d) consider the effect of removing features
NB don't chase perfection; chase speed
6. Developing exit and acquisition strategies
a) value determined by
- users and their activity, eg download-to-user-acquisition rate, ie greater than 80%
- revenue*vii/profitability/cash flow/balance sheet, etc
- product-market fit*viii, etc
- risks, etc
- future directions, etc
b) sources of finance
- Angels (percentage of ownership for investment, invest in people and idea, etc)
- Venture Capital (percentage of ownership for investment; risk-takers*vi, possess privileged insights, eg knowledge of markets, industry, etc)
- Bankers (lend money for interest, amount depends upon security, are risk averse, etc)
- Accelerate (incubators who invest for a fixed duration, ie to get the start up going, etc)
c) organisation needs to be incorporated with a bank account
d) legal documents include non-disclosure agreements, secure source codes (software), founder vesting (hang around for a time, eg 4 years), etc
e) use advisers who are experienced in the industry and technology
f) collaboration with others, eg partnerships, joint ventures, franchising, licensing, bartering, etc
Notes
i) The importance of first impressions, so the name needs to be short, catchy, memorable, distinctive, clever, become a verb, etc. Linked with the name is the domain name, tagline, icon, logo, etc.
ii) A good design is functional, simple but detailed, environmentally friendly, thorough, long-lasting, honest, unobtrusive, understandable, aesthetically pleasing, useful, innovative, etc; it should educate, entice, excite and exhilarate users
iii) Analytics are required to be valuable, measurable, relevant and actionable, ie acquisition, activation, retention, referral and revenue (ARR); so as to drive decisions. Acquisition (how often visited, ie get users to stay more than 10 seconds; multi-channels); activation (convenient, satisfying experience, amount of money spent, etc); retention (users come back, ie number of visits/purchases); referral (use "freebies" to encourage new users); revenue (sales over time and/or per user, discounts, users life cycle, etc).
iv) Find-ability depends upon title (html), brief description, eg what it's it doing (1 to 2 sentences describing the app that include keywords that are relevant, high-volume, unique, don't repeat words, uncluttered, no phrases, etc), more detailed description (including reviews), etc
v) Awareness includes protecting domain name, monitor traffic ranking, importance of keywords, back-link, create a site map, minimal clicks, image description, fixed content with regular updates, etc
vi) on average venture, capital expects to double its investment but what generally happens from 10 venture capital investment experiences
- 1 gives a return of 10 times
- 3 give a return of 5 times
- 4 break even
- 2 lose money
vii) in 2012 a revenue in excess of US$ 2.75m. was rerquiredfor investors to show interest
viii) rule of thumb question - what would happen if you are unable to use the app? Need 40% of users would be upset.

NB concentrate on software, not the hardware, as the latter is too expensive
Some challenges involve the compatibility of web with mobiles, and anticipating future trends that are coming quickly like better integrated interfaces (desk top, laptop, tablets, mobile, watch, glasses, etc), miniaturisation (smart watches), etc

As it is a long journey, understand that there are sacrifices to be made if you want to be successful

System, ie Android (Google, etc) v iOS (Apple)
- Android is open/public, free, collaborative (sharing), etc which allows developers to build on the work of others and has lower barriers to entry, ie third-party development; has 1.9b. users v APPLE 700 m (2014); in 2012, 4k devices using Android, in 2013, around 12k devices and 600 manufacturers. While iOS it is close.

In summary
Need to shift to focusing on convenience, usability and utility to solve a big universal problem by using a disruptive approach so that the solution is novel.

Ways to make money from apps:
- transactional income
- in-app purchases
- advertising

5 business models

i) Gaming (user pays)
ii) E-commerce ( user pays for "real" goods and services) eg Uber, Square, etc
iii) Consumer audience/Advertising (it has a downside as it tends to corrupt), eg Instragram, Snapchat, Flipboard, etc
iv) Software as a Service (SaaS) (subscription model), eg WhatsApp, Dropbox, etc
v) Enterprise (pay for software), eg big data companies

Software
- mybilliondollarapp.com (general)
- Apple (App Store, etc)
- Google (Google Play, Google analytics, AdMob (awareness), AdSense (awareness), etc)
- MixPanel (provides a detailed profile of each user, ie , lifetime value (LTV))
- Localytics (analytics)
- Flurry (analytics)
- mobileapptracking.com (analytics)
- Kissmetrics (analytics-cum-dynamic notification platform)
- Dribble.com (design)
- behance.com (design)
- www.pttrns.com (design?)
- proto.io (?)
- Moqup.com (test blue-print)
- Bootstrap (social media awareness)
- Hoosuite (social media)
- PRWeb (press release)
- Business Wire (press release)
- AngelList (investors)
- Techstars.seriesseed.com (investor)
- Desk.com (customer)
- usertesting.com (customer)
- CrunchBase (customer)
- Fiksu (customer)
- FreeMyApps.com (customer)
- Launchrock (B-testing)
- Yelp (advertising)
- Groupon (advertising)
- Tumbir (advertising)
- QlikView (big data)
- Zynga (viral app)
- Flipboard (viral app)
- WebTranslattelt (words)
- Smartling (words)
- BelugaLinguistics (words)
- Lingo24 (words)

How are apps found?
- 63% from AppStores & Google Play (50% searching the new apps weekly)
- 61% from search box
- 50% from family/friend
- 39% from social media
- 30% from else where

Seventeen ways to maintain disruptive growth

1. Create ambidextrous organisations, ie create 2 different organisations within a business unit. This involves more than spinning off autonomous units; it means

"...Responsibility for managing the disruptive and sustaining organisations needs to be at a level in the organisation where the two are not treated as businesses in a portfolio. Rather, they should be within a group or business unit whose management has the bandwidth to pay careful attention to what should be integrated across the groups, and what should be implemented autonomously..."

Clayton Christensen et al, 2003

2. It has been found that the best way for separate organisations to remain leaders in industries when confronted by disruptive technologies is to establish a completely independent business unit that has no restrictions on building a completely new business and business model to handle the challenge. Examples include

- IBM when minicomputers disrupted mainframes and again when personal computers emerged

- Hewlett-Packard retained its leadership in the printers of personal computers when it created a separate division to handle inkjet printers that was completely independent of its traditional printer division

- Schwab became the leading online broker

- Teradyne, the makeup of semiconductor test equipment, became the leader in PC-based testers

3. Need to understand the difference between attribute-based and circumstance-based categorization

4. In developing strategy for disruptive innovation, ensure that the right process is used in the right circumstances. Most innovative ideas need to be nurtured via a business plan which includes strategy as a basis to win funding. There are 2 simultaneous processes in developing strategy, ie deliberate and emergent

i) deliberate is a conscious and analytical approach based upon rigorous analysis of data on market growth, segment size, customer needs, competitors' strengths and weaknesses, technological trends, etc. Usually there are discrete beginnings and endings with a top-down approach. There are 3 conditions which must be met:

- the strategy must correctly address all the important factors required for success; those implementing the strategy must understand their responsibilities

- if the strategy requires collective action, then all stakeholders need to have ownership of the strategy and its implementation

- there is little unanticipated or unpredictable impact from outside influences, ie influences not covered by the strategy

ii) the emergent strategy is based upon the cumulative impact of day-to-day priorities and decisions made by all staff.

"...emergent processes should dominate in circumstances in which the future is hard to read and in which it is not clear what the right strategy should be..."

Clayton Christensen et al, 2003

This is most appropriate way of working if the past is not going to be a good indicator of the future, such as when confronted with unexpected crises and opportunities.

In fact, using the emergent approach can be an important way to approach the initial development of innovations. It will help determine what works and what does not, and a chance to cycle the learnings back into the processes, ie

"...openness to emergent strategy enables management before everything is fully understood - to respond to evolving reality rather than having to focus on a stable fantasy......emergent strategy itself implies learning what works - taking one action at a time in a search for the viable pattern or consistency..."

Mintzberg & Waters as quoted by Clayton Christensen et al, 2003

In most waves of disruptive growth, only a few organisations succeed. The reasons for failure are

i) lack of flexibility in implementing their strategies

ii) mishandling the allocation of resources

The evolution from emergent to a deliberate strategy mode is pivotal in the success of the initial disruptive business. It is important that senior management understands the need for the evolution and is aware of the resource allocation process that filters out disruptive innovations and favours sustaining innovations. While encouraging the growth of the disruptive innovation by emergent processes, established businesses still need a deliberate strategy process to handle sustaining innovations that will help keep the organisation competitive and profitable.

5. There are 3 important executive leverage places in the strategy process:

i) control the initial cost structure of a new growth business - usually expenses are ramped up before revenue, and this can make the proposition unattractive

ii) choice about strategy should not be left to policy, habit or culture; it should be based upon circumstances

iii) use techniques to actively accelerate the process by ensuring that the business plan is designed to test the critical assumptions and to get the initial conditions right. One technique is called discovery-driven planning (see table below)

6. A discovery-driven the method for managing the emergent strategy process

Sustaining innovations: deliberate planning*i

Disruptive innovations: discovery-driven planning

(note: decisions to initiate these projects can be based on numbers and rules)

(note: decisions to initiate these projects should be based on pattern recognition)

1. Make assumptions about the future (usually based on the past performance, eg financials) and revisit assumptions, if required

1. Make the targeted financial projections, ie income statement and return on investment

2. Find a strategy based on those assumptions, and build financial projections based on that strategy and assumptions

2. What assumptions must prove true in order for these projections to materialize Rank assumptions*ii

3. Make decisions to invest based on those financial projections

3. Implement a plan to learn - to test whether the critical assumptions are reasonable

4. Implement the strategy in order to achieve the projected financial results

4. Invest to implement the strategy (including investment)

Notes

i) For disruptive innovations this process is of limited use as assumptions used are based on past experience

ii) Assumptions relate to

- possibility of low-end or new market disruptions

- target customers will utilize new product/service for the outcome they are trying to achieve

- new venture will lead the organisation to the point in the value chain where the money will be in the future, etc

Both processes of developing a strategy are filtered through the resource allocation process which determines which initiative gets resourced and implemented. There needs to be clear guidance to help prioritise decisions in resource allocation. It is important to remember that the outputs of the resource allocation process are more important than the inputs, ie you need to pay attention to what is done, rather than what they say.

Remember: strategy is never static and the strategy development process should not operate on auto pilot. Entrepreneurs rarely get their strategies exactly right the first time. It is a process of trial and error, with much learning about what works and doesn't work. There is a need to match the strategy-making process with the stages of business development.

In the resource allocation process, it is middle management which decides which ideas are promoted. Their criteria are based upon past experience with applications to senior management. Two factors have an important impact, ie

i) the organisation's cost structure (this determines the desirable gross margin)

ii) the threshold size that the new opportunity must meet in order to get through the resource allocation process, ie needs to be big enough to be interesting. The more successful an organisation becomes, the higher the threshold. Other factors may have an impact, such as

- internal management turnover (with short tenure appointments) in any assignments that results in the recommending of projects that have short-term playoff, ie

"...they want to produce improved results that will merit effective promotions..."

- sales incentive systems can result in pushing products/services that give the most compensation quickly

- customers, by their preferences, can impact on the resource allocation process

- competitors' actions, especially when they threaten to steal customers for growth opportunities

In other words

"... the resource allocation process......is a diffused, unruly, and often invisible process..."

Clayton Christensen et al, 2003

7. Need to understand that for disruptive innovation, people will need to interact with different people about different topics and with different timing; a one-size-fits all approach will not work

8. Say no to a strategy that targets existing customers and markets that look attractive to established competitors. Need to establish disruptive footholds that established competitors will be happy to ignore or be relieved to walk away from.

9. Target new customers (non-customers) who will be delighted to have a simple, inexpensive product as the alternative is having nothing

10. Focus on finding ways to help customers get things done more conveniently and inexpensively than they already are trying to get done

11. Need to segment the market in ways that reflect that it based on the jobs that customers are trying to get done. Do not focus on market segments whose boundaries mirror current organisational boundaries or where targeted markets are segmented along the lines for which data already exists, such as product type, price point, or demographic category, etc. Furthermore, it is not an one-size-fits-all market.

12. If non-customers are not available, you need to explore whether a disruption is feasible, especially at the low-end of a market. This means changing the business model to make attractive profits at the discounted prices required to capture "low-end" customers who cannot use all the functionality for which they are currently paying. If the assessment is that the basis of competition will not change and the types of improvements that have resulted in good margins in the past will continue into the future, look at the lower end of the market. Often there are opportunities at this end to change the basis of competition.

13. If your disruptive product or service is not yet good enough and your organisation is happy with industry standards, and current outsourcing and partnering deals, this can spell trouble. If you prematurely pursue modularity as an open standard, or if you keep a proprietary architecture closed while the basis of competition changes, you will struggle to succeed, ie

"...It is better to develop competencies where the money will remain in the future than cling tenaciously to those skills that made you successful in the past..."

Clayton Christensen et al, 2003

14. Need to be careful if your new venture fits your organisational core competencies. Three questions will help determine if the right organisational structure and channel are present on the project, ie

i) do you have the resources to succeed?

ii) will your processes facilitate what needs to be done to succeed in the new business?

iii) will your organisational values (including how you prioritise activities) enable the critical people to give the necessary priority to this new initiative when compared with other activities that compete for their time, money and talent?

There are 4 types of organisational structures (heavyweight, lightweight, functional and established) that can be used to integrate the challenges of dealing with different types of innovation with the mainstream organisation

i) heavyweight - innovation that fits with the current status of the organisation but needs new processes to handle the interfaces between the different activities and problems. This requires new types of interaction and coordination among groups and individuals, and usually involves taking people away from the functional roles and placing them in a team to tackle the new venture (with its different issues that operate across the boundaries of the functional organisation). This means that team members bring their functional expertise but do not represent their functional group's interest. For example,

"...Companies as diverse as Medtronic in the cardiac pacemakers, IBM in disc drives, and Eli Lilly with its schizophrenia drug Zyprexa have used heavyweight teams as a basis for creating different, faster processes..."

Clayton Christensen et al, 2003

ii) lightweight - organisational processes etc fit with the new venture. Thus it is possible to coordinate across functional boundaries within the existing organisation so that existing processes can be utilised

iii) functional - a disruptive technological change that fits neither the organisation's existing processes nor the way ir operates - need to create an autonomous organisation

iv) established - selling products/services in the mainstream with a fundamentally lower-end business model. These ventures can benefit from the main organisational logistic management processes that have different profiles on budgeting, management, profit and loss, etc

15. Managers who have consistently delivered results in the past may not be suitable to deliver results in the new growth business. Rather than focusing on attributes or the magnitude of past responsibility, search for people who have had the mindset to confront the issues that the new venture will produce.

Need to keep an open mind and be flexible about what strategies to use in terms of products/services, customers and application

Need to be patient for growth but impatient for profit- if you require immediate growth, you may be pursuing the wrong strategy, such as focusing your disruptive technology into an established market. Furthermore, the sources of capital, such as corporate vs. venture, are not as important as a willingness to be patient for growth.

Remember

"...investments in sustaining technologies with extensive interdependencies across the value chain can indeed require years of massive investment......in disruptive circumstances, patiently enduring years of losses generally demonstrates that you have been pursuing the wrong strategy for a long time..."

Clayton Christensen et al, 2003

16. Senior executive has 3 roles:

i) interfere in the traditional process of allocation of resources between current and new activities, especially where processes do not exist to handle disruptive innovations

ii) encourage disruptive growth activities and distribution of earnings throughout the organisation from new growth businesses

iii) sense and respond to the signals of continually changing circumstances, eg basis for competition

This includes the practice of "management by walking around" which can help management get a sense for what the important questions are, so that they can ask for the right information needed to make good decisions

17. Need to develop a process called "disruptive growth engine". Critical to success is the senior executive's involvement. His/her role is to understand a circumstance-based approach, ie

"...discern the circumstances in which their direct involvement actually is critical to success and the circumstances in which they should delegate..."

Clayton Christensen et al, 2003

Need to be careful of middle management filtering information needed for senior management decision-making, ie there is an asymmetry of information. The best way to handle this is to drive decisions down to the lowest organisational level possible.

Remember

"...potentially disruptive businesses are small. But with ill-defined strategies and demanding profitability targets, make-or-break decisions arise with alarming frequency, and such businesses have no processes for making the decisions correctly. In contrast, large businesses in successful organisations typically have established customers with clearly articulated needs, and have finely honed resource allocation and production processes to serve their needs. The decision-making requirements of these organisations......are......made by the orderly functioning of established processes......because the plans of disruptive businesses by definition need to be shaped by different criteria, the values of the mainstream business have evolved to weed out the very sort of ideas that have disruptive potential..."

Clayton Christensen et al, 2003

"... There are countless examples from our own lifetime - Kodak, Xerox, all of those traditional companies that failed to recognise that their world was fundamentally changing......one of the impediments they faced was that they had made so much money and they had been so successful that so long that they denied and denied the reality of the future would not be like the past......the best time to drive change is before the crisis hits. Rather be too soon, than too late, that you cannot predict the timing of when you are going to reach that strategic inflection point in a business. By the time it is staring you in the face, it's too late. So you're got to be willing to drive the change rather than let the change drive you..."

Mark Scott as quoted by Dominic White, 2015

Furthermore, in most circumstances, sustaining innovation encourages delegation of decision-making. In contrast, the disruptive innovation model requires senior management's focussed because the most apt processes are not yet in place to create and manage the disruptive innovation.

Generally an organisation's founders tackle disruption better than professional, non-founder managers. Some examples:

- Charles Schwab (on-line brokerage)

- David Packard (Hewlett-Packard - microprocessor-based computers)

- Bill Gates (Internet-based computers; SQL and Access database software, etc)

- Akio Morita (Sony - transistor-based electronics)

- Sam Walton (Wal-Mart - Sam's club)

- Steve Jobs (Apple), etc.

It is thought that founders have more self-confidence to override separate processes in interest of issuing disruptive opportunities.

Other imperatives for senior management are

- start before you need to, ie have the resources to handle the new situation

- establish a team of movers and shakers, ie they are responsible for shaping disruptive ideas and responding appropriately

- train the troops - staff closest to the market need to know what to look for and to develop the right processes

Summary - 3 approaches to creating new growth business

Dimension

Sustaining innovations

Low end disruptions

New market disruptions

Targeted performance of the product or service

Performance improvement in attributes most valued by the industry's most demanding customers. These improvements may be incremental or breakthrough in character

Performance that is good enough along the traditional metrics of performance at the lower end of mainstream markets

Lower performance in traditional attributes, but improved performance in new attributes - without losing functionality, simplicity & convenience

Targeted customers or market application

The most attractive (profitable) customers in the mainstream markets who are willing to pay for improved performance

Over-serviced customers in the low end of the mainstream market

Targets non-consumption: customers who historically lacked the money or skill to buy and use the product/service

Impact on the required business model (processes & cost structures)

Improves or maintains its profit margins by excluding the existing processes and cost structures and making better use of current competitive advantages

Utilizes a new operating or financial approach or both - a different combination of low gross profit margins and higher asset utilization to gain attractive returns at the discount price required to win business at the low end of the market

Business model must make money at lower price per unit sold and at unit production volumes that initially will be small. Gross margin dollars per unit sold will be significantly lower.

(source: Clayton Christensen et al, 2003; Richard Branson, 2008))

Nine industry examples of the application of the S-curve, ie trying to re-invent themselves

1. Automobile

2. Computers

3. Movies

4. Music

5, Books

6, Gambling (Las Vegas)

7, Financial centre (Hong Kong)

8. Surf Brands

Automobile

Model T Ford (1908)

The Model T was the first mass-produced car that was priced so that most Americans could afford it. Every single part was made in one factory.

GM's motto: "car for every purse and purpose" (1924)

General Motors reinvented the car by injecting price differentiation, fun and fashion into the car industry

VW Beetle (1950's)

Introduction of the small, second family car as a 'shopping basket'

Toyota Land Cruiser (late1960s)

Introduction of "up-market" 4WD resulted in the increasing popularity of 4WDs for non-primary industry usage, ie leisure travel, urban "run-about", etc

Japanese fuel-efficient cars (mid-1970s)

The Japanese carmakers focused on small and reliable models in response to a global fuel crisis. Car parts made by many different firms forming an intricate relationship with suppliers

Chrysler minivan (1984)

With its minivan, Chrysler created a new class of vehicles that are easy to use as a car but have the space of a van

Environmental-friendly cars (2000)

The introduction of the hybrid motor vehicles

Driveless cars/robotics

As 90% of traffic accidents in America are due to human error (Steve Johnson, 2014), the driverless car is seen as a way to reduce these accidents. Remember: an automakers typically spend 5 to 7 years developing an automobile. An example of driveless vehicles is Rio Tinto (global miner) operatings 50+ autonomous trucks at Australian mining sites
Software makers like Google, Apple, etc are linking with automobile industry global suppliers like Bosch, Continental, Denso, Magna Steyr & Delphi; not with automobile manufacturers like Ford, Toyota, General Motors, Fiat, Chrysler, etc. These suppliers are very strong in technology that guides and controls cars; they have invested heavily in research and development on electronics and automation. For example, Google is testing a self-driving car that uses Bosch sensors (Bosch employees 34,000 engineers of which about 1/3 work in software)
Software, electronics, automation and communications are an integral part of the new generation of vehicles, ie
"...as with computers and mobile phones, they can own technology and license software, rather than shaping metal..."

John Gapper, 2015

As automobiles turn electronic, the suppliers are building a bigger proportion of each one; the cost of electronic parts in the average vehicle will rise from 20% in 2004 to 40% in 2015; a premier class car contains 100 microprocessors and runs on 100 million lines of software code (John Gapper, 2015). To a software engineer, a car looks like a computer, ie

"...a networked device founded on software and applications that can be designed in California, built from modules made by suppliers, and put together in contract factories..."

John Gapper, 2015

NB After dominating the world car market for around 70 years, GM has losing its no. 1 spot to Toyota. Furthermore, with the economic downturn starting in late 2008 and the resultant financial difficulties of the major car producers, such as GM, Ford, Chrysler, Toyota, etc, does indicate that their business model is under significant threat, eg GM went into volunteer bankruptcy in 2009

Also, with the advent of ride sharing technology (Uber - $US 40 b., Lyft - $US 1.2 b., etc) and driverless/electronic cars (Telsa - $US 25 b.), traditional car companies like Ford, Nissan, etc are working with tech companies to connect cars to the Internet; these companies are now seeing themselves as software and technology companies. Automakers spent $US 100+ b. on R & D (2014), making them the third biggest spender behind health care and technology hardware (The Lex Column, 2015b)

Computers

IBM system/360 (1952)

IBM created the business computer industry by simplifying and reducing the size and price of existing technology

Apple II computer (1978)

Although not the first home computer, the all-in-one, easy-to-use Apple II revolutionised home computers

Compaq PC server (1992)

Compaq's ProSignia server gave buyers twice the file and print capability, all in a mini computer at a third of the price

Dell built-to-order (mid-1900s)

In a highly competitive industry, Dell created a new purchase and delivery experience for buyers by building to order

Laptop (late 1990s)

Allowing for the mobility of computer

Wireless (early 2000s)

No need to plug computer into a phone land-line, etc

Movies

Nickeldeon (1905)

The first Nickeldeon opened its doors a century ago, showing short films around-the-clock for working-class audiences at minimal prices

Palace theatres (1914)

Created by Roxy Rothapfel, these theatres provided an opera-like environment for cinema viewing at affordable prices

AMC multiplex (1960)

The number of multiplexes in suburban shopping malls mushroomed, giving viewers greater choice while reducing costs

AMC megaplex (1995)

Megaplexes offered every blockbuster and provided spectacular viewing experiences in complexes as big as stadiums, at a low cost to operators

NB Hollywood has had an uneasy relationship with technology

"...they hated television. They went to court to outlaw the VCR. These days, they have to contend with digital piracy, Internet distribution, and TiVo boxes. They are keeping a wary eye on the user-generated content on YouTube and the dazzling new videogame players from Microsoft and Sony..."

Marc Gunther, 2006

On-line streaming (2013)

On-demand movies, on-line (Napster, Sam, Netflix, etc)

4. Music

Start of recordings

- wax cylinders (1880s)

- 78rpm recording discs (1910s)

- plastic records (singles, eg 7 inch, LP; then EP - extended play, containing 2 or 3 tracks on each side) (after WW2)

- radio stations playing music, eg disc-jockeys

Pre-digitalisation (dominated by global organisations such as Philips, Sony, His Master's Voice, RCA, etc but an increasing number of "small" independent producers, such as Virgin Records - 1960s)

- expensive recording studios and large stores for selling records

- mass production technology of plastic records (vinyl records)

- cassette players/recorders (encouraged home taping from the radio and/or original LP)

Digitalisation (new entrants, such as Sony, JVC, PolyGram, Atari, Apple, etc) (since 1980s)

- computer software allowing mixing albums and soundtracks

- compact disc (CD) with disc pressing technology, and later DVD

- videos (VHD)

- video games, starting with Pac-Man and developing into the home computer games

- Internet (digital downloading of music, social networking, such as YouTube, MySpace, iTunes, etc. Music is recorded on lap tops and then put on on the Internet so that it can be downloaded. For example, in 2007 Radiohead released their album (In Rainbows) digitally for whatever customers wanted pay. They sold 3 million physical and digital copies.)

For several decades, musicians had to be linked with major record labels to have any chance of succeeding in selling records to the public. With the Internet, this has all changed.

- Apple's iPod (combining technologies and communications - mobile phone, etc with music recording/playing)

Furthermore, technology changes around the Internet and digitalisation has increased the number of titles exponentially as anyone can produce and market an album. It has changed the power relationship between the artists and record firms, with the artists more in control of their destiny. It has increased the marketing options from digital-only-singles to ring tones, streaming, online sites, social networking, exclusive downloads from the digital portals and mobile phone wallpapers, etc.

Until recently, around 50% of total music revenue money came from record sales. But this fell to 33% by 2009 and continues to fall; on the other hand, touring, merchandising and other income has increased significantly.

"...Music will be a giveaway to build a fan base to support your touring and your merchandise..."

Dave Weiner as quoted by James Eyers, 2010

NB

Since the 19th-century, most recording technology has had a life of 30 years; this has changed drastically in recent years, with technology moving significantly faster. Each development has resulted in different ways of making music, marketing, purchasing and acquiring it. In general,

- music has become more accessible

- greater variety is possible

- the artist has acquired more power than the recording organisations.

It has been claimed (Andrew White et al, 2012) that piracy in the form of peer-to-peer file sharing, followed by Apple's iPod and iTunes have halved the size of the record industry in the past decade.

Streaming

Streaming is changing the music industry. The music industry has a one-stop-shop streaming service, Spotify, ie for a monthly subscription ($12) able to listen to almost any artist. The TV and movie industries do not have a similar one-stop-shop streaming service; you need to subscribe to Netflix is the currently the nearest to a one-stop-shop movie streaming service.

In the USA, streaming music like Spotify, Rhapsody,etc and radio services like SiriusXM, Pandora, etc have exceeded CD sales and digital downloads are the largest source of revenue in the music industry (2014). Revenues from USA subscription streaming was around $US 2 b. in 2014 ( 28% increase on 2013and equivalent to 27% of total music industry revenues)
Downloads have been the US music industry's largest source of digital revenue for a decade but peaked in 2012; in 2014 download revenue fell by around 9% to US $ 2.6 b.

"...record companies are now digital music firms, earning more than two thirds of their revenue from a variety of digital formats..."

Cary Sherman as quoted by Matthew Garrahan, 2015


The growth of streaming has created a new power struggle in the music industry between the creators of music and the companies which distribute it. Artists are objecting to the free service which is used by distributors as a marketing tool to attract paying users.

Books

. Since the printing press was invented centuries ago, the business model of the book publishing industry has not changed much. German goldsmith Johannes Gutenberg developed the first movable type printing press. This revolutionised how knowledge was recorded, copied and shared. It tested the power and the craft of literacy, ie the monastic scribes. As a result, very few monasteries still boast the craft, ie printing press killed the scribe. Will digital books kill the printing press and books go the way of cassettes, ie into history.

. Books may survive as digital books are based on one huge algorithm with no connection to customers; while bookselling in stores is about a more personal approach to satisfying the customer's needs. There is one area in which the traditional booksellers are dominating: it is the picture-based books in general and children's books in particular. For example, there was a 30% growth in printed children's book sales from 2010 to 2014. Yet children are a tech-savvy group.
. Every time children's books are made into movies, book sales increase significantly, eg Harry Potter, Twilight, etc
. It is thought that books that you might be embarrassed to be seen reading in public like erotic romance or comics sell better as digital titles. Other popular digital titles are in crime, sci-fi, fantasy and general fiction, ie books regarded at the lighter end of literary sales
. Some paediatricians recommend that children and adolescents limit their online screen-based media use to less than 2 hours per day but children can be exposed to many more hours during a typical school day
. There is some evidence that printed books result in a better recall than digital books (Jonathan Barrett, 2015)

Yet recent changes in technology linked with the digital revolution, like e-books and on-line retailing, are transforming the industry; these changes include

- e-books replacing printed ones and on-line retailers replacing traditional bookstores, like

i) Amazon has around 80% of the e-book market in USA and UK

ii) the disappearance of large retail bookselling chains like Borders, Angus and Roberts, etc

iii) global marketplace allowing immediate on-line purchasing from anywhere; thus ending the splitting of publishing rights between geographical areas

iv) on-line retailers don't need expensive retail space

v) with e-books as a loss leader, ie use books to sell a device like Kindle from Amazon

vi) the demise of the book critic as on-line operators use "Big Data" concepts to analyse data like sales, clicks, etc to determine popularity of books, etc

- lowered barriers of entry allowing writers to self-publish and self-market, eg some authors, like JK Rowling of Harry Potter fame, are selling via their own website and by-passing the traditional players

Other changes include

- more people are reading but in different forms like e-books; they are most popular in romance, crime and pulp fiction

- wholesale rationalisation of the corporate structures behind publishing, such as massive mergers financed by private equity, eg Penguin merged with Random House to create the world's biggest publishing house. This new identity will employ 10,000+ people worldwide and generates around $ 4 billion in revenue. This is a reflection of lower margins forcing businesses to merge to rationalise and reduce cost structure, and to improve economies of scale. This means less money for authors, editors, designers, etc, ie

"In the old days, the retail price was 5 or 6 times the manufacturer's price; booksellers took 20 to 25% of that. If the prime retailer, though, is selling at say $10 and manufacturing at 5, then there is probably not enough money there. Then you have e-books and there is a huge difference there in cost of production but that creates customers expecting books at $6 rather than $15. No one will pay $15"

Andrew Schuller as quoted by Andrew Cornell, 2014

- increase in independent, small publishers as niche players in local markets that they understand

- authors becoming celebrities, ie authors are not just writers, they are brands, eg JK Rowling of Harry Potter fame

- booksellers and publishers are closer, ie less of a focus on "us and them"

- focus on a small number of books with large sale potential and this is linked with the increase in importance of discount stores like Big W that want high unit sales as their shelf space is limited. Also, Big W has its own book club and does authors' events

- increase in on-line reading communities like

i) Goodread (purchased by Amazon in 2013) is very influential in recommending books

ii) US start-up Scribd (a cloud-based subscription service) is linked with HarperCollins

- university courses training people for careers as full-time writers

Gambling (Las Vegas)

Las Vegas started as a gambling town dominated by organised crime.

In the 1970s and 80s, Las Vegas marked time as a gambling mecca, with shady night clubs, etc.

In the 1990s, Las Vegas was re-invented by introducing the concept of theme parks. This attracted tourist as well as the gamblers.

Then around 2,000, luxury resorts were introduced to provide sites for conferences and an up-market retailing and entertainment experience more than gambling.

More recently the latest trend is towards apartments

Financial centre (Hong Kong)
When British rule ended in Hong Kong (1997), the Chinese government talked of "one country, two systems" for 50 years. Hong Kong was an important financial centre and gateway linking the Western world with China. Since 1997 it has had to handle the Asian Financial Crisis, a property crash, SARS and poor administration with a small elite reaping most of the benefits, eg 39 billionaires, etc.


Recently this has changed with the growth of financial centres inside China like Shanghai & Beijing; they have bigger economies than Hong Kong (it currently accounts for 3% of Chinese total GDP in 2014 as against 19% in 1997). Also, Singapore has emerged as a serious rival to Hong Kong for global corporations looking to set up their Asian headquarters.


Thus Hong Kong now relies more on mainland Chinese tourists (up to 50+ m expected in 2014; more than 7 times the local population) visiting Hong Kong to buy products cheaper than in China, especially luxury goods. It is estimated that these tourists spend around US $ 50 b. (of this, around US $ 12 b. is on luxury goods). This influx of tourists has significantly changed Hong Kong, with upmarket luxury goods stores replacing small family stalls and putting pressure on the city's infrastructure, ie it is one of the most crowded cities in the world.


The decline of Hong Kong's middleman status has created fewer opportunities for young professionals, ie
"...Hong Kong has become ever more reliant on China via its tourism and banking sectors, but at the same time it has become less important to China..."

Lisa Murray, 2014

Also, there is increasing competition from mainlanders for school and university positions plus mainlander mothers giving birth in Hong Kong so that their children can claim permanent residency status.


As Hong Kong's economic base narrows, its risk profile increases, ie the past 5 years, Hong Kong exposure to mainland China has grown by around 6 times. This equivalent to over 300% of GDP; up from 70% in 2008. Additionally, China continues to open up its economy by loosening state controls on interest rates, setting up more free trade zones & promoting Shanghai as a viable alternative.


One advantage Hong Kong still enjoys is the rule of law (in the Western sense).

Surf brands
This industry is full of examples of the dangers of quick success that comes from explosive growth; players in the industry then lost contact with what made them valuable in the first place, ie their customer base who put surfing ahead of work and want surfing to fit into their lives in a way they choose.

Starting in the 1970s, companies like Quicksilver and Billabong grew to be billion-dollar companies that were favourites on the stock market in 1990s. Then this was to be followed by declining sales and profitability.

In the early 2000s, the big surf brands, flushed with funds, tried to lock in vertical retailing by buying bricks and mortar surf retail shops that only stocked their own brands. This approach provided an opportunity for other retailers to become multi-branded and to look at online retail sales; the latter became more important with the expanding broadband and smart phones usage highlighting online retail selling advantages. One company, SurfStitch (owned by Justin Cameron & Lex Pedersen), saw the opportunity. At the same time, the large surf companies overproduced and were frantic to get rid of excess stock. SurfStitch, which was at one time sold to Billabong, is now listed on the ASX with a turnover of A$ 200m. In 2015, it was in 130+ countries; with a market capitalisation around A$ 500 m (January 2016) - this is greater than both Billabong's and Quicksilver's combined at thier peak.

SurfStitch has spent around A$ 60 m. on 4 seemingly unconnected acquisitions
- surfer media company (stabmag.com)
- surf forecaster (Magicseaweed)
- action sport video producer (Garage Entertainment)
- surfboard accessory producer (Surf Hardware International). This last one is SurfStitch's only direct link to production.

Their main strength is selling surfboard and hard goods online, as most bricks and mortar retailers are unable to stock bulky items. SurfStitch's online presence relies on images and action clips and made hard the fastest growing proportion of their business.

Their main market emphasis is men in the age group 15 to 35 who are looking for what's new and what's next, ie being cool
(source: Nick Carroll, 2016)

Some organisational examples of the S-curve, ie trying to re-invent themselves

i. GE

ii. Apple

iii. Google

iv. Coca Cola

v. McDonalds

vi. Royal Dutch Shell

vii. Nokia

viii. IBM

ix. FedEx

x. Nike

xi. PepsiCo

xii. Tupperware

xiii. Blackberry

xiv. Channel 10 (Australia)

xv. Microsoft

xvi. Australian Post

xvii. News Corporation

xviii. Westfield Group

xix. Amazon

xx) Telstra

xxi) Facebook

xiii) White cotton T-shirt

xxiii) Levi

xxiv) Virgin

GE (starts in 1878)

One example of how to successfully use the S-curve concept is the approach used by GE under Jack Welsh. Jack Welch was CEO from 1981 - 2001, ie pre GFC

In the 1960s it had profitless growth. Initially he

- reduced hierarchy from 9 to 4 levels

- replaced 12 of 14 business heads

- reduced staff from around 400,000 (1980) to 292,000 (1989); as a result is nicknamed "Neutron Jack", ie like a neutron bomb, he "destroyed" staff but kept assets in place

- focus on killing the competition

- focus on services as good cash flow compared with products, eg acquired around US $15 b. in Japan

- opportunistic with GE seeing crisis as opportunities, eg after Mexican Peso crisis (1995) buys 16 businesses.

Their vision:

"the most competitive enterprise in the world"

Furthermore, Jack Welch wanted GE

"...to operate with the speed, informality, and open communication of a corner store..."

Jack Welch as quoted by Jack Welch et al, 2005

In the 1960s GE had profitless growth.

In the 1970s, GE started to move away from businesses, such as TV sets, small appliances, air conditioners, etc which were becoming more commoditized, towards manufacturing high-value technology products or services. Quality, costs and services were not good enough in the commodity business in the face of increasing competitors, ie Japan; these businesses were suffering from declining margins.

Jack Welch was CEO from 1981 - 2001, ie pre GFC. Initially he

- reduced hierarchy from 9 to 4 levels
- replaced 12 of 14 business heads
- reduced staff from around 400,000 (1980) to 292,000 (1989); as a result is nicknamed "Neutron Jack", ie like a neutron bomb, he "destroyed" staff but kept assets in place
- focus on killing the competition
- focus on services as good cash flow compared with products, eg acquired around US $15 b. in Japan
- opportunistic with GE seeing crisis as opportunities, eg after Mexican Peso crisis (1995) buys 16 businesses

He stated that businesses, not organisations, are global

Furthermore, GE Capital demonstrated that it was easier to make money in the financial services where there were

"...no union factories, no foreign competition and plenty of interesting, creative ways to offer customers differentiated products and services..."

Jack Welch et al, 2005

The new businesses he invested in included media (RCA, NBC, etc), and high-technology products in power, medical, aircraft engine and locomotive businesses

The underlying belief was

"...commoditisation is evil and people are everything..."

Jack Welch et al, 2005

Furthermore, best practices need to be continually adaptive and improved, ie innovative; otherwise they will not provide any sustainable competitive advantage as competitors can copy best practices

To achieve this optimisation, different strategies were used to continually "kick start" or reinvent GE. Under Welch, these strategies were based on the S-curve concept and revolved around 5 initiatives:

i) differentiation (both businesses and staff)

ii) globalisation

iii) services

iv) 6 sigma

v) E-business

Some examples of strategies:

- no. 1 or 2 in the marketplace within eighteen months or got rid of, ie be number 1 or 2, "fix, sell, or close" strategy. This helps to differentiate between performing and under-performing businesses and/or products/services, which varied from the long-held practice in GE of 'sprinkling a little money everywhere', as every business unit received something irrespective of the need or worth

- globalisation and boundaryless behaviour, ie an idea can come from anywhere

- change in emphasis from products to products-plus-service (this is linked with large investments in technology that have short payback periods, such as 1 to 2 years)

- upgraded leadership training at Crotonville

- six Sigma quality programs (see Volume 4)

- E business (it relies on speed and focuses on the cost savings aspect, such as streamlining internal processes, rather than marketing, such as strengthening brands, etc. E business was linked with digitisation. Furthermore, at GE it involved "reverse mentoring" with young computer nerds mentoring senior management on how to use the Internet, etc).

"...E business initiative led to many new ways of doing business. Plastics use electronic sensors in the storage silos of some of its major customers. They automatically alert GE warehouses when material levels drop, triggering a new order via the Internet to replenish the product. GE capital is using the Net to monitor the daily flow of cash in and out of a loan customer's income statement. The business knows instantly when the customer might be short, reducing the potential for losses. Most GE business leaders now have digital cockpits on their computer screens that update in real-time all the important data to help them manage their businesses.....E business is the only activity......seeing where targets set only 30 days earlier can look ridiculous 30 days later because the learning curve is so steep"That workflow to digitisation would create huge savings......30 percent of our total overhead expenses"E business improved many jobs.......30 to 35 percent of a salesperson's face time is spent with the customer. Salespeople spend too much time on administrating, expediting orders, arguing over receivables, and finding late shipments. The Internet can do all this more efficiently. We're increasing the face time salespeople have with customers, transforming their roles from order takers and expediters to true consultants......E business became part of the DNA of the company"see it as a way to reinvent and transform GE..."

Jack Welch as quoted by Jack Welch et al, 2001

- only 10% of business from core markets (reversal of the first way to reinvent GE - see first dot point. This aimed to expand the definition of industry, change mindsets and discover new opportunities for growth. For example, you could imagine if you are in the chair manufacturing industry, this could be enlarged to cover all furniture)

- produce 20 to 30% intellectual-content sales, ie look for ways to sell information to the organisation's customers

- "no back office", ie need to digitise or outsource the parts of business that do not deal directly with customers and use "digital cockpits" that let managers track the fundamentals of the business in real time. Remember:

"... your back room is somebody else's front room..."

Peter Drucker as quoted by Jack Welch et al, 2001

The next lot of measures introduced by Jeff Immelt (he replaced Jack Welch as Chairman & CEO in 2001); Jack Welch was focusing on USA market and Jeff Immelt's approach is driven by global markets, ie

"...he globalised the US-centric business with new low-cost products suited to developing Asia and put big bets on industrial infrastructure and a shift to the low carbon economy....his focus on energy, technology and health infrastructure..."

Peter Roberts, 2010

Under Jeff Immelt

- "70/70/70" policy, ie 70% of its staff are outsourced, 70% of outsourcing is offshore and, of that, 70% is located in India.

- over 60% of GE's revenue is coming from emerging markets, such as China, India and Eastern Europe (in 2001 70% of GE's business was in USA). Aiming for 10 % growth targets in "BRIC" countries plus resource countries serving those emerging markets.

- exited media, plastics, security and insurance while increasing involvement in oil and gas business (like in Australia) plus skewing focus to "climate change" goods and service (eco-imagination) to handle the carbon-constrained future. As a result, 25% of GE's turnover comes from super-efficient jet engines, hybrid railway locomotives and energy (wind, gas & nuclear). Since the GFC, increasing importance of industrial side of its business (oil & gas, power & water, health & transport)

- decentralised decision-making to globalise the firm, ie

"...When I got home, I just blew the place up......we made a massive resource shift to the regions, we completely changed the decision-making dynamics..."

Jeff Immelt as quoted by Peter Roberts, 2013

(NB The last 4 are measures introduced by Jeff Immelt (he replaced Jack Welch as Chairman & CEO in 2001); Jack Welch was focusing on USA market and Jeff Immelt's approach is driven by global markets, ie

"...he globalised the US-centric business with new low-cost products suited to developing Asia and put big bets on industrial infrastructure and a shift to the low carbon economy....his focus on energy, technology and health infrastructure..."

Peter Roberts, 2010

In his 20 year period as head of GE, Jack Welch increased GE's profit from US$ 1.6 to 10.7 billion. While Jeff Immelt has not maintained the same growth rate, it needs to be acknowledged that times are different, ie the Global Financial Crisis started in 2008.)

Owing to all the changes made in GE, its sources of revenue had moved from manufacturing to more financial-based sources. Thus, in 1999 Fortune Magazine reclassified GE from electrical equipment to a diverse financial services organisation in its industry listing in the Fortune 500

It is worth remembering the vision that Jack Welch had for GE in 1981

"...the most competitive enterprise on earth. My objective was to put a small company spirit in a big company body, to build an organisation out of an old-line industrial company that would be more high-spirited, more adaptable, and more agile than companies that are one-fifth our size. I said then that I wanted to create a company where people dare to try new things - where people feel assured in knowing that only the limits of creativity and drive, their own standards of personal excellence, will be the ceiling on how far and how fast they move..."

Jack Welch as quoted by Jack Welch et al, 2001

Remember: Jack Welch was initially nicknamed "neutron Jack" owing to the number of staff that were dismissed or left GE early in his time as CEO. Yet later on he was able to soften this image and loss this nickname!!!!! Not many CEOs are able to shake-off or change their initial image and reputation

The keys to GE's future success are an ability to change direction unabashedly, to performance-manage its staff

i) ability to change direction unabashedly

"...Most people inside GE learn from the past but have a healthy disrespect for history......they have an ability to live in a moment and not be burdened by a past which is extremely important..."

Jeff Immelt as quoted by Geoffrey Colvin, 2005

"...it's hard to find any other organisation that so enthusiastically destroys its own creations. Copper created an organisational structure based on functions; Ralph Cordiner (CEO, 1950 -63), broke it into pieces. He got GE into computers, and then Fred Borch (CEO, 1963 - 72) bailed out. Reg Jones (CEO, 1972 - 81) established a layer of senior executives and bought a coal-mining company; Jack Welch (1981 - 2001) abolished the layer and sold the mines. Welsh built up the insurance business; Immett offloaded it. Immett is putting his own stamp on the company by re-emphasising its scientific research labs and long-dormant marketing function. The result is GE's seamless, constant reinvention of itself...."

Geoffrey Colvin, 2005

As a result it is the only organisation still in business of the original 12 that made up the Dow Jones industrial average starting in 1896

ii) ability to performance-manage its staff

"...most companies, frankly, don't have the stomach to give frequent, rigorous evaluations - and to fire those who need to be fired..."

Dan Mudd as quoted by Geoffrey Colvin, 2005

"...GE is really a meritocracy..."

Shelly Lazarus as quoted by Geoffrey Colvin, 2005

GE personnel are required

"...to spend a huge amount of their time on human resources processes - recruiting, reviewing, tracking, training, mentoring, succession planning. When I was at GE, I spent over half my time on people-related issues. When you get the best people, you don't have to worry as much about the execution, because they make it happen. Another secret that keeps GE ticking is the culture of lifelong learning at the personal level and the concept of always try to make everything better at the business level. The philosophy is that there is an infinite capacity to improve..."

Larry Johnston as quoted by Geoffrey Colvin, 2005

Current GE's growth strategy is based on 5 pillars
i) technological leadership (including innovation)*i
ii) services acceleration
iii) enduring customer relationships
iv) resource allocation
v) globalisation

Notes
i) increasing focus on this pillar by reviewing business's engineering pipeline, organisational structure of its engineering function and evaluating the potential of engineering talent. This has resulted in increasing technology-orientated managers' representation in senior roles

NB These pillars have less to do with strategic planning and more to do with attracting, recruiting, developing and deploying the right people to drive the pillars.

· GE sold its Appliances and Lighting division (David Welch et al 2014). This division started the early 20th-century with electric light first invented by co-founder Thomas Edison; now it produces white good items like dishwashers, refrigerators, cooktops, clothes washers, etc. Despite this generating more than US$8.5 m. sales in 2013 and generating around 6% of the company's total revenue, it does not fit into the organisation's strategy of being a leader and/or for growth potential and/or global focus. Recently it has sold its plastic business, real estate holdings, stakes in foreign banks and NBCU Universal.

· At the same time (2013) it has made purchases in the oil and gas market

Apple

Since starting in 1976 Apple has continually reinvented itself with different products such asthe Apple 11, Apple Mac, Pixar, iPod, iTunes, iPhone 3G and iPad, eg

- Apple II (released in 1976) was the firm's first computer that was very popular in the education market and developed a loyal following.

- Apple Mac (released in 1984) was the firm's attempt to get into the personal computer market dominated by IBM. It was the first PC to feature a mouse. It lost the battle to machines powered by Windows Microsoft software. However, a cult following developed with its Mac desktops and notebooks

- Pixar (in 1986 becomes a maker of animated films)

- iMac (launch 1998)

- iBook (launch 1999)

- Apple store (opens first in 2001)

- iPod (released in 2001) was Apple's attempt to access entertainment through a smart phone. The iPod was the basis for Apple's current success.

"...in the final 3 months of 2006, iPod sales accounted for 48 percent of Apple's revenue......While iPods no longer hog the spotlight, almost 19.5 million of the devices were sold in the most recent Christmas quarter..."

Brian Corrigan, 2011

- iTunes (released 2003)

- iPhone (released in 2007) impressed the well-established mobile phone market. It became the favourite; 16.2 million units of iPhone 4 were sold during the final 3 months of 2010. The iPhone ended the dominance of Blackberry phone (pocket email and web surfing device that started in 1990s

- iPad (released in 2010) re-energised the stagnating tablet computer market. It revolutionised this market and sold more than 14 million units in the first 3 financial quarters.

- iCloud (announced in 2011)

NB Not all the Apple products have been successes, eg The Cube (a well designed but expensive desktop computer launched in 2000) & Apple TV

Apple is the archetypical technological startup. It was started by Steve Jobs and Steve Wozniak in the mid 1970s in a garage, and ended up selling millions of Apple-Macintosh computers while creating the home-computer market. After six years Steve Jobs and Steve Wozniak were listed in the Fortune 500 Rich List. In 1980 it went public. In 1990s the firm nearly went "broke" and in 1995 Jobs was asked to leave. In mid-1997 he was reappointed as CEO and reinvented Apple with music, mobility, grand design, ruthless execution, inspired marketing (including a different approach to retailing).

Since it started, Apple has twice been close to bankruptcy!!!!

Apple has a reputation for knowing exactly how to design, manufacturer and then deliver high-quality products to market.

"...Apple did not invent the MP3 player, online music retailing, the smart phone or the electronic tablet, but it did redesign and popularise iPod, iTunes, iPhone and iPad - products that demonstrated the company's design flair, pricing power, marketing skills and arrogant approach to customer service..."

Neil Shoebridge, 2011

Apple used R&D expenditure as a basis for re-inventing itself in the 2001-2003 recession. Despite revenue falling by 1/3 in 2001, Apple increased R&D expenditure by 15% in 2001 and maintained that level for the next 2 years. This research resulted in Apple introducing iTunes music stores and software in 2004, iPod and iPod Photo in 2004, etc. This instigated a period of rapid growth.

It is claimed that Jobs' greatest strength was focus, ie what it is, what it's going to offer and how it's going to offer it plus what is the firm's purpose (why they are in business). Apple focuses on 12 production lines and 4 of them are iPods; they are ruthless about selecting the right products. Furthermore, they do not follow Google's famous 10% rule, ie time allocation to staff to work on innovations.

One of the co-founders of Apple, Steve Wozniak, has stated that the unique ownership system that Apple has built around its digital content in retail is the key to its success

"...The retail process is owned by Apple, the application is owned by Apple, the operating system is owned by Apple and the hardware is Apple's. Apple has managed to create this entire world that all the products fit into......there is no other company in the world that has these benefits..."

Steve Wozniak as quoted by Paul Smith, 2012

Apple is not interested in backward compatibility, ie their new products don't need to work with old products.

Apple is linked with personal technology and media/entertainment industry.

"...Introduced into the USA in April 2003, ITunes stores are now open in 23 countries. In the year to September 2009, revenue from non- iPod music products and services, a category dominated by iTunes sales, jumped 21 percent to $US 4.04 million. Now Apple is out to replicate a model with its iBookstores. Sales via iTunes account for 70 percent of the online music revenue..."

Emma Connors, 2010

Apple is the largest company in the world by market capitalization, ie around $US 565 billion (mid 2012) (Guardian, 2012). From the start of 2012 to mid 2012, it has added around US $200 billion worth. This is roughly equivalent to the entire market capitalisation of organisations like Procter and Gamble, Johnson & Johnson and Wells Fargo. Apple is larger than the US retail sector combined. The case for continuing growth is built around the still-low penetration in some personal computer smart phone markets, such as China and Brazil, and it is poised to enter television and mobile. On the other hand, it usually gets harder to maintain the growth pace as the market-leading organisations historically underperform once they have reached the top position. They become less nimble and more vulnerable to attacks by regulators and the media. Also it is hard to continue impressive earnings growth on a large base.

In April 2012, Apple has around $US 90 million in cash after recording gross margins of $US 20 million on sales of $US 46 million in the December 2011 quarter. With iPads selling 15 million units worth $US 9 million; iPods sold 15 million units for $US 2.5 billion

 The death of Steve Jobs (October 2011) has ended another chapter in Apple's journey. New CEO is insider Tim Cook and he will have to prove that Apple has a life after Steve Jobs. Currently there are products that Steve Jobs has his mark on and are 3 years in the queue. On the other hand, some industry experts are talking about the "post-PC" era; with the mobile phone replacing the PC.

 The areas that might "kick" Apple along are China and TV. In early 2012 Apple started to tap into the Chinese market. Some analysts are expecting Apple to sell 40 million iPhones in China in 2012 and it is claimed that Apple is working on "iTV" which could be as disruptive as the iPod was to the music industry.

 On the other hand, China is posing some problems for Apple with its halving of market share to around 5%. There are some technical problems linked with the 3G network and lack of agreement with Chinese Telecoms. Furthermore, the Indian market, which is very price sensitive, prefers to use basic phones on prepaid contracts rather than the more expensive iPhone.

Apple watch - with its rectangular touch screen face including sensors to detect pulse rates and other health-related features, it must be peired with an iPhone to work properly; it comes in 2 sizes and 3 styles, ie classic, sports and gold editions

It is of interest to note that Wozniak (2014), co-founder of Apple, stated that the death of Jobs could result in Apple being less secretive and more open to outside ideas. He, also, believes that both the smart watch and smart glasses are lacking a compelling reason to exist when compared with the smart phone; they shouldn't just be a replacement for what the phone does. This is irrespective of the technical brilliance of the product, which needs to have a wow factor and a commercial application. He predicts a good future for the Internet-connected cars and mobile banking.

In first quarter of 2015, Apple posted a record profit of US$ 18 b. and has a market capitalisation of US $ 758 b.

The music industry for Apple is an example of the life cycle approach. Over a decade ago, Apple disrupted the traditional music industry with a new business model allowing for downloading of music from the Internet via iTunes. As a result, Apple became the dominant player in the music industry. Recently streaming has starting to replace the business model used by iTunes, ie downloading. As Apple has been slow to adapt to streaming, it has lost its dominance in the music industry. Apple's purchase of Beats (2014) which is a streaming digital music services provider is a belated attempt to regain its dominance.

Google

. Google has become an engine of change. It started as a powerful Internet-based search engine. In fact, it has "democratised" information by allowing the free flow of information, knowledge and ideas. It has continually reinvented itself via innovations such as Gmail, Assense, Google Earth, Google Maps, Google News, Google +, etc.

"...the company excels at IT and business architecture. It continually conducts experiments to test its system, and then improvises and improves, and it has a backbone of people who are actually analytical..."

Richard Branson, 2008

. In addition to being the world's number 1 search engine, it is expanded to other industries like media, telecommunications, consumer electronics, advertising (it is the world's number 1 advertising company), publishing, automobiles, etc. In 2014 it had around 40 products. It focus is on developing new ways to work, play and organise digital information.

· Dynamics in digital marketing are changing - there is a swing away from desktop to mobile as the fastest growing area of digital advertising; it is around half of mobile ad spending (2014) but these ads have less impact than targeted social media ads

 

· Google has been losing market share to the likes of Facebook, ie Google market share is falling below 40%. Facebook, which has a higher ad market share on mobiles than on desktops, has seen its click-through rate triple since 2013.

 

· Other players are getting into mobile advertising, eg

 

- Snapchat (a popular photo-sharing app is launching ads)

 

- Yahoo! is trying to boost its mobile offerings with its acquisition of Flurry

 

Google is re-inventing itself as it owns

 

. YouTube which has 1/5 of US digital video ad revenue; attracts 1 b. users monthly; its music videos are very popular (2014)

 

. Android internet software (from mobile phones to tablets, home appliances, watches, automobiles, health monitoring, TV, etc)

 

. Google wallet (collecting customer transaction data & replacing credit cards for purchases via smart phones), etc

 

. Driverless cars

 

. Uber (on-line, non-licensed car booking services)

 

. Skybox Imaging (satellite operator & fibre-optic cabling connection including submarine cable linking Asia to the US)

 

. Robotics

. purchased Magic Leap (US$ 542 m. - augmented reality technologies)

. cardboard viewer (2016) (virtually reality via app)

. Project Fi (phone service launched in 2015) to compete against Verizon, AT&T and other US wireless service providers; it is attempting to blend several communication tools and multiple ways of calling people like cell phone calls, online (VOIP), etc into a single phone number and service. It has limited use as only in the USA using Google's Nexus 6 phone. It will allow for a greater overlap with Google's expanding world of devices and services. It will mix traditional wireless technology, where calls are rooted through cellular towers, with the wireless Internet service found in Star Bucks, airports, etc. Also, it is teamed with Sprint and TMobile to provide the traditional wireless service and will allow talk and text on phones, tablets or laptops. It is considerable cheaper than the traditional cellphone carriers.

In late 2015 Google changed its name to Alphabet and in Jan 2016 was the first time its market capitalisation exceeded Apple.

Some problems facing Google (The Lex Column, 2015) are

i) anti-trust investigations like EU anti-trust investigation into Android, ie the EU anti-trust regulator's claim it has illegally abused its market dominance (2015)

ii) search revenue is slowing down from around 13% to 8% currently and losing market share to rivals like Baidu and Microsoft

In 2014 Google mobile ads had dropped by 17% in two years. Google owned around 80% of the US$ 2.24 b. search market.  By 2016 the revenue generated by US mobile market turns around US$ 18 b. but Google's share had dropped to under 70%.  The difference is explained by how we are more fragmented in the way we search, ie Google gives us the answer to everything but won't necessarily be able to help us find the best restaurant in one click.  Thus the rise of the niche apps. Even though Google is losing market share, it is not losing its revenue.
It is estimated that people are spending 34 hours monthly using the Internet on smart phones compared with 27 hours on desktop

iii) revenue from desktop searching still exceeds mobile search; smart phone users search less and when they do they tend to do it within apps

iv) increase capital expenditure, eg from US $3.3 b. (2012) to US $11 b. (2014)

In summary

Google started as an Internet-based search engine with information-based services. Their mission is to organise the world's information and make it universally accessible and useful. It has expanded to other industries like media, telecommunications, consumer electronics, advertising, publishing, automobiles, etc. They have around 40 products (2014) like YouTube (video sharing service), Panoramio ( map-based photo sharing), Scholar (academic papers search), Blogger (blogging platform), driverless cars, Chromocast (television streaming), Google Glass (wearable technology), etc. They continue to look at new ways to use digital information. Their concept of innovation is about creating change in a way that creates value like making users' lives easier.

"...start-ups have a bias for disruptive over incremental innovation, so it's those people who can change entire industries with a new product..."

Maile Carnegie as quoted by Paul Smith, 2014a

Coke-Cola

Coke-Cola, which started in 1885, is also a fascinating example. On the face of it, it would appear to be the exception to the rule. For over 100 years the company has sold the same product.

The only time they changed the formula they were forced by customers to reverse this decision. Their secret lies in their motto: the world belongs to the discontented. The basis for this motto is to warn against complacency and advocate a perpetual curiosity. For example, Coca-Cola's Japanese company market tests a new soft drink variety or other product every month.

The company has continually re-vitalised itself by updating advertising and packaging, so that it is in line with the ever-changing youth culture

After 1990 its share price increased from $US 10 to over $US 88 in 1998; subsequently, the share price fell to around $US 40 in 2003; by mid 2004, the share price had recovered to around $US 50. These fluctuations in share price correlate with the S-curve phenomenon. The fall in share price is linked with the

- problems with management, especially with succession planning at the CEO level after the death of the legendary CEO Roberto Goizueta in 1997. Douglas Ivestor succeeded Goizueta. Next came Doug Draft but he was regularly over-ridden by the Board, such as in the abortive Quaker deal. Neville Isdell followed Draft as CEO.

- poor governance by the Board (sometimes referred to as "Coca-Cola keiretsu" as it resembles a web of interlocking relationships typical of Boards in Japan).

By mid 2004, the financial performance improved with a 35% increase in net income and a 13% increase in revenue to $US 5.1 billion

To handle increasing criticisms (2013) that it is adding to youth obesity (estimates claim that 17% of American children are obese and 36% of adults) and fear of government regulation on 'soda consumption', Coke has re-enforced its agreement of

- 2009 to put calorie labeling on the front of all packages;

- 2007 not to direct advertising to children under 12 years old;

Furthermore, it has expanded its physical activity programs in 200+ countries and promotes low-and no-calorie drinks like Diet Coke and Coke Zero.

Youth-culture focus with change from traditional promotions via radio, TV, print, etc. to social media (Facebook, Instagram, YouTube, etc) via teen influencers

. Used to be no. 1 world brand & associated with sociability, happiness & convenience. But allegations that its products are increasing obesity are eroding its brand value

. Coke is under pressure due to the increasing popularity of healthy drinks like bottled water, coconut water & juice, plus move away from sugar-based & artificially sweetened carbonates like Coke with its caffeine hit

. Coke is chasing the changing market with new "healthier" products

McDonalds

McDonald's is an example of an organisation that had reached its peak and started to progress down the right hand side of the S-curve. However, recently, it has started to pull itself out of the decline.

On the surface McDonald's appear to have everything going for it, eg famous brand, broad public appeal and decades of growth with a chain of global restaurants. It is the world's largest restaurant chain with around 30,000 restaurants in 119 countries, $US 17 billion in annual sales and has 1.6 million employees.

By 2002 the strategy of growth by expansion had failed with profits in 2002 being half those of 2001, and in the final 3 months the company lost money for the first time in living memory. Furthermore, its share price plummeted to a 7-year low. The quality, service and cleanliness (QSC) elements that had always been the trademark of McDonald's had also slipped. Furthermore, McDonald's was receiving bad publicity about its fast food and how its products were adding to obesity problems, especially in children; coupled with failure to offer something fresh.

A new management team was employed with a new strategy: improve quality, service and cleanliness, introduce new product lines and change the marketing strategy including a move to healthier, fresher, fast-food options, ie less fat and sugar, eg taking sugar out of the buns. Starting offering chicken products as people eat more chicken than beef. These changes are a reflection of society's move to more health-conscious products, such as salads. Previous product changes had not taken into account the health-conscious market requirements. Introducing health-conscious products coupled with nutritional labelling has been successful in enticing more customers into the restaurant and has had a flow-on effect to older products such as Big Macs and Filet-O-Fish. Initially, these new products were targeted at women (working women and mothers). However, more retirees were becaming regular customers. The introduction of McCafes and healthier food, such as Salad Plus, etc, has attracted more older people.

McDonald's has automated many parts of its operation, such as pushing a button rather than holding a lever for dispensing beverages, self-order kiosks are being trialed, bulk oil machines are being introduced, etc. The aim of these changes is to free staff from time-consuming tasks

Furthermore, the company has introduced "hot spot" wireless technology, allowing computer users to log onto the Internet from McDonald's restaurants which open for longer hours and have been refitted to reflect the new image, etc

As a result of these changes, 2003 global sales increased by 10 percent, while in the US sales rocketed by 20 percent. McDonald's share price doubled in the 12 months from mid 2003. In 2003 the company made a profit of US1.5 billion, compared with less than $900 million in 2001. In other words, with these changes McDonald's started another upward S curve.

Remember: image and marketing have been the cornerstone of McDonald's strategy.

Royal Dutch Shell

Another fascinating example is Royal Dutch Shell. The approach that they have used is called scenario planning (see Volume 4) which involves exploring possible alternative scenarios to what you're doing now by challenging mindsets and conventional assumptions. Scenario planning in the 1970's helped the company handle the "Oil Crisis" better than its competitors, ie jumped from being number 7 to 2 in the petroleum industry. On the other hand, the more recent problems with conservationists on off-shore oil rigs and allegations of corruption in African oil countries, such as Nigeria, have highlighted the need for Shell to re-invent itself.

Nokia

In the early 90's this Finnish conglomerate decided to bet everything on new, unproven digital technology for mobile phones known as GSM. Over the next 4 years Nokia divested everything from rubber boots to diapers to consumer electronics.

Nokia turned the mobile phone from a clunky brick into a sleek piece of branded electronics. It dominated the industry with 30%+ market share in the late 1990's and led the likes of Motorola, Sumsung, etc.

Since 2000, Nokia's revenue has flattened. To restore the company to double-digit revenue growth, Nokia plans to re-invent itself, and transform from mobile phones to an IT consumer electronics powerhouse. The aim is to sell devices that will allow people to do everything from playing video games to sending e-mails via cell phones. This involves a new business model which will depend upon the widespread availability of big, wireless data pipes linked with 3G (a new wireless broadband technology).

In 2003, Nokia began taking sales from the digital camera industry by making a phone that shoots and sends pictures. It made Nokia the world's largest camera manufacturer.

Furthermore, the company has been re-organized to focus on 2 new promising areas: those devices with multimedia capabilities and those that also effectively function as pocket-sized mobile PCs. In early 2004, this accounted for around 15% of Nokia's revenue. At the same time it is maintaining its position in the cellular network equipment market

"...whether Nokia can reinvent itself again affects not just it but the entire telecom industry, which has been laid low by bankruptcies, accounting scandals, and plain bad business..."

Janet Guyon, 2004

To handle the new products, Nokia will have to learn how to partner with the software industry and to sell business directly to the public, not just to mobile phone operators.

Nokia's Lumia smart phone that uses Microsoft's Windows software has not competed successfully against products from Apple and Samsung

Nokia aims to revitalise its crucial smart phone business with a number of flagship launches in 2013; this includes a move into the super-sized tablet phone market. This is different from Apple which focuses on one phone per year. One of Nokia's innovative devices can work as a phone and tablet (phablet) and is similar to Samsung's popular Galaxy Note. This will be Nokia's first move with Lumia into the larger screen mobile smart device markets currently dominated by Apple Samsung. Other launches will be

- Lumia smart phone using advanced Pureview imaging technology, ie a handset with 40 megapixel camera and flash

- lighter and more advanced versions of the existing flagship Lumia 920

Other activities will include continued availability of Windows phones, working closely with mobile operators to encourage sales with exclusive phone launches, and new devices in the feature phone business. But the last one is coming under pressure from cheaper smart phone companies in Asia.

Apple with iPhone hit Nokia significantly, ie in 2007 Nokia was the leading global handset maker - selling around 400 million units. Its share price nearly doubled but had fallen by 75% in early 2009.

It is claimed that Nokia became the victim of its own success and size, ie focused on protecting and servicing its successful products, eg smart phone. As a result it missed opportunities like

- the 8 inch tablet computers before iPad emerged

- touchscreens before Apple introduced them.

Nokia wanted to maintain its position rather than innovate. Nokia wasted chances by focusing on servicing existing products at the expense of fresh innovation.

In 2013, Microsoft bought Nokia (handset business) for $7.1 billion as computers are going mobile and Microsoft wants to protect its core business (Windows operating system, Office & Software) from the likes of Apple, Google, etc. In 2015 Microsoft writes-off it Nokia investment as a "dud".

IBM

Until the 1990s IBM was viewed as one of the greatest organisations in the world. Then it crashed and a new CEO (Lou Gerstner) was appointed. During his 9 years he saved IBM from self-destruction (it was going to be split into 13 separate units), changed focus, rebuilt it and expanded business by 40%. One of his most important insights was that services were more important than the mainframe computer sales

"...while hardware accounted for 49% of revenue in 1993, the year Gerstner arrived, ten years later it represented only 32%. Far from shrinking, IBM grew: today it is 40% larger than when Gerstner took over. The services unit alone rakes in $US 43 billion in revenue - making it bigger than any freestanding company in technology except Hewlett Packard..."

David Kirkpatrick, 2004

Furthermore, Gerstner got IBM focused on the client (not customer). The connotation of the term "client" is of a lifelong relationship. It is interesting to note that a mere 100 clients represented 20% of IBM's revenue in 2003

The current CEO, Sam Palmosano, took charge when the dot-com bubble burst and revenues were declining by US $5 billion plus!!! The stock market price of IBM is $US89 in mid 2004; this was around 40% below its 1999 high. Yet in 2003, IBM had started to grow with a 10% revenue jump and 43% profit growth.

The current aims of IBM are to increase its services approach with

- annual sales growth to exceed 5% (this is equivalent to generating one Fortune 500 company every year)

- double digit profit growth

- return on invested capital to exceed the S&P 500 average, ie over 10% earnings per share

- to return to the dominant role that it once played in the tech industry, ie it was untouchable

For IBM to achieve these aims, it will need exceptional performance and to have an unique impact

Some of the obstacles to this are

- the law of large numbers, ie growing one Fortune 500 company every year

- currently IT industry is sluggish, (growing at around 4% annually) yet IBM claims that the IT industry has an untapped growth potential of $US 500 million

- competitors are bigger and tougher since the dot-bubble burst, such as HP (high-tech, low cost), Dell (low-tech, low cost), EMC, Oracle, Microsoft, etc. Furthermore, there is possibility of Microsoft or HP joining forces with an IT-strategy consultant, such as Accenture, Deloitte, etc.

IBM's challenge that all people, such as from hardware/software/service

"...can really cross pollinate all more effectively within IBM than anywhere else in the world, and that the customer clearly benefits..."

David Kirkpatrick, 2004

- the margins on software (86%) are considerably greater than those for supplying services (25%) and hardware (29%)

- the complete services approach makes it harder for clients to go to a competitor, ie locks the client into IBM

- to get the bulk of IBM staff to embrace the solutions approach

IBM is getting into new areas for growth by using different business models around IT, ie outsourcing and "give us your hardest problem to solve" (solution provider or service heavy approach), etc. Some examples of this include

- handling other organisations" non-core functions such as finance and accounting, HR, after sales support functions, call centres, etc. This can involve employing the customer's staff

- increasing R&D funding to service-related activities, such as developing shopping carts that help people shop in large supermarkets by displaying maps of the store, offering specials on those items placed in the cart, etc

- linked with Linux who offer software free

- purchased PricewaterhouseCoopers Consulting to form IBM's Global Services so that IBM's staff would be linked with PWC's consultants, ie

"...Marrying the consultants with the sales guys, eggheads and engineers..."

David Kirkpatrick, 2004

An example of this involves Charles Schwab where IBM set up a team that developed a grid to speed up selecting personalised investment portfolios. The grid is independent of the specialised servers that were previously used and got bogged down when things got busy, upset customers and thwarted sales

- around 150 scientists started focusing on "computational biology", such as biotech and medical-research for health care industry. An example is the Mayo Clinic that has maintained one of the world's largest and complete sets of patients" medical data. IBM helped assemble all the information into a single, user-friendly data base. Furthermore, they are developing ways to cross-reference genetical profiles of patients so that data-driven decisions can be made for more individualized treatments

- increased focus on developing countries, such as China

One way to meet the growth targets is to commodify the customer-designed solutions, ie take a design for one customer and resell to other customers. On the other hand, commoditisation by fast-growing, increasingly sophisticated, low-cost generic competition has shifted the centre of the computer industry away from mainframes and is now threatening IBM's services. Furthermore, IBM's costs are those of a mature First World corporation. To handle this IBM has shut its European head office and is increasing its involvement in "strategic low-cost geographies or locations", such as India, Brazil or China. India accounts for the largest numbers of IBM staff outside USA. Growth in the developing world is part of IBM's strategy called "global delivery model".

Other ways include

- IBM is tightening the 'services supply chain", ie getting the right people to the right place at the right time, which involves developing a database and profile of all IBM's staff (around 250,000 in services, sales and distribution)

- using collaborative innovation to invent new technologies, IBM has multiplied collaborative projects in all major segments with customers and rivals, such as

i) global services (under Service Science concept, IBM provides top US science and engineering universities with money and expertise to create new academic disciplines. Participants include UC Berkley, Brigham Young, UCLA, MIT, Rensselaer Polytechnic, Stanford, University of Texas at Austin, Georgia Tech., etc)

ii) hardware (with Sony & Toshiba - since selling most of the hardware group to Lenovo, the 3 organisations jointly developed the powerful new chip processors, such as Cell, that will go in Sony's upcoming PlayStation 3 and Toshiba's TVs. Also, it will provide a foundation for IBM's entire next generation of computers)

iii) software

- with Apache, IBM contributes code to this free open-source "web server", then incorporates Apache into its commercial software.

- with Linux, IBM pays 600 programmers to work on this open-sourced operating system and recently donated a key patent to the group that helps manage Linux.

Creation of "patent common" in which IBM gave away 500 software patents worth $US 10 million to anyone working on an open-sourced project

IBM gave a retail-industry group rights to patents for internet access to stores

Furthermore, divisions that are not sufficiently profitable are being sold. For example, IBM sold its $10 billion personal-computer unit to China's Lenovo

Recently, it has started to give away its intellectual property (IP) in the form of software, patents and ideas. The rationale is

"...Spread enough of those riches around"and the entire industry will grow faster, opening new frontiers. That, in turn, should create opportunities for IBM to sell high-value products and services that meet the new demand..."

David Kirkpatrick, 2005

FedEx

Despite FedEx being one of the most admired organisations in US, the market for its main product, over-night express delivery, in the US has flattened owing to the popularity of e-mail and a shift to cheaper shipping

To handle this situation, FedEx has adopted some interesting strategies and good acquisitions with excellent execution, ie

- has focused on Asia (buying Flying Tigers) and more recently on China which is now around half of its business by volume

- entered less-than-truckload freight hauling business in the U.S. such as for items that are too big to be sent by regular ground service but too small to fill an entire truck. FedEx purchased 2 successful firms in this industry and with the synergies provided by FedEx has been able to demonstrate that the "whole is greater than the parts". Currently this market is booming. Furthermore, FedEx has implemented a money-back guarantee system and provides superior tracking technology

- established a hub in Anchorage (the rationale for this was that Anchorage, a remote Alaskan city, is within 10 hours of 90% of the industrialised world and its airport never closes)

- owns and operates its own cargo planes which gives FedEx an advantage over competitors who buy cargo space in the belly of passenger planes and, as a result, are more vulnerable to capacity fluctuations. Furthermore, in China competitors rely upon state-owned Chinese parcel carriers for local pickup and delivery, while FedEx has a joint venture with a Chinese firm rather than the government

- uses latest technology, such as outfitting its loading-dock forklifts with wireless scales which weigh pellets and transmit the data instantly to dock managers; this cuts out the need to move pallets to separate buying areas, ie reduces time)

- Kinko's copy centers (this is proving tougher to integrate than first expected as it is outside core business)

FedEx is well-positioned because of the breadth of services it can offer, the expanding Asian market with sea shipping delays to Asia that makes airfreight more attractive, and its labour is not unionized.

Remember: FedEx has

"...39 hubs around the world with 677 airplanes, over 90,000 vehicles, and more than 200,000 employees delivering 6 million packages a day in 220 countries..."

Geoffrey Colvin, 2006a

Nike

In the 1960s when jogging first became popular, Nike's co-founder Bill Bowerman identified the potential of this form of exercise. He co-authored a book, with a cardiologist, on jogging. The book became a bestseller and helped to create the market for the company's future products.

Teaming up with one of his athletes, Phil Knight, he started experimenting with home-made shoe designs. By 1970, they had created a new lightweight sole that offered athletes unprecedented cushioning and bounce. The product was called The Waffle Trainer and went on to become the bestselling trainer shoe in USA

A series of high profile sportspersons, such as tennis players Jimmy Connors and John McEnroe, and Steve Prefontaine (athletics) wore Nike's footwear. Then in 1979, Nike developed its air cushioning system with a little plastic window on the side of the shoe and sales boomed. In 1984, Carl Lewis won 4 gold medals while wearing Nike's shoes and 58 Nike-sponsored athletes collected 68 medals.

In 1987, sales slumped as a rival, Reebok, successfully developed a soft shoe that cashed in on the women's aerobics boom. Luckily, Nike predicted another trend, ie Nike used Michael Jordan as its inspiration for a new shoe called "Air Jordans" that became a highly sought-after fashion statement by urban males. The product became even more popular when the first model was banned for being too colourful by the NBA!!!!!!

By the end of the 1980s, Nike appeared to have an unbeatable recipe for success by developing attractive

"...high-tech products, endorsement from athletes across a wide range of disciplines, an instantly recognisable brand and a memorable slogan: Just Do It..."

Emily Ross et al, 2004

In 1996, Nike signed an unknown Tiger Woods. The following year, Tiger started winning major tournaments and Nike's share of the US sneaker market reached around 50%. On the other hand

"...as the brand......Nike was no longer young and fresh......its strategy of market domination had succeeded so well that Nike was now firmly mainstream - which began to turn-off young buyers. In 1998 Nike had its midlife crisis. The sneaker market was fragmenting. Soft, bulbous shoes designed for skateboarding and classics, such as Puma's and Adidas's revamped 1970's styles, were now fashionable alternatives to Nike's high-tech athletic look. New Balance, with a wider range of sizes and fittings, was stealing hardcore runners who didn't care what the shoes looked like as long as they were comfortable..."

Emily Ross et al, 2004

Furthermore, Nike's image was being tarnished by allegations of using cheap labour in developing countries. This was making them a target of the anti-globalisation campaigners. This, plus the Asian economy downturn and its unsuccessful sponsorship of Brazil in the 1998 soccer World Cup, resulted in profit falling by 50%

Nike needed to counter its negative associations (too mainstream, use of cheap labour, etc.) It changed its slogan from "Just Do It" to "I Can". Phil Knight apologised for the loss of direction and failings in the Third World, etc and Nike started to reinvent itself by

- launching a Yoga shoe

- establishing Nike Goddess brand

- developing a chain of stores designed more like up-market fashion outlets than sports shoe stores

- launching a range of skateboarding shoes available from limited specialised skateboarding shops

- announcing new sponsorship deals with elite athletes, such as Lance Armstrong

PepsiCo

Most investors were happy with PepsiCo's strategic moves and steady reliable growth. The share price has more than doubled since 2003.

Much of Pepsi's success is based upon the merging of the 2 cultures into one company in 1965; the 2 cultures comprised:

i) the "get-things-done" expertise of Frito-Lay

ii) the "never-take-anything-for-granted" underdog mentality of Pepsi-Cola, which has successfully beaten Coke

"...result was a contrarian, risk taking big company that prided itself on acting like a small company and had posted an eye-popping compound annual growth rates of 13% over the past 42 years. Since 2000 the company's revenue has nearly double..."

Betsy Morris, 2008

There has been a changing emphasis on increasing health food products and less focus on "junk food" and 'soda pop" products, ie

"...new Pepsi"getting beyond soda pop and into healthier, faster-growing noncarbonated beverages (bottled water, sports drinks, and teas) that it commands half the U.S. market, about twice Coke's share, according to Beverage Digest. Not that PepsiCo is anywhere near becoming purely a health food company"the bulk of its products (upwards of 70%) are still in what is euphemistically called "fun for you" foods, as opposed into 2 other internal categories, "better for you" and "good for you". But its acquisitions and product reformulations, even in the fried-food-loving markets like Mexico, indicate the strategic shift is more than just show..."

Betsy Morris, 2008

Other changes include

- recruiting PepsiCo's first chief scientific officer from the pharmaceutical industry

- in 2007 either purchase or partnered with "healthy food" firms, such as a Bulgarian nut package, an Israeli hummus maker and Naked Juice (which makes additional beverages like smoothies)

- using the motto of "Performance with Purpose" as a means of getting the organisation to work together and of presenting PepsiCo globally, ie less monolithic and more receptive to local needs, such as in Russia, around 50% of its beverage business is noncarbonated drinks (juice, water, tea, energy drinks, etc)

At times in this journey, speed bumps have occurred. For example, in the mid 1990's PepsoCo's recipe for growth suddenly wasn't working anymore. Its restaurant operations (Pizza Hut, Taco Bell and KFC) stalled. Also, attempts to increased sales outside America and compete with Coke on the international market failed. This was the time when the U.S. fast-food marketplace was saturated and the real estate was a hard investment to maximize. So PepsiCo sold the restaurant business in 1997 which shrunk the company by a third. At this time PepsiCo conducted a scenario planning exercise which led to their assessment that the health movement was a trend and not just a fad, and demanded attention. Thus, they purchased organisitions and/or brand names like

- Quaker, maker of Gatorade and introduces Propel Calcuim, the first calcium-enhanced fitness drink

- Tropicana, the world's largest branded-juice producer

- SoBe, makers of noncarbonated drinks

- Izze, a Colorado-based maker of sparkling juice drinks

- Naked Juice, a Californian maker of bottled smoothies and other fruit drinks

Furthermore, it reduced 'trans-fats' from products like Doritos, Tostitos and Cheetos.

All this helped change its reputation and to increase the sales percentage of "better for you" and "good for you" from 30 to 50% and adding to product portfolio grains, nuts and fruits.

Tupperware

- Tupperware is the example of how an apparently mature brand has reinvented itself.
- It is a global organisation that sells plastic food-storage containers to suburban housewives at Tupperware parties that has moved well beyond its popular-culture stereotype with revenue now exceeding $US 2 billion from sales in over 100 countries
- In Australia, from 1998 to 2009 sales tripled and almost all homes have some Tupperware products
- Even during the GFC the organisation performed well with more people cooking at home and storing leftovers using Tupperware products plus unemployment pushed people into the home-based Tupperware sales force.

Its success is linked with a competitive advantage around products, selling methods and career opportunities for women. Yet these could be thought to be the biggest problems facing Tupperware, ie

"...daggy products, sold at 1950s-era morning tea parties by women who now have far better career opportunities in the salaried workforce..."

Lucinda Schmidt, 2010

Furthermore, during the 1980s, Tupperware had to handle the cheap imitations that flooded the market.

Tupperware reinvented itself by bringing in female cosmetic-industry designers to replace the male-dominated industrial designers. The beauty designers introduced colours, sharper designs and the categories, such as serving utensils and kitchen gadgets. Rather than compete on price, Tupperware decided to innovate with, for example the silicon cake mould, and produced products that offer lifetime guarantees. This is its competitive advantage around products.

Around selling methods - 90 percent of its products are still sold at Tupperware parties. The type of parties has changed over time from "lonely" mothers meeting their neighbours to girls" night-out for busy working women. These night-outs are more interactive and less structured than in the past and often include cocktails and cooking tips.

Around career opportunity - the initial success of Tupperware in the post WW2-era was a way for women to earn some money and to meet socially. Now most of the women involved are in full-time paid work with Tupperware and earning money similar to professional people. Furthermore, it is giving women a chance to build their own business, especially in cultures where opportunities for work outside the home is limited. In developing countries, it allows women to develop some financial independence

BlackBerry

The firm that produced the BlackBerry started in 1984 and reached its peak in 1990s as a mobile phone plus pocket e-mail and Web server device. It provided security by using its own global indication network to send e-mails. It became very popular in the corporate market until 2007, when Apple launched the iPhone with its standout feature being on screen pop-up keyboard plus music player, built in camera and app store.
BlackBerry did not see the iPhone as a threat, even when Apple lowered its prices for the corporate world and offered them mobile e-mail security. Also, the BlackBerry e-mail network was exposed to embarrassing global blackouts
BlackBerry stuck to its no-frills approach, even as Google began marketing phones based on its Android operating system that had similar features to the iPhone.
In the first-quarter of 2012 BlackBerry lost over US $120 million and had a 25% drop in sales to $US 4.2 billion. The company is valued at 1/10th of its 2008 peak market capitalisation of $US 78 billion.

Channel 10 (Australia)

In the early 1990s, Channel 10 was in receivership. Then it turned itself into a successful TV station using a low-cost business model aimed at younger viewers, ie under 40s. It left its competitors, Seven and Nine, to battle for the rest of the market.

By the mid-2000s it was generating around $1 billion in revenue and over a $1/4 million in net profit. This was more than its competitors (Channels 7 & 9) combined. The youth network focus and a proud history of broadcasting risk-taking shows, such as Number 96, Prisoner, The Dismissal, Big Brother and the 7 PM Project. In other words, it was at the 'top of the S-curve'.

By 2012 it was a shadow of its former self. Ratings actually dropped to the worst night in the history of Australian TV rating, ie 6.5% of the metropolitan viewers.

"...In a few short years, Ten has gone from being the cheeky upstart to being hit by weak morale, mass redundancies and a resurgent rival in Nine..."

James Chessell et al, 2012

Channel Ten's recent decline is linked with

- the start of new digital channels by rivals Seven and Nine, like GO, GEM, 7Two, etc that competed directly with Ten's main market, ie youth.

- the rise of the Internet with global video suppliers, such as YouTube and Australian National Broadband Network; the latter allowed for on-line giants like Google to compete. While Seven and Nine had online partners, Ten did not

- the increasing use of mobile phones for entertainment, sport, etc

Furthermore, management/board's mistakes added to its problems; for example

- confusion over whether Ten's digital station, Channel One, was for entertainment or sport (second tier sports like netball, major league baseball, the Indian Premier league cricket, etc). Sport won and it was expected to compete with pay-TV sports broadcaster, Fox Sport Australia (half-owned each by Rupert Murdoch's News Corp and James Packer's Consolidated Media)

- ill-conceived expansion of Ten's news and current affairs coverage to complete directly with Seven and Nine by hiring 100 journalists plus the ageing George Nexus. Ten was trying to build a news brand from zero.

- disastrous launch of Channel Eleven aimed at the 13 to 39 year old cohort

- disruptive share ownership changes in Ten started when Ten approached the Packer group to do a deal around Fox Sport and for Packer to take a stake in Ten. This was expanded by James Packer to include Lachlan Murdoch; then Gina Ginehart (mining magnate) purchased a 10% stake.

- the continual micro-managing by the Board which culminated in the appointment of Lachlan Murdoch as "interim CEO"

- Ten's poor program performance continues. Even the successful Masterchef (in 2012, in its 4th year) is losing audience share; shows like The Shire, Being Lara Bingle, Everybody Dance Now, Breakfast, etc have all gone. Loss of AFL rights and an unsuccessful NRL bid have added to Ten's programming problems. In contrast, Nine has had great success with The Voice and The Block.

Microsoft

The dominant player in computer software for desk tops/lap tops since the 1980s but now under threat from mobile phones/pads players like Apple, Google, etc in the post-PC world

In 1985 Microsoft starts Windows Operating System (managed the complex interface with other hardware/software, etc) for personal computers (PC); by 2005 it dominates all computers (96%); but now under threat from mobile phones/pads players like Apple, Google, etc. Microsoft has exploited its dominance with computer users via Windows software.

With the rapid technological advances in mobiles phones/pads and less around desk tops, Microsoft has lost its dominance as there is no indication that desktops and phones/pads will use the same operating system and user interface. The loss of dominance by Microsoft is shown by the poor performance of Windows 8, ie the latest, mobile-inspired version of its operating software and its earlier Vista fiasco. Players in the mobile phones/pads arena like Apple, etc have pushed Microsoft aside, ie

"Windows 8 is a remarkable piece of engineering but the world does not buy remarkable pieces of engineering, it buys useful products"

Michael Cusumano as quoted by John Gapper, 2013

In addition to falling behind on new trends like mobile,internet search, cloud computing, etc, Microsoft is overstaffed with 50% more staff than Apple yet 50% less revenue & profit (2013)

For years Microsoft has squeezed cash out of existing businesses and it expected to continue to do so. Its challenge is that its operating systems and business software divisions account for 80% of operating profits.These divisions' core products were developed for personal computers (PC). Yet the PC is in decline, eg 2013marked the worst decline in global PC shipments with 7 consecutive quarters of falling demand; this threatens Microsoft's core products while mobile phones are rising and there is a transition to"cloud", ie

"...The new cloud workloads and mobile apps that are redefining how millions of people interact with the digital world are already running on Amazon Web Services and the iOS and Android platforms...Google has beaten Microsoft...creating a hardware ecosystem with the free android operating system; a position it has cemented with the pending sale of its Motorola handset business to Lenovo, which removes the risk. It will compete with its own hardware partners. Apple has taken the profitable high ground with the alternative, integrated approach represented by the iPhone. That has forced Microsoft to buy Nokia's handset division to maintain even its current tenuous foothold in the business..."

Richard Waters, 2014

The development of android and iOS destroyed Microsoft's near monopoly in operating systems in a mere 5 years, with people adopting mobile computing more than 3 times faster than they did a desktop. It took around 15 years for Microsoft to dominate the desktop market from the 1980s. 2013 marked the worst decline in global PC shipments in history, ie 7 quarters of declining revenue. Microsoft has fallen behind on new trends like mobile,internet search, cloud computing, etc & overstaffed with 50%more staff than Apple yet 50% less revenue & profit (2013)

Some recent products have had a mixed impact. One new product (server software) is a success while others (online services, Xbox, phones) have been failures.

There is a trend towards software sales becoming server sales. It is uncertain how the license sales/action sales mix is going to change.

Technology companies are rising and falling faster. As consumers and businesses are becoming more mobile and data intensive, the likes of Microsoft, Apple and Google are becoming vulnerable to smaller, nimbler competitors. For example, the once invincible Microsoft failed in its attempt to take on Apple's iPad. It is hoping to counter this trend to computers going mobile, it purchased of Nokia's hardware division (US $ 7 b.) to protect its core business (Windows Operating System, Office & Software) This acquisition turned another industry icon into a footnote in history books!!!

In early 2014, there was a senior management shakeup in Microsoft when it appointed Satya Nadella as CEO to replace Steve Ballmer; Bill Gates has moved into a more technical advisory role.

Also, Bill Gates has moved into a more technical advisory role. Microsoft is trying to re-invent itself by  i) re-branding (2011 - 2012), eg logos, products, services, website, etc
ii) acquisition (since 1986 purchased around 200 firms; with 22 in 2015) iii) new products iv) staff changes Some acquisitions - aQuantive (US$ 6 b. in 2007 - Internet advertising) - Skype (US$ 8.5 b. in 2011 - VOIC) - Yammer (US$ 1.2 b. in 2012 - social network) - Mojang (US$ 2 b. in 2014 - maker of home video games like Minecraft; replaced Xbox that started in 2001)
- Noki's handset business (US 7 b. in 2014) to protect its core business (Windows Operating System, Office and Software) with computers going mobile
- LinkedIn for US$ 26.2 b. (2016) Developed some new products  - Bing with Yahoo (2009) - Azure (2010 - entry into cloud computing market for Windows) - Windows server 2012 - Patent tracker (2013) - Kinect (2010 & upgrade in 2013 - motion sensing input device) - Surface (2012 - first computer in the company's history to have its hardware made by Microsoft)
- Outlook.com web service (2012 - competes with Gmail)
- Surface Hub (2015 - interactive whiteboard)
- Windows (2015 - latest version of computer operating system)
- HaloLens (2016 - 3D headset)

Staff changes
- Changed CEO, ie Satya Nadella replaced Steve Bulmer (early 2014)
- Starting in mid 2014, massive staff lay-offs as rationalised business, eg    
i) July 2014 - 18,000 out of around 130,000 staff    
ii) May 2015 - 1,850 staff    
iii) July 2015 - 7,800 staff (Wikipedia, 2016b)

Australia Post

It was a government-owned (Commonwealth of Australia) but self-funded corporation whose traditional role was delivery of letters and parcels.

It celebrated its 200th anniversary in 2009.

In 1901 the different colonial mail postal systems were merged into the Postmaster-General's Department (PMG). They were also responsible for telegram and domestic telephone operations.

In 1967 the first large-scale mechanical mail sorting system was introduced and coincided with the introduction of the current system of 4 digit postcodes

In 1975 the Australian Postal Commission (trading as Australia Post) was established and its core business was around providing postal services including telegrams; it also developed limited non-core activities such as selling stationery, handling payment of bills like utilities, council rates, telephone, etc, handling some banking facilities like money transfers, savings bank deposits and withdrawals, etc

Since the late 1990s, Australia Post has broadened its product and service range and invested in major technology-based infrastructure programs plus changed its business model to a more franchise-orientated organisation. It operates in 3 core areas, ie

i) letters and associated services

ii) retail merchandise and agency services

iii) parcels and logistics

It offers delivery services (normal mail delivery as well as express courier), retail products, financial services (including insurance, passports, etc), direct marketing and database management services.

It also has a number of subsidiaries and joint ventures including a joint-venture in China established in 2005.

It has community service obligations, ie to provide an accessible, affordable and reliable letter service to all Australians wherever they reside. The corporation reaches more than 10 m Australian addresses; operates 4,419 postal outlets; serves more than 1 m customers in postal outlets every day.

It has a monopoly on letters up to 250g as its competitors have to charge 4 times the basic postage rate. Otherwise all other goods and services sold by Australia Post are sold in a fully competitive market place.

In recent times, with the increase in buying on the Internet, its parcel delivery area, ie delivering items purchased on the Internet, is more profitable than its mail delivery activities. Its mail delivery services are losing hundreds of millions of dollars per year and it is delivering fewer letters, eg in 2012 it was delivering 1 billion fewer letters (30% less) than in 2007. On the other hand, over the same period its parcel and pick up delivery has grown by 24% but it faces fierce competition from the private sector.

It is proposed to separate the mail delivery into 2 categories: a premier 5-days-a-week service & a regular service that will be 1 to 2 days slower and cheaper. Also, the organisation aims to diversify its retail business by taking over the process of health payments for the government.

One of the challenges facing Australia Post is the competitive pressure from the private sector as most of its services are being, or can be, provided by the private sector, eg courier, office supplies, payment facilities, passport applications, gifts, etc

With its core business, ie letters, under threat, Australia Post has used digital commerce to re-invent itself.  Also, the Australian government, which owns Australia Post, has agreed to increase the price of stamps and to cut back delivery services.

Owing to e-commerce, its parcel business has significantly increased in size and profitability. On the other hand, Australia Post cannot relax

"...the pace of change and competition is so brutal, the moment you get to the top you look over your shoulder.  You've got to change and got to think rapidly...."
Ahmed Fahour as quoted by Joanna Gray 2016c

Thus Australia Post is developing a digital identity business, ie aiming to make its identity service an integral part of online transactions so that it can charge a fee every time identity verification is used

"...the new beta version of its service is gaining traction with banks and government agencies.  By speeding up identity verification, it can cut the cost of doing business and encourage more transactions. About half of all online transactions are started and not completed because of complication and delays in filling in identity information..."
Joanna Grey 2016c

It is also including block chain technology to store the identity data.

People are becoming more concerned about the data they give to online organisations.

Some of the lessons learnt by Australia Post include

i) Post People First (investing, supporting, motivating the workforce to do the best and to reach their potential to help customers interact with the company)

"...happy staff leads to happy customers which leads to happy community and shareholders..."
Joanna Gray 2016d

You don't need to start with the customer

"...don't start with the customer.  The customer clearly is really important, but what you do as a leadership team, you start to build a culture and a trust and a level of relationship with the workforce who are delivering the service and the product..."
Ahmed Fahour as quoted by Joanna Grey 2016d

NB the workforce were very unionised and 45% of the staff are over 50, ie in the twilight years of their careers

"...people are paramount in any organisation. How they treat customers and each other creates a culture that is crucial to the successful implementation of strategy...... dedication to service is deep in our workforce base. Who is the person innovating here?  It's your employee in a way that they interact with their customer, in the way they interact with the eco-system, the way they interact with their suppliers.  The way they interact with each other..."
Ahmed Fahour as quoted by Joanna Gray 2016d

Currently the is dominated by white Anglo-Saxon middle-aged men; there is a need for greater diversity.  Until several years ago there were no women in senior management, and only 19% of management positions were held by women. In mid 2016

"...33% of managers are women and 37% of senior management are women......20% of managers are from non-Anglo backgrounds..."
Ahmed Fahour as quoted by Joanna Gray 2016d

  ii) identify early the threats and opportunities like the Internet

As the parcel business is growing at around 8% annually, Australia Post is looking at using drones as delivery mechanisms. Other new businesses include digital identity and block chain (see above for more detail).  The aim is to

"...empower customers and citizens to own and control what they do with their data and their identity, and build another new steady income stream..."
Joanna Gray 2016d

News Corporation

Over the years, Rupert Murdoch (who started in newspapers and now, in his 80s, controls a global media empire worth around US$ 80 million) has continually tried to re-invent his media empire (News Ltd) since first taking over the News newspaper in Adelaide, South Australia in 1953. For example,

- in 1964 launches the Australian-wide newspaper (The Australian)

- in 1969 goes international by buying newspapers (The News of the World and The Sun) in the United Kingdom; later on in 1981 he buys The Times

- in 1976 ventures into America by buying the New York Post

- in 1985 buys 20th Century Fox

- in 1988 launches Sky (now BSkyB)

- in 1990 News Corporation almost sinks under debt

- in 1996 launches Fox News Channel

- in 2000 invests in realestatecom.au (now REA Group)

- in 2005 his eldest son Lachlan quits News Corp

- in 2007 buys Dow Jones and the Wall Street Journal

- in 2008 in the Boyer lectures in Australia he talks about the threat to his media empire of the digital revolution, especially the rise of e-media

- in 2009 Chase Carey returns to News Corp as COO and since then share prices have increased around 2.5 times. He focused on the expansion of the cable TV business (generates around a 1/3 of the group's earnings before interest and tax) and started a US$ 10 billion share buyback. He replaced Peter Chernin who was concerned about the future of the newspaper business, especially the Dow Jones acquisition. The print newspapers have declined in financial importance in the global media and entertainment conglomerate. This is despite transforming the newspapers from relying on advertising revenue to more reliance on subscription revenues; the latter are comparatively more stable and not as susceptible to the business/financial/economic cycle.

"... News Corporation has essentially become a cable TV powerhouse with legacy newspaper, book, film and broadcast TV assets. Newspaper and book publishing...... information services account for only 9% of the group's earnings..."

Ben Holgate, 2013

- in 2011 News Corp buys Rupert's daughter's (Elizabeth) Shine organisation for $US 480 million; closes News of the World amid phone hacking scandal

- in 2013 News Corporation splits into 2 separate companies. This de-merger is to unlock value of the high-growth businesses around 21st century Fox and spin off the low growth assets into the new News Corporation with the aim of transferring printed newspapers into profitable digital products

- the impact of the phone hacking scandal (UK) is still working its way though the corporation

Amazon

· After being a major disruptor of many businesses, like traditional bookstores via on-line sales and e-books, Amazon is trying to reinvent itself. As founder Jeff Bezos states he wants to maintain the start-up mentality of continually developing new products, irrespective of margins. Some examples include

- using a shop (bricks and mortar) in Manhattan (USA) to showcase its products like Kindle e-readers, Fire smart phone & Fire TV Set-Top Box, Etc

- spending US $5b. on capital expenditure in the first 9 months 2014 (in 2013 only spent US$ 2b.)

- paid US $1b. for video gaming Twitch (2014)

- purchased the "Washingon Post" to push the newspaper industry into the digital age

Westfield Group

Westfield

"...subscribe to the school of thought that everything is vulnerable. Even something that has had a long term success, it's only a knife edge away from failure. If you look at it like that you will work really hard to manage each facet of your life, because any one of them could crumble at any moment..."

Steven Lowy as quoted by Jemima Whyte, 2014

"...I know a tonne of kids who have done great at school and have replicated that in life, and I know lots of kids who did poorly at school who have had outstanding lives..."

Steven Lowy as quoted by Jemima Whyte, 2014

"...I find you deal with things in a disciplined manner, one at a time, you can deal with issues that seem insurmountable. They become surmountable. When they break down into compartmental bits..."

Steven Lowy as quoted by Jemima Whyte, 2014

· This firm was started around 60 years ago in a single smallgoods store in Blacktown, New South Wales (Australia) by Frank Lowy. Westfield has used very ambitious, costly restructuring and bold moves as ways to continually re-invent itself and is a global shopping centre empire. Some examples:

- in 1979 Westfield Trust was spun off as a separate property trust investment vehicle from the development arm, Westfield Holdings

- in 2001 the group secured the management rights to Rodamco North America after a hard-fought corporate restructure battle

- in 2004 it rolled together 3 shopping centres and developer entities (Westfield Holdings) and Westfield America to create a $22 billion Westfield group

- in 2006, they took on British developers, Simon and David Ruebens, to secure control of the Stratford City shopping centre near the Olympic Village

- in 2010 they hived off the property assets from the management rights to create Westfield Retail Trust and shopping centre management business, Westfield Group

 · Westfield is worth around US$ 70 billion (2014)

· If you had invested $1,000 in Westfield Development in 1960 at its listing and re-invested all dividends, etc, this investment would have been worth around $170 million in 2010. A similar investment in the All Ordinaries Index, in contrast, would be worth $165,000.

 · Frank Lowy is the richest man in Australia with an estimated of around $7 billion (2013).

. The restructuring of Westfield's property empire in June 2014 has increased the combined market capitalisation (Westfield Corporation & Scentre) by around A $12 b. (October 2015)

- The international strategy is to moves out of mid-market centres and focus on enormous, top-end centres full of luxury retailers in the kind of fit out, restaurants, bars and other offerings that luxury goods consumers might like online shopping is one of the biggest challenges for "bricks and mortar" retailers. To help handle this, retailers use apps and big data to look at factors like how the traffic is, where the available car parks are and helping customers to get free parking at their stores Ford, the automotive giant attempting to transform itself into an "auto and mobility" firm, by opening FordHub in the Westfield World Trade Centre (2016). "...it is a storefront, not a dealership, where consumers can see Ford's latest innovations, talk to "FordGuides" about mobility services and enjoy events..." Robert Harley, 2016 These are not about selling products, they are about capturing people's thoughts to help solve transportation issues of today and tomorrow. Westfield is aiming to connect the physical and digital worlds; not about a choice between them, ie the best centres in great locations combined with a vibrant and totally integrated digital experience. It has launched digital express parking, indoor mapping, advance food ordering, online product search plus a data and analytics unit to work with retailers to better understand and use the data generated from millions of visitors, ie customers will have digital access to premium services and amenities, and interactive directories. Westfield's initial mantra was "growth, growth, growth" with the US portfolio of malls around 61 in 2001. But given the GFC, digital revolution and changes in retailing, Westfield is now focusing on iconic centres in the biggest markets and selling their secondary malls.  Five decades ago Westfield was in the forefront of developing shopping malls linked with cars to the suburbs.  Now its business is moving with its customers to the mass transit and urban core, opening in the best, high traffic locations in cities like London, New York and Los Angeles.

Telstra (Australia)

 

. Started as a sate-owned monopoly in ICT industry in Australia but in 1990s when it was privatised and faced competition from mobile phone players like Optus, Vodaphone, etc and more recently NBN.
. It is a telecommunication firm that is trying to avoid becoming a "dumb-pipe" Internet provider by developing a growth strategy around 4 criteria

i) grow network application services (NAS)
ii) invest in Asia
iii) build a successful media and IPTV business
iv) build new revenue streams like software, e-health, etc
plus earnings to be accretive & return on invested capital within 3 years

. 40% of Telstra's revenue comes from mobile phones, mostly data; previously, revenue was dominated by voice calls

 

. Under threat from global tech giants and new industry players like Google, Apple, etc with smart phones, etc

 

. Started investing in Australian and USA start-up companies & Chinese Internet services (like car sales website, eg Autohome) but low margins businesses

. Philippines ICT industry with San Miguel (large beverage/food conglomerate based in Philippines)

. Moving into health care, ie partnering with Medgate, a major Swiss provider of on-line healthcare services & virtual doctor consultation

. Negotiating to buy Pacnet for $ 1b. (enterprise services and submarine cable company)

. Telstra had 6 main challenges (2015)
- customer control
- connectivity
- integration
- admissions
- ehealth
- efficiency

NB As increasing demand for mobile services via the Internet of things oocur, with content being important, Telstra's core business is now connectivity with increasing focus on developments in media (HFC network, Foxtel, etc), Asia, software development, e-health (its ReadyCare program where GPs are available over the phone for consultations), connecting cars, etc.

David Thodey (when CEO), Telstra pulled out of Sensis, SouFun & CSL.
In 2016 Telstra appears to be performing well with record revenues and is dominating the Australian mobile and broadband markets. On the other hand, there are challenges for the A$ 66 b.  telecom, eg
- Telstra's phone and Internet infrastructure vs. A$ 56 b.National Broadband Network
- web based services such as WhatsApp, Skype, etc
- major overseas investments (see below)
These have made the copper-line call revenue fall by 41% in the past 7 years
Telstra needs to invest in
i) being agile to speed up its processes
ii) innovation, eg  digitalisation of business, government and health sectors with high-speed broadband, Internet video services, cloud computing, etc.. This includes
- Gurrowa Innovation Lab (access to a global innovation network of universities, start-ups and strategic partners that concentrates on solving customers' problems , ie creating value for customers; employs staff who are adaptable and curious; uses multidisciplinary teams with engineering expertise, focusing on customer orientation, with an understanding of the end users' experience, etc. Some of the opportunities identified include cloud capabilities, health business, etc)
- other examples include muru-D (an incubator that works with the start-up community), Telstra Ventures (made 26 investments including Telstra Health & Ooyala - software group),  Telstra Home, (built organically to deliver the Internet of Things to people's homes). Health is a major opportunity with A $105 b. spent on health care in Australia (2003/14); over 2 years Telstra spent around A$ 240 m. in buying digital health business. Also, it is expanding into quantum computing plus collaborative relationships with Ericsson and Cisco
iii) expansion, eg network applications (including buying Pacnet which has significant connectivity infrastructure and services such as managed networks, cloud and network security) and e-health (see above) plus venturing into riskier markets like Indonesia, Philippines, etc.. In the Philippines, Telstra plans to partner San Miguel (local beer and food giant) to build the country's third national mobile network (estimated to cost around $US 3.5 b.); Telstra plans a 40% stake in the venture.  As the Philippines lacks fixed-line infrastructure, most people will experience broadband from smart phone, not a computer.
Telstra's is previous overseas investments in Hong Kong, China, Indonesia and Vietnam have given varied results, eg it wrote off around A300 m. in China on Octave Investments; it lost A$ 2 b.  on its investment in Hong Kong Telecom. On the other hand, during Sol Trujillo's tenure, Telstra made good money in China from the real estate portal (SouFun) and a car sale website (Autohome)
Telstra is repositioning itself as a technology company (rather than a telco) with its cloud and network applications. It is focusing on taking mid-term risks for long-term gain
Telstra has also increased its investment in core mobile business with A$5 b. spent to improve the service while preparing for the launch of 5G services with Ericsson

Facebook

It started in 2004. Despite having 1.3+b. users, younger Americans are deserting it to frustrate adult scrutiny.

It is trying to re-invent itself by buying

- Instragram (online photos & video-sharing social network service) ($US 1b.)

- WhatsApp (mobile, text-messaging service) ($US 19b.)

- Pryte (mobile data payments; with focus on developing world)

- Oculus (maker of virtual reality headsets) ($US 2b.)

- LiveRail (digital videos ads that matches right ad with right consumer) ($ US 0.5 b.)

Working on other products like image ads on Instragram, mobile payments, etc

Cotton T-shirt

. The white cotton T-shirt has had many incarnations on its journey from humble long-johns in the 19th century to actors' shirt of choice in the 1950s and since then án ubiquitous item for both men and women.
. The type of T-shirt worn indicates the wearer's personality and their social tribe. Rappers and skaters wear them long and baggy; some men prefer them tight across the pecs and biceps; surfies sport them as out-wear, often with a simple slogan printed across the front; professionals wear them as undershirts to stop their work shirts yellowing under the armpits (one of the original aims of the garment). Today, hundreds of labels compete for customer loyalty, offering various cuts and fabrics and a range of prices, ie from $570 (Gucci) to around US 5 (Target) The sequence of incarnations is
- Coopers Underwear Company advertises a new undershirt, without buttons, for bachelors (1904)
- US Navy instructs sailors to wear undershirts when in uniform (1905) and this is followed by men in the US, favouring new "crew neck cotton pullovers"
- F. Scott Fitzgerald coins the term T-shirt" in his first novel, ie"This Side of Paradise (1920)
- T-shirt popularity increases after actor Marlon Brando wears one in a play/movie named "Streetcar Named Desire" (1951)
- Rebellious middle-class teenagers wear white T-shirts after James Dean's iconic role in "Rebel Without a Cause" (1955)
- Cultural crossover is achieved when little-known US punk band "Plain White T's" have a Platinum hit with "Hey there Delilah" (2007).
. An estimated US$ 20b. spent on T-shirts in 2014.

Levi
- 150+ years old company that invented blue jeans (501) and has 2,700 stores around the globe but needs to act like a start-up, ie agility, different points of view, energy, excitement, etc
- need to combine an element of the unexpected with the expected, eg customers know they will find Levi's products in the store but they would not expect to find Levi's hosting a free music concert with the entrance ticket being the wearing of a pair of Levi jeans, ie

"...It was unexpected social media meets product meets music. We got literally millions and millions of hits through social media, through all sorts of PR..."

James Curleigh as quoted by Hannah Tattersall, 2015
-
focus on reinventing the 501. Research has shown that tapering is second only to hemming as the most requested denim alteration. As a result they have launched 501CT (custom tapered), ie jeans with a narrower leg than the original, designed to be worn slim. Using multichannel advertising by targeting customers in-store, online, via telephone sales, print and television, billboard, digital campaign and social media; invited magazine editors, musicians, actors and other celebrity influencers to have their jeans custom-fitted.
- aims to position Levi's as a lifestyle brand. As only 5 to 8% of anyone's total spend on clothes is made up of denim products, there is a potential to increase this spend on other Levi products like belt, underwear, jacket, white T-shirts, leather goods, etc

Virgin Airlines Australia
- It started as a low-cost, no-frills, single class, leisure-focused airline called Virgin Blue Airlines (2000) with 2 leased aircraft; bus companies regarded as the main competitors as Virgin was trying to attract new customers to flying
- It uses the concept developed by Southwest Airlines and Ryanair of eliminating costs like in-flight services including meals, entertainment, etc and printed tickets in favour of selling services on board and using telephone/Internet booking systems plus using one type of aircraft to minimise operating/maintenance costs.
- In September 2001 it was catapulted into the position of Australia's 2nd airline after the collapse of Ansett Australia. This meant that it was no longer just a cut-price alternative to the traditional players, ie access to terminal space which helped its growth.
- By 2016 it has grown into serving around 30 destinations in Australia
Over the years Virgin has continually endeavoured to re-invent itself by
- improving services by offering guests a choice of purchasing tickets with no frills through to paying extra for different services like meals, refreshment, choice of seats, excess luggage, etc
- introduced multi-class travel, eg business class (2012) and premier economy (2008) that allowed priority check-in, baggage allowance, lounge access, priority boarding, increased legroom and all-inclusive flight entertainment, meals and beverages on board.  This was aimed at business and corporate customers and to attract clientele from their main competitor, Qantas.
- introduced flight lounges for travellers on initially a "pay-as-you-use" and more recently a fee basis at some airports with food and other amenities like Internet access, meeting rooms, showers, etc
- established  reward/loyalty/frequent-flier program, eg initially Velocity Rewards and then changed to the Velocity Frequent Flyer (2013); this program has partners like National bank of Australia, Westpac, ANZ, American Express, Diners Club, etc; it has different status levels like red, silver, gold and more recently platinum; with points earned relative to the cost of the flight rather than distance traveled; Global Wallet Function (2013) which is a prepaid travel card
- regularly changed uniforms and cabin design; with aircraft repainted from bright red to sophisticated white with silver detail
- introduced new equipment like wider body, more fuel-efficient aircraft, etc
- re-branded as Virgin Australia (2011), ie Virgin Blue, Pacific Blue, Polynesian Blue and V Australia became one brand
- changing ownership, ie Virgin ceded its ownership fellow shareholder Patrick Corp, then Toll Holdings, followed by Air New Zealand, Etihad and more recently Singapore Airlines, etc
- formed alliances with other airlines like code-sharing initially with United Airlines and followed by Emirates, Hawaiian and Malaysia, then Garuda and Vietnam. In 2010, formed alliances with Etihad and Air New Zealand, ie full code-sharing, reciprocal lounge and frequent-flier access.  In 2011 with Delta Air Lines, it joined Sky Team (one of the top three alliances in the world) and formed an alliance with Singapore Airlines, etc
- started Virgin Australia Regional Airlines in Western Australia; formed a 10 year deal at Perth-based regional airline Skywest so that able to better compete with QantasLink and Regional Express Airlines; later purchased Skywest and Tiger (2012)
- change in CEO in 2010 from Brett Godfrey (original CEO) to John Borghetti (former Qantas executive general manager who employed several key Qantas staff at Virgin)
- changed head office site from Fortitude Valley to Bowen Hills, Queensland (2008)
- introduced international flights to America (2009), ie San Francisco and Los Angeles
- sponsoring sporting teams like NRL team (South Sydney Rabbitohs in 2007), NBL (Brisbane Bullets), AFL, etc
- introduced flying billboards, eg promoting men's razors, Queensland government's campaign to attract businesses to the State, etc
- advertising campaigns, eg slogans like "get what you want" (2007), "now there's an idea" (2009) and "now you're flying" (2011) plus new billboard advertising showcasing Virgin's variety of products and on-time performance record

(sources: AFRBoss, 2000; Gary Hamel, 2000a; Jerry Useem 2001; Jack Welch et al, 2001; Gerry van Wyngen, 2003; Charles Handy, 2002; Sean Aylmer, 2004; Betsy Morris, 2004; Janet Guyon, 2004; David Kirkpatrick, 2004; David Kirkpatrick, 2005; Costas Markides, 2003; Marc Gunther, 2004; Sean Aylmer, 2004a; Matthew Boyle, 2004; W. Chan et al, 2005; Spencer Ante, 2004; Geoffrey Colvin, 2005; Carol J Loomis, 2005; Mara Der Hovanesian, 2005; Emily Ross et al, 2004; Anita M McGahan, 2004; Geoffrey Colvin, 2005; Rose-Anne Manns, 2006a; Geoff Colvin, 2006c; Chris Zook, 2007; Brad Hatch, 2007b; Betsy Morris, 2008; Clayton Christensen et al, 2003; Jim Collins, 2008; Richard Branson, 2008; David Rhodes et al, 2009; Catherine Fox, 2008g; Seth Godin, 2007; Brook Turner, 2009; Linda Schmidt, 2010; Peter Roberts, 2010; James Eyers, 2010; Emma Connors, 2010; Brian Corrigan, 2011; Sean Aymer, 2005a; Charles Arthur, 2011; The Guardian, 2012; Dominic White, 2012a; Jason Murphy, 2012; Dominic Rushe, 2012 ; James Chessell et al, 2012 ; Peter Roberts, 2013; AFR, 2013; AFR, 2013; Paul Smith, 2013; Wikipedia, 2013f; John Gapper, 2013; Daniel Thomas, 2013; Ben Holgate, 2013a; AFR, 2013 & a; Tom Mitchell et al, 2013; AFR, 2013b; Patrick Durkin, 2014; Andrew Cornell, 2014; Philip Baker, 2014; Max Mason, 2014; The Lex Column, 2014a; Sue Mitchell, 2014a; The Lex Column, 2014b; Hannah Tattersall, 2014; Max Mason et aL, 2014; Chanticleer, 2014; Tim Higgins, 2015; Hannah Tattersall, 2015; Bangkok Post, 2015a)

Even countries can follow a version of the s-curve, eg China. After the instability of the cultural Revolution (1960 -70s), China worked on political stability, eg at change its focus from class struggle to economic organisation. This was shown by a focus on market incentives and education; followed by agriculture, then infrastructure and heavy industry; then manufacturing and exporting. More recently it has focused on service and customer-based economy like finance, logistics, health care, tourism, etc; a knowledge-based economy with a cleaner environment; more equitable income distribution; less energy intensive industry. The last few decades China has had a growth rate around 10% but in 2014 it has started to slow. Despite this it is now the world's second largest economy.

Future growth industries of China are expected to be knowledge-based around service and customers with focus on less energy-intense industries like finance, logistics, healthcare, tourism, technology and environmental science (cleaner environment). For example,
- finance (over the past decade the number of proper institutional venture capital funds in China has grown from 32 to several hundred)
- health care (accounts for around 7% (US$ 700 b.) of China's GDP; this is expected to double over the next decade)
- environmental science (it is estimated to cost China US$1 trillions to fix its land, water and air pollution problems)

There will be less growth in areas around steel, cement, glass and other construction-related sectors (building infrastructure like railways, bridges, roads, factories, apartments, etc) which have provided the basis for the growth in the last 3 decades.
Even with a growth rate of 6%, China will create the equivalent of a Californian economy every 3 years and an Indonesian economy every 2 years.

On the other hand, the Chinese economy is facing some problems related
- to high debt levels
- a sluggish property market
- lack of transparency, eg the government's control of Internet
- persecution of opposition to the government like crackdown on human rights lawyers and their families

"....China is like a huge teenager. Physically, the country is relatively mature, strong and powerful, but it is a little too self-centred and in a way too insecure..."

Gary Rieschel as quoted by Les Murray, 2015

Some examples of this include the Chinese intervention in their sharemarkets in mid-2015 and early 2016 plus the currency depreciation without warning in 2015.

Is launched (1), sells slowly (2), becomes accepted and sales rise rapidly (3), market matures, ie market becomes saturated; product/service is copycatted by competitors; product/service is commoditised (4) and the market changes, ie replacement product needed (5). One way to handle this is by

"...looking at trends on the horizon and using your temporary monopoly to build the brand, make a profit, and then quickly move onto the next generation..."

Oren Harari has quoted by Brad Hatch, 2007b

For example, iPod

"...Apple refused to mirror the opposition, continuously rewriting the rules of music with its popular music player. Copycats looked on and then set out to copy it, but Apple cannibalizes its established market again and again. While everyone takes aim at its products, Apple jumps the curve and keeps on evolving......Apple's new mobile phone with iPod functionality went a step further recently - making a separate music player largely redundant..."

Oren Harari has quoted by Brad Hatch, 2007b

For an organisation, the sequence is start up (1), growth (2), control (3), maturity (4) and shake out or decline (5).

Many start-ups, like in the fashion industry, have fallen over as they
"...make not very clever decisions about what they're doing.....they become too big too fast, do too many things, get in over their heads financially, they haven't paid their tax, they get bigger premises, more staff......you're almost setting yourself up for disaster. If you picked the colours wrong one season and it doesn't sell it's like playing Russian roulette.  It can be that fickle.  Two seasons and you're down.  Nobody can forecast what's going to sell next season. It really is that fragile, that you can be gone all of a sudden..."
Alex Perry as quoted by Nic Walker, 2016

Need to be careful of the bandwagon that social media rules cash registers. Designer Alex Perry hired 4 bloggers and then checked with his staff to determine if social media was moving dresses. He could not trace any sales back to the bloggers!!!!!

Off-shore production and logistics in the fashion industry is not cheap but it is essential to remain competitive with European high fashion and low-priced chain stores. Need to handle the perception that manufacturing offshore, like in China and India, is substandard; yet these countries have been beading beautifully and making beautiful silk of thousands of years.

The different stages of the S-curve require different mindsets, competencies and expertise. At the start of the S-curve is the position of re-vitalising, discovery and inventiveness (called pioneering colonisers) is required; the middle part of the S-curve requires correct investment, exploitation the economies of scale, production of suitable good/services for the market-place, control of the channels of distribution, etc (called consolidators); and when nearing the peak of the S-curve, it is time to re-invent with adequate resources available. On the downward side of the S-curve, the urgency to re-invent is very strong as all resources, especially time, are in short supply.

Another way to look at this is in the development of a new venture. Initially resources (especially people) are paramount. As the business develops, processes and values increase in importance and become embedded in the culture; unfortunately once the culture is well established with its processes and values, this can become a hindrance or disability to change, ie

"...established organisations typically face the opportunity to create new growth business - the consequent requirement is to utilize different resources, processes, and values - at a time when mainstream business is very healthy..."

Clayton Christensen et al, 2003

Ideally, you need to change before the S-curve peaks. This is when you have enough resources (money, time, energy, etc) to handle the development of something new or different. On the other hand, there is where you are most successful and do not see the need to change, ie we have the formula for success, so leave us alone!!!! Yet the corporate graveyard is full of organisations which thought they had the correct formula for success!!!!!!

"...All companies have a date at which they come to the end of their useful life......the tricky part is agreeing on that expiry date..."

Ron Brierley as quoted by Yvonne Dongeon, 2011

Usually success breeds complacency. We try to hang onto past successes and to stay in our "zone of comfort", and very few of us are willing to challenge the assumptions of success and/or use "creative tension" or "mental arm wrestling" to move in different directions. In this mindset, we are less likely to acknowledge changing trends and to find new ways of doing things, especially if they threaten our current and past success and/or zone of comfort. Remember:

"...Seeds of destruction are set at the pinnacle of success..."

Patrick Dawson, 2005

"...There is a pervasive trend in business today, described by many as the tyranny of success, in which successful organisations face considerable difficulty in maintaining their strength - an innovative edge - in the face of changing markets, technologies, and consumer demand. It is a worldwide dilemma......very factors that lead to a firm's success can also play a significant role in its demise. The leadership, vision, strategic focus, valued competencies, structures, policies, rewards, and corporate culture that were also critical in building the company's growth and competitive advantage can become its Achilles heel as technological and market conditions change over time..."

MIT Sloan School of Management, 2008

Some examples of this include

"...IBM failed to foresee the PC revolution and saw its share price plunge by 77% at a time when Dow was quadrupling in value. Xerox failed to see the market for small copiers and handed that market to Canon. Sears got trounced by WalMart. And Barnes & Noble got caught napping by upstart amazon.com..."

Andrew Parris, 2006

When an organisation is most successful is its most dangerous time. Most organisations then will make the wrong decision about their future as it will be based on past or current success, and not future trends. This is sometimes called the creative-destruction argument as all products, services, markets and even specific solutions to social problems eventually become obsolete. Yet this does not mean all organisations and societies become obsolete and irrelevant.

Some organisations become a victim of their own success & size. As their success grows, so does the size of the organisation, like Microsoft (increased staff from 57,000 a decade ago to around 127,000 in 2014; this is around 50% higher than Apple yet the latter's revenue and profit is double Microsoft's) plus the thinking changes from innovation to protecting the successful product, services, etc. Some examples include

- smart phone on Nokia & blue-tooth technology

- impact of quartz watch on industry in Switzerland. For a long time the Swiss dominated the world's watch industry. Then in the 1970s the near-fatal crippling of the Swiss watch industry with the popularity of the cheap quartz/digital Asian watches. Yet Swiss were offered, but rejected, this technology. Their own assumptions about the nature of watch making were so strong, they were incapable of understanding the full implications of this invention. The revival of Swiss watch based on it as a fashion statement, ie cosmetic/luxury item, as well as a time piece. The next disruptive inventions could be

i) around "smart watches" using silicon's unique properties like in the smart phone. Companies like Samsung (GearS), Apple (iWatch), Google (Android Wear), Sony, Asus, LG, etc are experimenting with the technology to develop smart watches.
ii) reducing components, eg Swatch's System51 has gone from 200 to 51 components made by robots
iii) cheaper machines + computer-aided designs means that complete watches are made under one roof

- Skype with telcos. Skype (2003) was not seen as a threat to the telco industry, ie technology would not work; it did not have scale, etc

"...What Skype is doing is like a toy..."

Hossein Eslambolchi, AT&T's then chief Technology Officer as quoted by Rachel Botsman

Yet by mid 2013, it now has 30% of the long-distance phone market

- Microsoft buying Nokia to protect its traditional platforms like Windows

. These "successful" organisations become maintainers rather than innovators

. Creative destruction -old are replaced with new, eg technologies, expertise, firms, etc.; winners & losers

. An indication that a product or organisation is near the peak of the S-curve is when they start making cosmetic changes rather than technological, eg change the colour of a product, etc

Furthermore,

"...Just because a company stumbles - or get smacked......by an unexpected event or challenge - does not mean that it must continue to decline. Companies do not fall primarily because of what the world does to them or because how the world changes around them; they fall first and foremost because of what they do to themselves..."

Jim Collins, 2008

Some organisations become a victim of their own success and size. As their success grows, so does the size of the organisation, and the thinking evolves from innovation to protecting the successful product, services, etc. The organisations become, at best, maintainers rather than innovators.This is more obvious in industries with rapidly changing technology. Some examples include the watch industry in Switzerland not taking up the digital technology, IBM and Dell in computers, Yahoo as a search engine, smart phones with Nokia, Zynga in mobile games, etc. Are Microsoft, Apple, Facebook & Google next?

For exmple, Dell initially disrupted the PC industry when it introduced build-to-order and direct online sales; over the years it became the industry leader. But the industry landscape changed, eg mobile phones becoming minicomputers, etc and they remained stuck within a commoditised PC market.

One firm that has used digital technolgy to change the way it does business is Disney,  ie its clients are no longer BBC or RTZ but iTunes, Google, PlayStation and Microsoft.  There was a proliferation of channels/platforms/devices, etc wanting to deliver Disney's content and this put Disney in a position of power.  The new technologies opened up commercial opportunities and new revenue streams, eg

"...you could look at the way in which programs were sold; they could be sold to one person for one platform for one experience and later to somebody else for a different experience......Disney was the first company to put long form episodes on the iPod......technology defines how content is created, how it is distributed and how it is consumed...... if you have a platform  that can't respond to the sort of digital expectations of the consumer, you are in trouble..."
Catherine Powell as quoted by Joanne Gray, 2016a

It is about connecting all the lines of Disney's business that go under the one brand like stage shows, retail and licensing products, release of films, programming and distributing TV channels, theme parks, etc 

NB

"...The essence of innovation is also obsolescence..."

Allan Gray as quoted by Vesna Poljak, 2013

In addition to becoming maintainers rather than innovators, other indicators of being victims of their own success and size are increase focus on

- incremental improvement of current products rather than creative destruction or disruption, eg making cosmetic changes like colour/size of product, rather than technological

- bureaucracy, ie less flexible with more hierarchical, process-focussed, rules & regulations orientated, etc

- silo performance, ie organisation becomes more specialised, segmented, departmentalised, etc with focus on groups rather than whole organisation's performance

- abuse of market power to protect the status quo, eg monopolistic activities, anti-trust charges, etc, Some examples include

i) Microsoft has paid US $3.4 b. in fines to European courts over a decade

ii) Intel is appealing its anti-trust case that started around 2000

iii) Google is fighting the EU anti-trust regulator's claim it has illegally abused its market dominance (2015)

- buying competitor or products/services/staff, etc from other innovative, successful organisations for market share, revenue, etc rather than innovating themselves like Apple's iTune buying Beats to keep its position in music industry and Microsoft buying Nokia to get into the mobile phone business, etc

Remember:

"...Even something that has had a long term success, it's only a knife edge away from failure..."

Steven Lowry as quoted by Jemima Whyte, 2015

Innovation can be risky
Successful companies are praised for their sound decision-making by responding to customer's needs and for focusing on investments that give the best returns. However, this is sometimes sowing the seeds of their demise.  Only up to 20% of investments into innovations are successful (Clayton Christensen, 2016). Thus investing in innovation is risky & unpredictable.  Some of the reasons for this are the pace of technological change, types of technology change (disruptive v. sustainable) and status quo thinking about investments. Some examples include Sears Roebuck, IBM, Xerox, Digital Equipment Corporation.
The watch industry is a good example of unpredictability, ie who would have believed that
- men would ditch the pocket watch for the more feminine "wristlet" version
- in the 1970s, Swiss watch industry was decimated by the quartz time piece made famous by Japan's Seiko. This less expensive and more accurate watch marked the end of the traditional industry with mechanical cogs-and-spring movement, ie it is estimated that 3/4 Swiss watchmaking workforce and their machinery disappeared. There was no certainty that the mechanical watch was going to survive. The Swiss watch industry recovery was based on the watch becoming a desirable luxury item like the Omega Speedmaster watch that went to the moon and is still a huge success in 2016.  Nicolas Hayek Snr was the man responsible for introducing a face-saving Swatch and consolidating the Swiss industry
- smart or connected watch, ie in addition to telling the time, being a luxury item, etc the watch had become a mini computer (Bani McSpedden, 2016)

One of the best way of handling the dominance and monopolistic approach of big tech companies like Microsoft, Intel, Google, Apple, etc is to encourage innovation. Rapidly changing technology is more effective than laws, rules and regulations, etc in increasing competition. Also, the legal cases can take years, if not decades, of work their way through courts, appeals, etc. Some recent examples of the impact of technological change include

- both Microsoft and Intel focused on PCs. Thus they miss on the rise of tablet computers and smart phones which allowed companies like Apple, Google, Qualcomm, etc to become dominant players in mobile devices.

- for Google, mobile apps are now challenging its lucrative web search as cellphones use the likes of Amazon, Yelp, etc to search directly for products and service, etc, ie

"...Today 7 out of every 8 minutes on mobile devices is spent within apps......consumers are going to whichever website or apps serve them best. And they face no friction or costs in switching between them..."

Vindu Goel et al, 2015

Linked with obsolescence is creative destruction, ie old are replaced with new, eg technologies, expertise, firms, etc.; winners & losers, eetc. Some examples

 - globalization means that countries with cheaper labour win in industries that are labour-intense like manufacturing (clothes, auto, etc), while countries with more expensive labour will lose unless they find other industries to develop that are less labour-intense, like service/knowledge industry (education, consulting, etc)

- Industrial Revolution with mechanization, etc resulted in land-owners and artisans losing to industrialists and factory workers. It changed the definition of labour by changing the systematic and organised use of labour with the benefit of mechanical devices and machines to create goods asociated with coal, iron, ships, pottery, cloth, canals and steam
Events linked with the Industrial Revolution are
- James Watt's first condensing steam engine
- Josiah Wedgwood opened his first line pottery factory
- textile making was revolutionised by James Hargreaves' mechanical spinning- jenny, Richard Arkwright's water-powered, cotton-spinning frame Samuel Crompton's spinning mule
- Cranage, Smeaton & Cortwere developed the processes for purifying iron by "puddling" and rolling molten metal
- Abraham Darby and John Wilkinson constructed the first iron bridges in the world; Williamson was the 18th century champion of things ferrous, ie made the first iron railway, iron chapel
- Jethro Tull devised crop-sowing inventions
- Thomas Coke introduced new land management methods

Linked with technological changes were sociological movements such as caused by Enclosure Acts (where formerly common-held land was being fenced and hedged for farming with the use of new machines and the principles of crop rotation; improved breeds of livestock, ie fatter, sturdier and healthier than their bony forebears). As a result of these improved farming methods, the output of grain, vegetables and meat rose. White bread became commonplace; cheese became popular; abundance of cattle feed resulted in fresh meat being available all year round.

People began to appreciate the interconnecting links, ie better food and health conditions resulted in a fall in the death rate, especially at childbirth, and resultant population explosion. Some other health examples include better midwifery, increasing number of doctors, construction of hospitals were women gave birth, introduction of smallpox inoculation (after 1760), understanding that fresh air was good, etc.

Also, there were improvements in education and literacy; development of a newspaper industry and more reliable, efficient; postal system, this all resulted in a better informed public that was starting to encourage new and enquiring approaches to challenge some of the dogma of the time, like fundamental religious beliefs that God created man, etc. It was the time of men of science like Charles Darwin (evolution), William Smith (geology), Joseph Priestley (discovered oxygen), Samuel Johnson (dictionary), Thomas Payne (political thought), Edward Burke (liberal thinker), etc

The 18th-19th century Industrial Revolution created a new kind of worker, ie one who could read and wanted to understand how things worked with a keenness to acquire useful knowledge that could be applied to daily living. It has been highlighted (Elena Douglas, 2015) that the main reasons for the Industrial Revolution were more than the impact of steam, coal, access to large markets or capital accumulation, etc. It was the thirst for and dissemination of knowledge applied to improving daily living; followed by trial, error, measurement and improvement.

But

"...economic growth is not just a process of more and better machines, and more and better educated people, but also a transformative and destabilizing process associated with widespread creative destruction. Growth thus moves forward only if not blocked by the economic losers who anticipate that their economic privileges will be lost and by the political losers who fear that their political power will be eroded..."

Daron Acemoglu, (2012)

This equally applies to organisations, ie winner and losers. If the losers hold too much political and/or economic power so that they can successfully resist change, it will not happen. Need to find a way to handle this power, ie counter it or accommodate it, etc

Example of organisation that fell and then regained its position include Xerox and IBM:

- Xerox - by 1990 it was no. 21 on the Fortune 500. But then with uncompetitive prices, Xerox fell, ie its stock price plummeted 92 percent in less than two years with declining revenues and falling market position plus a SEC investigation. Things looked grim. But after Anne Mulcahy became CEO in 2001 she reversed Xerox's situation from a loss of more than $US 200 million in 2000 - 01 to a profit of more than $ 1 billion in 2007.

- IBM - in the 1990s, IBM hired an outsider (Lou Gerstner, previously at RJR Nabisco and American Express). He is credited with saving IBM by bringing back together its disparate parts, embracing the Internet and concentrating on services.

Some ways to reinvent an organisation include innovation (see later), bringing in outsiders (like IBM) and/or linking with an organisation that is outside your industry. Some examples of the last include

- Philips (its most profitable products are developed from the food industry and include coffeemakers, blenders and juices plus electronic goods and health-care technology).

- Nestle (has links with Krups to make coffeemakers that use a capsule system)

- DSM (Dutch agricultural company - has been marketing its machines through social media in China)

- Threadless.com uses customer designs to design its own T-shirts and these are manufactured by another company. All this is done via the Internet.

"...these are completely different industries but, by combining them, you can reinvent itself and stay big and alive..."

Fons Trompenaars as quoted by Fiona Smith, 2010m

An example of how 2 organisations facing almost identical circumstances and trajectories but had 2 completely different outcomes involves Wal-Mart and Ames. Wal-Mart has become the No. 1 company in the world, while Ames has "disappeared". But in the early 1970s Wal-Mart and Ames Department stores had a similar business model for rural discount retailing and regularly copied each other. The main difference was that Ames of started in Northeast America, while Wal-Mart moved in concentric circles from Arkansas. Both organisations delivered exceptional results from 1972 to 1986, beating the market by more than 10 times. Then Ames fell and has never recovered.

"...both Ames and Wal-Mart had strong entrepreneurial founders who guided their early growth, but whereas Sam Walton passed the company to a home-grown insider, Ames replaced its entrepreneurial leader with an outsider. Both Ames and Wal-Mart had vast, untapped opportunity with a basic strategy of low-price rural discounting, but while Wal-Mart maintained steady organic growth consistent with that strategy, Ames deviated from the strategy in favor of wild growth. In 1988, it acquired Zayne, aiming to double the size of the company in a single year. Wal-Mart retained focus on small towns before making an evolution into urban sites; Ames revolutionized itself over night into urban retailing and catapulted itself into decline. Wal-Mart created its own success, and Ames caused its own death..."

Jim Collins, 2008

If you are unsure as to the position on the S-curve of your organisation/product/service, etc, use some performance criteria, such as sales, profit, staff numbers, productivity indicators, market share, number of awards achieved, etc, to draw your S-curve and see where you are. Remember:

"...institutions falter when they invest too much in "what is" and too little in "what could be". There are many ways companies over-invest in the status quo: they devote too much marketing energy to existing customer segments while ignoring new ones; they pour too much development dollar into incremental product enhancement while under-funding breakthrough projects; lavish resources on existing distribution channels while starving new go-to-market strategies......legacy strategies have powerful constituencies; embryonic strategies do not..."

Gary Hamel, 2005

Even if things are going well, it is prudent to think of ways to change or re-invent or re-vitalise. It may mean developing a new market for your products/services, changing products/ services, changing to a new industry, re-structuring your organisation, new geographical market location, etc. On the other hand, if you have already peaked and are moving "down hill", you need to urgently start doing things differently!!!!!!

The waves of innovations during the different industrial revolutions are good examples of the S curve

An organisation needs to periodically shake itself up, regardless of the competitive landscape. Some signs that indicate a shake-up is required include

- formal and informal structures are similar

- 'silo' formations dominate

- strategies, routines, processes, systems et al become barriers

- communications and collaboration across units is minimal

- innovativeness has declined

- persistent failure to spot new developments and opportunities

- resources are concentrated in a few powerful groups

- groups doing critical work are under-resourced, etc

Some suggested ways to change before you have to change revolve around structure, recognition and processes.

- structure (how is your business organised? ie by function, geography, customer type, product, etc)

- recognition (what is emphasized in performance reviews and compensation? ie incentives for individuals/teams/organisations are transparent; open vs confidential appraisals; short-term performance vs. long-term development; revenue vs. value-added; sales vs. profit, etc

- processes (how do you carry out your work? ie decision rights (who decides what, reporting lines, etc); distribution (centralized or decentralized); location (which processes sit next to each other); focus (customer or product)

organisational development change management

Organisations which are aware of the need to be ahead of the next wave of innovation ask themselves, - What will give rise to the new areas of innovation" For a wave of innovation to happen, there is a significant array of relatively new and emerging technologies and a recognised genuine need in the market that is leading to a market expansion.

"...The first industrial revolution began with the steam engine and new machines increased the labour productivity of cotton-spinning and production of steel. This was followed by further industrial shifts with the engineering that evolved out of advances in the understanding of, for instance, electro-magnetisn. This was followed by a focus on mass production of the automobile and electrification of cities, which lasted until the 1940s. The rise of semiconductors and electronics provided some of the enabling technologies and helped create new business opportunities throughout the 1950s and 1960s. In the case of the information and communications technology (ICT) wave of innovation, it is easy to identify the technologies that were driving the growth of capacity in the industry. Innovations in computer processing power, network bandwidth and data storage......this last wave of industrial activity was largely based on semiconductors, fibre optics, networks and software......if the last wave of innovation, ICT, was driven by market needs such as reducing transaction costs, we believe that there is significant evidence that the next wave of innovation will be driven by the twin needs simultaneously to improve productivity whilst lightening our environmental load on the planet..."

Karlson Hargroves, 2005

The world is littered with examples of firms that lose their edge and grow into giant bureaucracies/silos that stifle innovation, etc, and there is internal warfare between different silos, eg Sony, Sun and Xerox. Even Microsoft has battled with this. Firms and departments/divisions/units, etc that have become successful, usually with the development of one product, have a very powerful incentive to defend it and their power base, even if technology is changing around them.

The next Industrial Revolution or the Second Machine Age

· Smart machines are displacing much of the human workforce (this includes the more cognitive professional jobs)

· Robotics, artificial intelligence and data analysis have gone from "laughably bad" to "very good"; we are at an inflection point with profound consequences. Some examples:

- Google's driverless car which drove more than 200,000 km on roads without a crash

- Watson, the IBM supercomputer, that defeated everybody on a US quiz show called Jeopardy

- improving speech recognition and its links with the development of artificial intelligence

- progress on usefulness of big data analysis

· Initially it was thought that automation, etc would have most impact on repetitive, manual jobs but robotics, artificial intelligence and data analysis are having an effect on

"...higher-level human activities are easier to mimic than basic functions. It is easier, for example, to create an algorithm that performs thousands of advanced mathematical calculations in a few seconds than one that can make up a simple story. Robots build cars and tablets but they cannot make the bed or tend the garden better than humans..."

Hans Moravec as quoted by Robert McDermott, 2014

· Is the second industrial revolution or the second machine age upon us?

Some people claim that we are going through an era like the Industrial Revolution owing to impacts of

i) Technology, ie Internet, eg social media (world-wide 24/7 communications, etc), web (e-business, etc), globalisation (global collaboration in science, innovation and technology plus widespread availability of data and information), digitalisation (things that were once scarce are becoming abundant and making goods cheaper), mobile phones (linking everybody to everything), information/sharing economy (better use of resources and decision-making, etc), data analysis (unlimited data availability to anyone), barcodes, cash machines (money available 24/7 anywhere), personal computers, education (online and individualised), medicine (disease diagnosis and treatment), etc

(NB need to be careful of information overload but this will provide opportunities for better decisions and greater freedom)

· With the internet (including digitalisation, web, telecommunications, social media, etc) we are going through a unique period in history that is equivalent to the impact of the Renaissance, Reformation, Enlightenment & the Industrial Revolution combined.

· These eras produced turmoil & upheaval.

· This is happening with the internet as it is allowing previously disenfranchised groups to become connected to each other & world-wide communities; plus accepted business models are consequently under threat.

· Some implications of the internet's power include like its impact on social organization: it is transforming the way governments, businesses, extremists, etc can capture and use information to their advantage, and this has impacts for issues like privacy, rights to data, global alliances, etc

- it is estimated that 80+ percent of people in Africa have mobile phones (first quarter 2013); African smart phone penetration is 20% and expected to explode.

- Facebook is challenging China the world's largest organised community; its users are not constrained by borders or societal fragmentation, etc

- January 2014 flash mob political protests in Brazilian malls

- crowds that assembled in Egypt's Tahrir Square

- extremist groups successfully attracting recruits in Syria and Iraq

- online education is democratising education

- employment is now available outside traditional workplaces and providing new opportunities for the disabled and elderly, etc

"...Just as previous technological revolutions nearly eliminated entire classes of field workers, labourers and craftsmen, and now will target white-collar jobs aswell..."

David Rothkopf, 2014

- data flows are becoming as important to competitive success as capital flows

- supply chains are changing; eg 3-D printing will allow manufacturing from home

- neuroscience and biotech developments are challenging traditional ways of looking at mental health, crime, life expectancy, bioethics, healthcare, etc

· All this is increasing productivity but adding volatility to the way we live and the political process.

ii) Increasing number of women in managerial roles that traditionally belonged to men (traditional roles of men and women in society are changing; technology is enabling more people to work from home, etc)

iii) Automation, eg more jobs/professions, etc being replaced by machines (including computers), etc and leading to artificial intelligence (this is driven by the exponential growth of computing power); algorithms are replacing professionals like traders, journalists, book critics, etc

iv) Scientific research breakthroughs, eg medicine (human gene project, cancer medicines, individualised treatments, etc), greater collaboration across different disciplines (eg genetics, pharmacy, engineering, medicine, etc) nanotechnology, space exploration, agriculture, energy, transportation, etc

Notes

i) To achieve another industrial revolution, the new innovations and technologies must transform the whole of the economy, not just an industry. For example, first Industrial Revolution in the late 19th century occurred when

- Thomas Edison invented the first properly working light bulb (resulted in light, air-conditioned buildings , service economy, etc;

- Karl Benz built the first reliable internal combustion engine (resulted in development of motor vehicles, highways, wholesale distribution networks, etc);

- Guglielmo Marconi and David Hughes sent a wireless signal (better and quicker communications, etc)

plus huge improvements in public health

· Interaction between jobs and technology

 

Cognitive

Task

Tax preparers

Typists

Plumbers

Real estate agents

Cartographers

Mechanical engineers

Credit analysts

Cooks

Geological technicians

Authors & writers
Veterinarians

Manual

Task

Assembly line

Unskilled labourers

Baggage porters

Wholesale/retail workers

Train & crane operators

Chauffeurs

 

Routine Task

Non-routine Task

Over the years, machines have replaced dozens of workers and software has replaced service sector work as defined under the routine task column. In recent times, non-routine tasks are also being replaced by machines. If your job requires "perception and manipulation", there is an increasing chance of its being replaced. However, if the job requires creative (development of novel ideas) and/or social intelligence (much human interaction and empathy), it is less likely to be replaced. Thus jobs at low risk include psychologists, curators, personal trainers, archaeologists, marketers, public relations, most engineers, surgeons, fashion designers, etc. On the other hand, some professions under threat include

- lawyers (as cheap notary software and algorithms that can read thousands of pages much more quickly than a clerk)

- traders (algorithms are doing the calculations around stocks and shares, etc quicker and more accurately)

The most successful organisations will combine human creativity with raw machine intelligence.

· Linked with the invasion of technology is the declining share of income going to labour rather than capital. There are large returns to the owners of machine intelligence and global "winner takes all" successes that digital products produced. This highlights the importance of education in achieving personal prosperity.

The more a firm grows and is successful, the greater its risk of becoming a bureaucracy.

The challenge is to find ways to stop staff retreating into the departmental ghettos when companies become big. When they are start-ups with a small number of staff, fragmentation is not a threat

Some, such as Apple, had managed to overcome the bureaucratic trend by having a dominating chief executive (Steve Jobs) who bashed down the silos.

Facebook, which is employing more than 4,000 people (a 40% increase in 12 months), is trying to derail this bureaucratizing trend by encouraging staff interaction from different areas to facilitate the production of new ideas. Some silo-busting methods used by Facebook include

- holding open meetings where staff are encouraged to mingle and grill senior executives

- encourage meeting, like lunches, with randomly selected staff from different areas

- staff are encouraged to change teams regularly

- staff are encouraged to work in different departments

- new staff in their initial in-house training are encouraged to form lasting relationships with staff who are going into different sections

- "hackathons" where staff are encouraged to attend to all-night computer programming events that occur monthly

- staff are encouraged to use first names and there is a ban on calling people by their surnames and/or using titles

"...One of the biggest challenges with a company growing fast is that, as you add more people, you stop knowing each other or meeting each other. The communications start to go up and down silos..."

Pedram Keyani (Facebook) as quoted by Gillian Tett, 2013

NB The values displayed by start-ups can be very different from those established organisations. The start-ups can be very brash and show no respect for the industry norms, traditions, ways of doing business, governance, etc, while the bigger and more economically important an organisation becomes, the more corporate values of clear hierarchy, centralised control, accountability, discipline, respect for rules and procedures, etc become apparent

(sources: Karlson Hargroves, 2005; Freek Vermeulin et al, 2010; Gary Hamel, 2005; Jim Collins, 2008; Fiona Smith, 2010m; Andrew Parris, 2006; MIT Sloan School of Management, 2008; Patrick Dawson, 2005; Clayton Christensen et al, 2003; Brad Hatch, 2007b; Gillian Tett, 2013;Neil Irwin, 2014)

S-curve on Products

The diagram below illustrates the S-curve concept for a range of products, such as TVs, videos, refrigerators, computers, cars, micro-wave ovens, etc. It is of interest to note that, over time, the S-curve has become steeper!!!!

organisational development change management

(source: Federal Reserve Bank of Dallas, 1998)

S-curve on Property Cycle

This graph demonstrates stable periods when either prices are high (end of inflationary period) or after prices have declined (end of deflationary period)

organisational development change management

(source: John Wasiliev, 2013)

Even iconic fashions have to re-invent themselves like trench coats

organisational development change management

organisational development change management

S-curve on Shares

This graph shows the emotional roller coast (resembles the S-curve) that investors can go through when investing in the share market

organisational development change management

(source: QSuper, 2013)

Some Variations of the S-Curve

organisational development change management

Leveraging the Wave

organisational development change management

Timing the Change

organisational development change management

(source: Lynch & Kordis, 1988)

The top left hand diagram is the ideal scenario for re-vitalisation, ie maximising gains from the first curve as the organisation/product/service, etc moves into the next curve. The other 3 diagrams each show less-than-ideal scenarios. Obviously the bottom right hand diagram illustrates the worst scenario, ie changing when on the downward slide with fewest resources available to handle the re-vitalization. Usually this scenario involves "knee jerk" or drastic reactions, such as downsizing, that will bring short-term benefits, such as reducing costs immediately, but impact negatively on the long-term viability of the organisation.

For around 2 decades, I have been conducting sessions on organisational change management and constantly need to re-vitalise the sessions. Some re-vitalising strategies which I have used are:

- began to organise the workshops myself (initially he presented the workshop for a training organisation)

- outsourced proofreading and editing of written material

- regularly changing the length of session from 1 to 5 days depending on the needs of the group

- changed venues (different hotels) and locations (different cities and countries)

- changed where I advertised (initially focused on mailing lists, then on managerial journals, and then concentrated more on Internet, business magazines and professional journals; now a primary focus on e-marketing, personal contact and social media)

- altered the registration process (initially had a PA handle all enquiries and registration; now I do it myself as it allows me to talk directly with potential attendees)

- regularly re-designed and updated the brochure advertising the workshop (making it more colourful and professional plus suitable for different markets)

- changed my presentation style (started with overheads, moved to PowerPoint and now focus on attendees' participation)

- changed workshop frequency (from twice a year to once in some markets; up to 4 times a year in another market)

- regularly upgraded and expanded the accompanying reference book. It started as 1 volume of around 120 pages; it is now 5 volumes of over 2,500 pages with 1,500 plus references covering 70+ frameworks and 230+ implementation techniques

- reduced size of workbooks so that the content was formatted into 2 pages per A4 size page; now copy the 5 volumes onto a CD/USB for attendees

- provided a complimentary copy of book (The Toolbox for Change: a practical approach) which is now in its 3rd edition and hand-out detailed background notes

- increasingly devote more time to pre- and post-workshop discussions with attendees

- clientele has changed over time (increasing number of academics, female managers and consultants, young professionals, etc attending the workshop)

- conduct more in-house workshops (including to consultant groups, etc)

- regularly have associates attend the workshop to critically evaluate my performance

- at different times, I have partnered with a leading Australian university's executive teaching facility, an international training organisation, professional association and a tier-one legal firm

- developed a Masterclass concept (with co-facilitator) to cater for increasing numbers of young professionals who are academically trained in change management and have had several years' experience in the workforce

- expanded by conducting Masterclass/workshop outside Australia (including USA, Fiji, Solomon Islands & PNG) with locally-based associaes

- accept invitations to be guest lecturer/course facilitator at tertiary institutions, like University of South Pacific, to post-graduate students. These sessions cover 40+ hours of training

- develop an app on change management

Even though we are concentrating on the application of the S-curve to organisations and products/services, it has applications to empires, personal relationships, etc

"...the world keeps changing. It is one of the paradoxes of success that the things and the ways which got you where you are, are seldom the things to keep you there....the secret of constant growth is to start a new sigmoid curve before the first peters out..."

Charles Handy, 2002

"...good companies react quickly to change; great companies create the change......move before the wave; change before you have to...."

Robert Kriegel, 1996

"Looking at the same businesses from a different shared perspective changed our mind-set..."

Jack Welch, 2001

The new can be a new product/service, new way of operating, a new strategy, new culture, etc that is different from the old. Sometimes it need a different people as some people will want to hold onto the old ways. Ideally

"...new ideas and new people have to coexist with the old until the second curve is established and the first begins to wane..."

Charles Handy, 2002

This is a time of great confusion with different groups of people and their ideas competing for the future

"...the discipline of the second curve requires that you always assume that you are near the peak of the first curve......and should therefore be starting to prepare a second curve...... McKinsey studied 208 companies over 18 years in order to discover those who were consistently successful. There are only 3 who lasted the course of the whole 18 years. 53% could not maintain their record for more than 2 years....Individuals should also work on the assumption that life will not continue as is for ever and that a new direction will be needed in two or three years....It will..... force one to challenge the assumptions underlying the first curve and to devise some possible alternatives.....The discipline of the second curve keeps one sceptical, curious and inventive - attitudes essential in a time of change and the best way of coping with the contradictions that accompany such a time..."

Charles Handy, 2002

One of the essentials for success with the second curve approach is that people are willing to let go of the past, ie break the emotional attachment to the past, irrespective of its success

Remember: there is no perfect answer in a changing world. Therefore we must be forever searching

Organisations and products have shrinking half-lives, eg

"...Microsoft is always 2 years away from failure..."

Bill Gates as quoted by AFRBoss, 2000

"...Microsofts' chief technology officer has estimated that 20% of his company's in-house technical knowledge becomes obsolete each year..."

Gary Hamel, 2000a

"...Netscape started in 1994, went public in 1995 and was dumped in 1998 when it was sold to AOL. It had a life span of 4 years..."

AFRBoss, 2000

Another way of looking at this is

"...the need to 'sense an emerging future" in order to meet the challenges of managing an increasingly technology-based economy. As the pace of technological development quickens, so does the rate of what the economist Joseph Schumpeter called "creative destruction" - products, companies, and even entire industries. This leads.....to continual "forming, configuring, locking in and decaying of structures." Little is predictable or repetitive. Problems are not well-defined. The rules of the game as well as the other players change rapidly as the stakes get increasingly higher. Overall, business operates less and less like "the halls of production of the old, repetitive manufacturing industry" and more and more like a kind of "casino of technology." In this kind of business environment, making decisions based on the habits of past experience is no longer optimal - or wise......business leaders, such as Bill Gates, Steve Jobs, and Sam Walton have succeeded in the new business environment because they know how to distance themselves from the "problem" and to avoid knee-jerk reactions. They have developed the capacity to avoid imposing old frameworks on new realities..."

Peter Senge et al, 2005

Remember: all industries/organisations are facing change in one form or another. This change threatens the core activities (recurring activities that you perform to attract and retain stakeholders) and core assets (the resources including intangibles that support core activities). For example

- if both core assets and core activities are under threat, then everything is "up for grabs" (examples of industries include landline telephone, courier, travel agencies, etc)

- if core activities are under threat but core assets are not, stakeholder relationships are under threat (examples of industries include automobile dealerships, investment brokers, auction houses)

- if core activities are not under threat but core assets are, industry is constantly re-developing assets and resources (such industries include motion picture, sports team, investment banking, etc)

- if neither core assets nor core activities is under threat, then change is based upon incremental testing and adaptation to feedback (eg industry examples include online auctions, commercial airlines, long-haul trucking)

Another way of looking at the S-curve is via "focus-expand-redefine" cycle

"...the fate of fortune 500 companies in 1994......found that a decade later 153 of those companies had even gone bankrupt or been acquired, and another 130 had engineered a fundamental shift in their core cool business strategy. In other words, nearly six out of ten faced serious threat to their survival or independence during the decade, and only about half of this group were able to meet the threat successfully by redefining their core business.

Why do so many companies face the need to transform themselves? Think of the cycle that long-lived companies commonly go through: they prosper first by focusing relentlessly on what they do well, next expanding on that core to grow, and then, when the core has lost its relevance, by redefining themselves and focusing anew on different core strengths. It seems clear that this focus-expand-redefine cycle has accelerated over the decades. Companies move from one phase to another faster than they once did. The forces behind the acceleration are for the most part well known. New technologies, lower costs and shortened product life cycles. The competition - currently in China and India - shakeup all industries. Capital, innovation, and management talent flow more freely and more quickly around the globe"The average holding period for a share of common stock has declined from three years in the 1980s to nine months today. The average life span of companies has dropped from 14 years to just over ten, and the average tenure of CEOs has declined from 8 years a decade ago to less than five today..."

Chris Zook, 2007

A survey in 2004 of around 260 senior executives found

"...more than 80 percent of them indicated that the productive lives of the strategies were getting shorter. 72 percent believed that the leading competitors would be a different company in five years. Sixty-five percent believed that they would need to reconstruct the business model that served their primary customers..."

Chris Zook, 2007

It has been suggested (Brian Corrigan, 2012a) that technology acts in 3 waves, ie

"...the first discovers something, the next spreads its use and the third takes its availability for granted but uses it in ways that were never originally envisaged..."

Michael Malone as quoted by Brian Corrigan, 2012aSome examples are

For example electricity was developed to run mills but later on it was used to power new inventions like refrigeration and microwave ovens. Similarly, the Internet was first built for military and academic purposes; now it has worldwide applications beyond its initial purposes.

Some organisations become a victim of their own success and size. As their success grows so does the size of the organisation and the thinking changes from innovation to protecting the successful product, services, etc. Some examples include the watch industry in Switzerland, smart phone with Nokia, etc. The organisations become maintainers rather than innovators.

The Swiss watch manufacturers dominated this industry until the 1970s when the Japanese and Hong Kong watch manufacturers produced a cheap, quartz watch designed for the low-end, mass market. Meanwhile the Swiss continued to focus on thier traditionally mechanical watches in the higher end markets, ie they had a 97% share of this market but only 3% of the middle market and virtually zero in the mass market (leaving this entire segment to the Asian competitors). By the 1980s, most luxury Swiss brands were under great financial pressure, when Nicholas Hayek became CEO of SMH (which was a combination of the two biggest Swiss watchmakers). His strategy was to offer brands in all 3 market segments, ie mass, medium and luxury. Launching a new brand in the mass market was considered provocative and risky. Some thought this would cannibalise SMH's brands (Tissot, Certina, Hamilton, Mado, etc) in the middle market and could impact on luxury brands (Blancpain, Omega, Longines, Rado, etc)
Hayek was developing 3 separate, business models which involved giving each limited autonomy, in regard to product, design, communications and marketing decisions, but they were not stand-alone entities despite different organisational and brand cultures. Certainly there were the conflicts and trade-offs between 3 different strategies. On the other hand, finance, manufacturing, purchasing, HR, R&D, etc  were centralised under a single identity serving all SMH's brands, ie strong vertical integration policy in order to achieve scale to handle its Asian competitors.

This approach resulted in the development of Swatch (a new type of affordable Swiss watch for the mass market). The specifications of the new watch were demanding, ie cheap enough to compete with the Asian offerings but providing Swiss quality plus sufficient margins and economies of scale.

"...This forced engineers to entirely rethink the very idea of a timepiece and its manufacture; they were essentially deprived of the ability to apply their traditional watchmaking knowledge. The result was a watch made with far fewer components. Manufacturing was highly automated; moulding replaced screws, direct labour costs were driven down to less than 10%, and the watches were produced in large quantities. Innovative gorilla marketing concepts were used to bring the watch to market under several different designs...... the new product communicating a lifestyle message, rather than just telling time on the cheap..."
Alexander Osterwalder et al, 2010

Swatch provided of a high quality at a low price for a functional, fashionable product.; 45 m Swatches were sold in 5 years; by 2006, the firm celebrated sales of 333+ m watches sold. Watches are becoming a fashion statement as wrist wear; people have watches for different occasions; ending up with a watch wardrobe. Like fashion, the watch is no longer a necessity for keeping time. In fact there is a crossover with fashion houses like Chanel, Louis Vuitton, Drior, Herme's etc moving into watches as wrist wear. Traditional watch brands see this as an additional market; not as a threat.  For example, IWC has established a relationship with high-end men's Italian leather shoes, Santoni; similarly, Jaeger-LeCoultre has links with a foot-wear firm, Christian Louboutin; Hublot linked with fourth-generation Parisian shoemaker, Berluti, etc. They are all trying to find the perfect balance between the watches dial and the leather strap. In addition, some are linking watches with fashion fabric, eg using hand woven linen fibres as an alternative to carbon fibre with colours coming from natural pigments in orange blue, turquoise, purple and orange. (AFR Magazine, 2016) The next disruptive invention could be i) around "smart watches" using silicon’s unique properties like in smart phone. Companies like Samsung (GearS)

Innovation as a Basis for Re-Invention

Introduction

Most people like to work for growing organisations as they provide more advantages, such as promotional opportunities, resources for investments in new technology, new opportunities, etc. On the other hand,

"...Roughly one company in ten is able to sustain a kind of growth that translates into an above-average increase in shareholders' returns for more than a few years. Too often the very attempt to grow causes the entire corporation to crash. Consequently, most executives are in a no-win situation: it is demanded that they grow, but it's hard to know how to grow. Pursuing growth the wrong way can be worse than no growth at all......as most growth markets become saturated and mature, it is very hard act to continue to grow..."

Clayton Christensen et al, 2003

Some questions that need to be answered

- Why is it so hard to sustain success?

- Are there predictable reasons organisations stumble?

- How can you start an organisation that will topple the current industry leaders?

The most common rationale given for why organisations don't continue to grow is poor management, such as

- managers lacking the capabilities to handle the task and/or

- become more risk adverse as the organisation grows and feeling that creating new-growth businesses (innovation) is simply too unpredictable and risky

Furthermore, as Peter Drucker (1985) suggested, the required mindset for growth is one that searches for unanticipated success, rather than seeking to correct deviations from a plan.

It is interesting to note

"...if you are late entrant to a market, you need to be radically different to win over customers..."

Richard Branson, 2008

Remember that for managers

"...powerful and predictable forces act upon them. These forces include the need to move up-market to maintain profit margins; the need to satisfy existing customers; the forces of commoditization and decommoditization; the mandate to grow......revenue base;......the processes and values that define the capabilities of one business model simultaneously define disabilities of other business models......the predictability of these forces makes it possible......turn them to your advantage in seeking, exploiting, and sustaining new growth opportunities......you need to focus primarily on getting the initial condition right. If you start from a good place, then the choices that lead to success will look like the right choices..."

Clayton Christensen et al, 2003

Innovation decline in USA
"...over the last 30 years, the rate of start-up formation in the US has slowed markedly and the technology industry has come to be dominated by older companies. This presents a risk to innovation, because the most transformative leaps forward tend to come not from established firms but from entrepreneurs with little to lose. Indeed start ups......of the past several centuries, including the car, the aeroplane, the telegraph, the telephone, the computer, an Internet search engine. If the United States wishes to reclaim its status as an innovation hub, it must reform a wide swathe of policies, including those covering immigration, business regulation, healthcare and education to support new businesses......the ratio of new firms to all firms, or the start-up rate has been steadily decreasing. In 1978, start-ups - defined in the database as companies less than one-year-old - accounted for nearly 15% of all US firms; by 2011, the figure had slipped to just 8%. for the first time in three decades, business deaths exceeded business births......fewer start-ups has meant fewer high-growth firms......companies that experience three consecutive years of at least a 20% increase in the number of people employed..."

Robert Litan, 2015
This national downward decline is the same for all of the 50 USA states and almost all of the 366 largest metropolitan centres. This includes California, despite its innovation centres of Silicon Valley and Los Angeles Orange County Region

This downward trend has affected all major industries, even the life-science sector (pharmaceutical, medical-device businesses, etc). For example, new life science firms grew to roughly 3000 in 1997, but by 2001, they had fallen to 1995

All the above runs counter to the perception that the US economy is highly entrepreneurial. These statistics cover the period during the revolution of information technology that substantially lowered the cost of launching an expanding new businesses, thanks to cheaper software and hardware, a more global Internet and savings afforded by data storage, eg cloud

Generally, ageing firms become more risk averse, with innovation aiming for incremental improvements rather than creative destruction or disruption. Additionally, they tend to be larger, more bureaucratic and less flexible than start-ups when faced with changing technology and shifting consumer preferences. Generally, the older, more entrenched firms find it harder to compete with younger, more dynamic ones.
In the USA, immigrants tend to be less risk averse than the general population and are more likely to launch a business than local-born Americans, eg immigrants were behind 1 in 4 technology start-ups between 1995 and 2005. In 2005, companies led by immigrant entrepreneurs employed 450,000 workers and generated US $ 52 b. in sales (Robert Litan, 2015). On the other hand, the US government has made it difficult for the immigrants to stay in the United States

Some negative sides of innovation include
- the wealth/income inequalities that sometimes accompany technological changes. For example, the advances in robotics and information technology have increased demand for staff with strong technical backgrounds and reduced the need for unskilled labour.
- innovations in automation, robotics, data processing, etc will eliminate millions of jobs in the coming decades
To increase technological literacy, the education system needs to realise that writing a computer code could be just as important as learning English. Students will need to learn to code at the start of their schooling. At the same time as teaching these technical skills, the humanities and arts should not be neglected as the latter are important in developing the appropriate soft/people/behavioural skills for handling people.

Growth is linked with innovation (sustaining, incremental, breakthrough, disruptive, etc) manoeuvres and can help to re-invent/re-vitalise an organisation. But disruptive innovation needs to be treated differently to the others.

There is a vicious cycle of destruction and renewal.It is called creative destruction (Joseph Schumpeter) and disruptive innovation (Clayton Christensen). The current digital disruption is an example of it as it is changing the way we live, work, shop, bank,entertain, travel, talk or think, etc by providing cheap information and communications technology. A savvy entrepreneur needs nothing more than a laptop with a connection to the Internet and some good ideas to challenge traditional business models of successful company. Some examples include
i) Recruitment
In the 1990s with newspapers enjoyed a monopoly on job ads and recruitment firms charged high prices for their service, eg a percentage of first-year salary. On the other hand, online space was considerably cheaper and provided more detailed information to prospective recruits about the job, organisation, etc

ii) Quantum Computers
Quantum computers will operate in a completely different way from the current computers we are using. By using the counter intuitive properties of quantum mechanics, ie physical laws that describe the world at the atomic scale, quatum competers would operate millions of times faster than the best current computers. The quantum properties of tiny particles that make up atoms could be used to make an entirely new kind of computer that could perform thousands or millions of different computing operations at once. The current technology is using phosphorus atoms encased in silicon chips
The basic element of a quantum computer is a "qubit" which is the equivalent of a "bit" (a single unit of information) in a conventional computer, ie

"...a conventional computer has electric switches (called bits) which are either on or off. The switches in a quantum computer (called qubits) are partly on and partly off at the same time. Each qubit can act like many conventional bits, meaning qubit can do multiple operations at once. This makes its calculations thousands of times faster. To build a program of quantum computer, each of the qubits must be controlled while entangled, all moving in correlation with each other. What happens to one qubit affects every other one....... don't expect a quantum computer chip in your phone or desktop any time soon. They are very complex to operate, must be kept extremely cold and are not very good at everyday tasks such as e-mail..."

Tim Dodd, 2016

This operational scale would allow quantum computers to sift through large amounts of information to come up with solutions to complex problems, making it ideal for the era of big data. It has the potential to profoundly transform areas as diverse as
- data analytics & engineering (sift through huge amounts of data quickly and find solutions to extremely complex problems where each data point is influenced by many others, like a search engine, weather forecasting, climate change modelling, building complex structures, etc)
- drug design (for researchers seeking to understand complex biological and chemical processes, it will be a fast way to identify new medical cures)
- banking (most banks do a "Monte Carlo simulation" which assesses the risk in a whole investment portfolio, twice a day. With the speed of a quantum computer it could be done in real time, eg continuously
- traffic management (traffic planners will have the ability to follow what is happening in every street in a city in real time)
- code breaking (making today's Internet security obsolete) and weather forecasting; it would change business, medicines, contemporary life, etc. It has been estimated that around 40% of the modern economy will benefit from quantum computers.
Some potential negative impacts are around privacy and manipulation of thinking, eg the opinions and social networking patterns of millions of people could be mapped and used to build a strategy to influence public opinion and the consumer choice
iii) automobile. Some of the latest technology (software-focussed) impacting the automobile industry around doing things in real time so that is possible to be upgraded continuously so able to keep up with the rapid changes in smart phones and other interface devices. It includes
- increasing amounts of renewable parts in the car like recycled aluminium
- autonomous driving capabilities, ie self driving with the car making many decisions in order to enhance safety  
    i) incorporates automatic acceleration, braking and steering for parking, etc
    ii) responds to navigation information so able to adjust the engine, transmission and cruise control for upcoming corners or hills; uses car cameras to scan the road ahead and adapt the suspension in advance of obstacles  etc and road conditions like potholes
    iii) moulds the car's behaviour around the preferences of users, eg machine-learning technology
- alternative energy sources (electricity and hydrogen fuel cells (they combine hydrogen and oxygen to generate electricity and the only emission is water) replacing fossil fuels; zero tailpipe emissions; improved battery performance  with interactive charging systems to top up batteries)
- increased in-car connectivity like cloud, etc so that it is possible to synchronise calendars and destinations across devices, sending things from phone or desktop to car/cloud by using touch screens and voice control (listening and sending messages, etc)
- prestige
    i) gesture controls will impact on car's sound, ventilation and phone systems, etc, eg small holographic images react to hand gestures
    ii) more variety and customising cars to individual tastes
"...today I buy a car, tomorrow I buy mobility..."
Thomas Webber as quoted by Tony Davis, 2016

Current limitations of these new generation vehicles include limited computer power, poor maps (on 3D), lack of communication between vehicles and infrastructure, "hackability" (unauthorised outsiders able to get into the car's systems, etc), refilling stations, expense to produce, store and transport the highly inflammable hydrogen gas, etc

iii) 3-D (rapid prototyping)
Since its invention in mid-1980s, 3-D printing has been used by the likes of Boeing, Rolls-Royce and NASA to produce experimental prototypes in fallible plastics, which once perfected, would go into production and become metal components in very expensive machines.
With the original patents for this technology expiring in 2013, the price of 3-D printing machines has dropped significantly and interest has risen dramatically, eg every home would have a 3-D printer capable of printing espresso machines, typewriters, guns, etc.

"...the combination of robotic construction and 3-D printing is the future of the building industry..."

Coop Himmelbau as quoted by Stephen Dodd, 2016

Yet 3-D printing is still in its infancy, ie its equipment is relatively expensive and notoriously faliable; with a limited spectrum of materials usable, eg predominantly plastics with composite of wood, metals and stone.

iv) Professional Services. For decades professional services has been dominated by large global/national firms that charge a premium for their services. Yet some questions have been continually asked by clients about these behemoths' dominance in the professional services industry:
- Is it right that clients are paying steep fees for work done largely by junior associates?
- How can your success be measured by billable hours and not by quality of work?
- Do you really want to slug away for a decade or more to try to make partner?
Until recently there was no viable alternative. With the Internet there is a virtual marketplace, ie on-demand services online (on-demand talent economy or Uber-fication of professional services, ie find a professional with the push of a button) where they match clients with high quality, independent professionals with the skills, pricing and availability needed.

Some examples are
- UpCounsel for attorneys
- VouchedFor for accountants and financial advisers
- RecruitLoop for recruiters
- SkilledBridge for consulting
- Freelancer, Elancer, Odesk for freelance designers and web developers, etc
These are similar to matching people with short-term jobs like
- Airtasker (you can find somebody to assemble your IKEA furniture)
- Mad Paws (somebody to look after your pets)
- Helping (someone to clean your house within a couple of hours)

Disruptive innovations are most likely to succeed if there is a strong focus on satisfying under-appreciated customers' needs. In the professional services industry, many clients cannot find or afford services at the big firms and many professionals are looking at different way to offer, charge or deliver their expertise.

It is a way to take a service that has traditionally been expensive and complicated for many people, and make it accessible and affordable. It has been found that clients have 4 priorities, ie price, responsiveness, efficient discovery and transparency. For UpCounsel, which is experiencing transactional revenue growth of around 20% monthly (2015), its clients range from start-ups (help with trademarks, etc) to medium-size enterprises needing assistance with contracts, etc. An UpCounsel's client posts a brief and within an hour its platform has located several best matches for the client to make the final selection. Once the hiring decisions is  made, UpCounsel handles administration including billing. The client can check in real time how much the professional is charging and for what. This means that anybody can easily discover high-quality, community-rated professionals with the right skills for the job.

For large projects and assignments where multiple parties are involved, like multi-million dollar mergers, it is less clear how the virtual marketplace can compete owing to the mass in-person collaboration required. it is anticipated that the larger global firms still dominate this end of the market while the boutique and midmarket firms will suffer the most from online competition.
Skilledbridge started in 2013 and by 2015 it had a portfolio of more than 5,000 consultants who have years of experience in leading organisations

In the 1930s when Ronald Coase (Botsman, 2015c) stated that large organisations make sense when it is more efficient for buyers and sellers to coordinate activities through a centralised hierarchy than to purchase services directly. On the other hand, with the Internet's power to directly connect seller and buyer, there is less need for the traditional firm's structure.

It is claimed that
- 1 in 3 Americans are independent workers
- freelancers will outnumber full-time staff by 2020
- millennials change jobs on average 6.3 times between the age of 18 and 25 (Botsman, 2015c)

In addition to technology allowing people to work remotely, there is a mindset change about how people think about work and the notion of a good job. This mindset values independence, flexibility and freedom to do work in line to their interests and values. People feel in control of their destiny. This is different from working for a large firm where you are assign to projects regardless of your interests.

"...Millennials are willing to trade off a steady income and the benefits of full-time employment, healthcare to a fridge full of soda, or flexibility and autonomy..."

Rachael Neumann as quoted by Botsman, 2015c

The trend to a more flexible workforce means that the rules and regulations around taxes, insurance, sick pay and benefits, etc need to be revisited. Other areas that need revisiting are
- handling the risk associated with the assignment
- on demand jobs could lead to greater commodification or hyper-specialisation of labour
- income will become less predictable and secure, more prone to fluctuation

"...traditional firms should be worried, very worried. Never mind being the next Kodak, Blockbuster or Borders - today's challenge is to not be the next taxi or hotel company that misses out how fast and deep transformation is happening, because technology is pushing and pulling apart 20th-century models of labour and services..."

Botsman, 2015c

.Linked with the technology are the values and cultures that you promote in your organisation to maximise the benefits of the technology, ie working more effectively and efficiently, unlocking value, contributing to productivity, encouraging creativity and innovation, etc

. Some earlier technological changes have been very disruptive. Some examples:
- four centuries ago the development of a knitting machine received a negative reaction when demonstrated to Queen Elizabeth 1, ie "Consider what's the invention will do to my poor subjects! It will deprive them of employment, making them beggars!!!! It took another 2 centuries until the Industrial Revolution for factories to mass-produce textiles and to give ordinary people a rising standard of living and real wage increases.
- Henry Ford's car factory wiped out blacksmiths and farriers
- mass computing and communications that have made typists, telephone operators, etc dinosaurs
. It has been estimated that half of all current occupations in United States are vulnerable to computerisation. Are the modern economies adapting quickly enough to replace jobs lost to accelerating technology? In addition to the low-skilled jobs lost to automation, other occupations under threat are classified as white-collar/middle-class positions, especially those jobs that - rely on being able to sift through large amounts of information and collect the right bits of it
- administrative or retail work as it shifts tp an online presence or moves off-shore to low cost countries such as India
- repetitive tasks or jobs
Some professions under threat include accountants, auditors, supermarket cashiers, typists, bank tellers, loan offices, taxi drivers, waiters, nurses, insurance appraisers, archivists, bus drivers,lawyers, welders, etc:

"...if armed with blisteringly fast and sophisticated algorithms that can instantaneously scrutinise millions of pages of court evidence for the nugget that swings the case, why employ tens of thousands of junior lawyers to do the same..."

Michael Smith, 2015
A similar story of evolution:
- for accountants software is replacing many of the more routine and mundane operations;
- bus drivers superseded by driverless vehicles;
- journalists by social media (Twitter, YouTube, Facebook, etc);
- book reviewers by book buyers/readers
On the other hand, the new technology will create new jobs.
Remember: robots struggle with autonomous manipulation or the concept of undertaking tasks in random environments without human oversight. Jobs such as dentistry, recreational therapists, surgeons, farm hands, hairdressers, teachers, etc, are relatively safe, ie

"...if your occupation involves a great deal of creativity or social intelligence - the ability of interact with people, to negotiate or persuade......your job is relatively safe..."

Michael Osborne as quoted by Michael Smith, 2015
It is thought that there will be more losers than winners (this is maybe an explanation for an increasing disillusionment and radicalisation of people, especially among the unskilled, unemployed and impoverished populations, who are willing to turn to violent options "to turn the clock back")

Many of the emerging business models do not fit into the existing regulations. The organisations in these new models are increasingly decentralised and networked plus moving away from physical markets to open, borderless world's; thus making them hard to regulate. Governments worldwide are struggling to come to terms with the technological changes. For example, smart phones only came into existence in 2008 but their impact has been significant, eg
- turbocharging the digital revolution and industries like taxis, equipment & hire car to accommodation, office rentals, deliveries, freelance work, retail, music, media, etc
- this digital revolution will spread deeper into industries once thought immune, like universities, manufacturing, banking, etc
- the established firms and the whole world of work is being challenged by freelancing sites & distributed networks as government struggle with workplace laws to handle the new situations, like permanency versus casual/contract, etc
- both large organisations and governments are nervous about the decentralised networks and marketplaces that are not controlled centrally and prose a problem to regulate
- most government leaders and bureaucrats still have the mindset to understand markets in the physical sense that they know about rather than the total open, borderless world that we are moving into

Governments worldwide are struggling to come to terms with the technological changes. For example,  smart phones only came into existence in 2008 but their impact has been significant

"...they're already turbocharging the digital revolution and industries from taxis, equipment and hire car to accommodation, office rentals, deliveries, freelance work, retail, music and media. In the future, this digital revolution will spread deeper into industries once thought immune, such as universities and manufacturing. The established firms and the whole world of work are being turned upside down by freelancing sites and distributed networks......government grapples with workplace laws. Further on, ride sharing combined with autonomous cars could make millions of drivers redundant......what frightens large organisations and governments is that decentralised networks and marketplaces that don't have centralised controls are really tricky to regulate...... the problem is most government leaders still think of markets in the physical sense because that's what they know...... rather than the total open , borderless world that we are currently living in or moving towards..."

Ben Potter, 2015

Usually incumbents don't see the new entrants as competitors until it is too late, like the large telephony AT&T regarded Skype as a toy in 2003. Yet by 2013, Skype had 30% of the long-distance phone market!!!!

Other examples of disruptive technology impacts include Kodak and Swiss watch industry

Kodak
The patterns signalling Kodak's downfall started several decades before its collapse. In 1976 Kodak captured 90% of film sales and 85% of camera sales in the USA (Stefan Hajkowicz, 2015). The company's revenue peaked at US$ 16 b (1996). However, as the digital era progressed, Kodak's revenues from print film plummeted. The introduction of digital cameras, mobile phones that could capture, store and send images, development of Facebook (whose revenue would come from advertising), etc, was the wave of digitalisation that wiped out Kodak, ie in 2012 Kodak filed for Chapter 11 bankruptcy protection. It had no offloadable valuable assets or technology patents. While Fujifilm, which had witnessed its print film revenue drop by 60% of the total revenue, responded differently.

Swiss watch industry
In the early 20th century Switzerland dominated the world watch industry with high standards of manufacturing quality, cutting-edge technology, unparalleled time accuracy and cost-efficient production processes. The industry was steeped in tradition and focused on mechanical watches. In the early 1960s, a new range of electronic, digital and quartz analogue watches changed the industry. These new watches gave improved time accuracy compared wit mechanical devices. In 1969 Seiko released the first quartz wristwatch (Astron) and it began to dominate the world's watch industry.

Another wave of disruption came with digital watches using LED/LCD technology. This improved the functionality of the digital watches. In 1980 Seiko introduced a digital watch with a tiny inbuilt TV screen which allowed users to watch live broadcasts.

As a result since the 1960s Switzerland has lost its dominance in watchmaking; USA Jap

n and Hong Kong became the major players in the global market with new devices that improved functionality and time accuracy and lowered the cost to the consumer.
On the other hand, the Swiss watchmakers have revived their industry by using watches as a status symbol to achieve market differentiation.

This is an example of a megatrend, ie advanced technology and mass production followed by a counter trend around timeless quality.

Predictability involves understanding what caused what and why, ie cause and effect; there are 3 stages to this

i) describing the phenomenon you wish to understand (need more than 1 or 2 success stories)

ii) classifying the phenomena into categories, eg vertical and horizontal integration are examples of corporate diversification. This is a critical stage

iii) articulating a hypothesis that postulates what causes the phenomenon to occur. This illustrates how in different circumstances (situations or contexts) the same causal mechanism might result in different outcomes.

(NB Keep revisiting these 3 steps to refine predictability and what actions cause what results and under what circumstances)

"...The foundation for predictability only begins to be built when the researcher sees the same causal mechanisms create a different outcome from what he or she expected - an anomaly. This prompts the researcher to define what it was about the circumstance or circumstances in which the anomaly occurred that caused the identical mechanism to result in a different outcome......when......categories of circumstances are defined, things get predictable. We can state what will cause what and why, and can predict how the statement of causality might vary by circumstance..."

Clayton Christensen et al, 2003

On the other hand, business building is not perfectly predictable for the following reasons

i) nature of competitive marketplace - organisations need to behave unpredictably otherwise they would be relatively easy to beat

ii) any system can produce a large number of possible outcomes

iii) complexity theory suggests that even fully determined systems can generate completely random outcomes.

It has been suggested that many outcomes are unpredictable, as we do not understand the process!!!!!!!!!

Remember:

"...it actually is the discovery of phenomena that the existing theory cannot explain that enables researchers to build a better theory that is based upon a better classification system..."

Clayton Christensen et al, 2003

This is called anomaly-seeking research.

Furthermore, most product development efforts fail commercially, ie

"...Over 60 percent of all new product development efforts are scuttled before they ever reach the market. Of the 40 percent that do see the light of day, 40 percent fail to become profitable and are withdrawn from the market......three-quarters of the money spent in product development investment results in products that do not succeed commercially..."

Clayton Christensen et al, 2003

Part of the reason for this is inadequate market segmentation or categorization, ie poor process of identifying groups of customers that are similar enough that the same product or service will appeal to them all. Unfortunately most segmentation is done incorrectly, ie it is defined by the attributes of the products/services, such aswhat product type, or by price point, etc and customers, such as on demographic, or psychographic lines, etc. This can lead to the concept of a "one-size-fits-all" product/service which usually ends up being "one-size-fits-none". This attribute-based categorization can successfully identify correlations between attributes and outcomes, but it lacks a plausible statement of causality.

Categorization should be based on the notion that customers 'hire' products/services to do specific 'jobs' or outcomes, and only after that "job" is identified should other marketing-related challenges, such as brand marketing and product/service positioning, be addressed. This circumstance-based categorization brings into focus what features, functions and positioning will cause customers to buy a product/service. It requires an understanding of the thought process (including functional, promotional and social dimensions) and circumstances in which customers will buy or use products/services to do the "job-to-be-done", or produce an outcome that customers are seeking, effectively, immediately, reliably, conveniently and as inexpensively as possible. This means

"...Companies ......target their products at the circumstances in which customers find themselves, rather than at customers themselves......Put another way, the critical unit of analysis is the circumstance and not the customer..."

Clayton Christensen et al, 2003

The first-time developers of a new growth business need to assess what their target customers really are trying to do. The developers are searching for the disruptive foothold - the initial product or service that is the basis for the point of entry for new market disruption. For example, if there is a popular job-to-be-done, or outcomes that customers are seeking, which has not been correctly addressed, this can create a launching pad or platform for future growth. The challenge is how to identify these opportunities. Understanding the jobs-to-be-done is fundamental and can be done by carefully observing what people are trying to achieve for themselves and what they are saying about it. For example, Sonny's founder, Akio Morita, was very successful at studying (by observing, questioning and obtaining feedback) customers, and then developing the solution or outcome they were seeking to help do the job-to-be-done, or achieve the desired outcome. As a result of this approach

"...Between 1950 and 1982, Sony successfully built 12 different new product disruptive growth businesses. This included the original battery-powered pocket transistor radio, launched in 1955, and the first portable solid-state black-and-white television, in 1959. They also included videocassette players; portable video recorders;......Walkman, introduced in 1979; and 3.5-inch floppy disk drives, launched in 1981..."

Clayton Christensen et al, 2003

Sony, under Morita's leadership, used a group of around 5 people who continually searched for disruptive footholds by studying what people were trying to get done, ie

"...they were looking for ways that miniaturized, solid-state electronic technology might help a larger population of less-skilled and less-affluent people to accomplish, more conveniently and at less expense, the jobs they were trying to get done through awkward, unsatisfactory means..."

Clayton Christensen et al, 2003

In the early 1980's Morita started to withdraw from active management; at the same time Sony's disruptive odyssey came to an end. It is now focusing on sustaining technology, rather than disruptive innovations.

We need to understand the forces that shape innovation and thus growth, ie

"...what can make the process of innovation more predictable? It does not entail learning to predict what individuals might do. Rather, it comes from understanding that forces act upon the individuals involved in building businesses - forces that happily influence what managers choose and cannot choose to do..."

Clayton Christensen et al, 2003

Understanding how the managerial processes about ideas get shaped is critical. Middle level managers play a crucial role as they shepherd acceptable ideas into business plans, etc that are submitted to senior management for decision-making, funding, etc. The system mandates that middle managers support proposals with credible data on the potential of the markets that each idea targets. Suggestions from existing customers and the performance of similar products/services add credibility to any potential idea. Furthermore, other factors may be relevant:

- personal factors are involved, ie middle-level managers prefer to propose ideas that senior managers are likely to approve.

- turn-over rate of management positions, especially for talent - as most management development programs rarely leave talented middle managers in one position for longer than a few years, these managers want a reputation of delivering results and will be inclined to provide ideas that will pay off in the short-term. Also, to speed up the decision-making process, they proposeideas which resemble ideas that were approved and became successful in the past. These factors mitigate against innovation.

Initial conditions for successful growth include

- starting with a cost structure in which good profits can be earned at low price points and being able to later carry performance up-market

- being in a disruptive position relative to competitors so that they are motivated to flee rather than fight

- starting with a new set of customers who have not previously purchased in the marketplace so that they will be pleased with modest products/services

- getting beyond correlative assertions, such as "big organisations are slow to innovate", 'successful CEOs are promoted from within'

- targeting a job that customers are trying to get done

- moving to where the money will be, not where it is now

- assigning executives who have the right experience and putting them to work within processes and organisational values that are attuned to what needs to be done

- identifying the performance-defining components or subsystems that are important to the customer and attract profits. For example, with personal computers it is the microprocessor, the operating system and its applications.

- maintaining flexibility to respond as viable strategies emerge

- getting on board suppliers of capital who are patient with growth but want profit first

- not blindly duplicating or copying the best practices of successful organisations without understanding the local circumstances and situations. Remember

"...replicating their success is not about duplicating their attributes; it's about understanding how to generate lift. Good theories are circumstance-based. They describe how managers need to employ different strategies as circumstances change in order to achieve the needed results. The use of one-size-fits all processes and values historically has made the creation of growth torturous. One of the most valuable contributions you can make in the growth-creation process, therefore, is to keep looking for changing circumstances. If you do this, you can understand when and why changes need to be made long before the evidence is clear......When managers ask questions such as ' does this apply to my industry?' or 'does it apply to service businesses as well as product businesses?' They really are probing to understand the circumstances......industry-based or product/service-based categorisation schemes almost never constitute a useful foundation for reliable theory......the circumstances that matter are not what industry you are in. Rather, there was a mechanism - the resource allocation process - that caused the established leaders to win the competitive fights when an innovation was financially attractive to their business model. The same mechanism disabled the established leaders when they were attacked by disruptive innovators - whose products, profit models, and customers were not attractive..."

Clayton Christensen et al, 2003

This highlights the need to understand under what circumstances the preferred framework needs to be modified based on changing conditions.

(NB satisfying these conditions will lay the foundation for successful growth)

Firms like Microsoft, Google, Apple, Xerox have similar stories around use of disruptive technology, using current technologies in different ways plus some luck. The Xerox story is less well-known than the others. In late 1930's, 2 inventors (Chester Carlson - a physics graduate of the Californian Institute of technology, and Otto Kornie - a German refugee physicist) started working on a 5 step process called electro-photography (sensitising a photoconductive surface to light by giving an electrostatic charge; exposing the surface to a written page to form an electrostatic image; developing a latent image by dusting the service with a powder that would adhere only to the charged surface: transferring the image to some sort of paper; fixing the image by the application of heat). Each of these used available technologies but had never been used in this combination. Xerography had little foundation in previous scientific research but this combining of a rather odd lot of phenomena resulted in the biggest thing in imaging since the coming of photography. A mistake resulted in one of the biggest breakthrough. The photoconductive surface was coated with sulphur but lost its qualities after a few copies and became useless. This was solved by experimenting with increasing amounts of selenium (a nonmetallic element used chiefly in electrical resistors and as a colouring material to redden glass) until it replaced sulphur completely.

Xerox spent tens of millions of US dollars on developing this process. It is of interest to note that the name Xerox was thought to be unsuitable by the firm's consultants, owing to difficulty in pronouncing it, the link with antifreeze, and its sounding like "zero"!!!!!! (see volume 5 under Po section for more on Xerox)
NB Xerox has donated around 1.5 % of its net income before taxes to not-for-profit groups like charities, educational organisations, etc and taken a controversial stand on public issues of major concern irrespective of the impact on customers, eg establishing the United Nations, etc

Twenty management practices that work against innovation and growth

1. Undifferentiated, commoditised, "one-size-fits-all" solutions -

this is based on shoddy categorisation and inadequate understanding of what changing circumstances can do; it can lead to one-size-fits-none. Need to remember:

"...People don't want to buy a quarter-inch drill. They want a quarter-inch hole..."

Ted Levitt as quoted by Clayton Christensen et al, 2003

Usually by adding functions, features, etc there is a technological trade-off, ie as it does more things, it does each one less effectively and efficiently.

The sequence to commoditisation is

i) at the start of a new market an organisation develops a proprietary product/service that, while not good enough, comes closer to satisfying customers' needs than any of its competitors. It does this through a proprietary architecture and has attractive profit margins

ii) as an organisation endeavours to keep ahead of its direct competitors, it eventually "overshoots" the functionality and reliability that the customer in the lower tiers of the market can utilize

iii) this results in a change in the order of competition in those tiers that

- starts a movement towards modular architecture, which then

- facilitates the disintegration of the industry, which in turn

- makes it very hard to differentiate the performance or costs of the product/service when compared with competitors who have access to the same components that are assembled to the same standards

This condition begins at the bottom of the market where functional overshoot occurs first, and then moves into the higher tiers of the market.

For traditional players, there is link between disruption and commoditisation: the disruptive innovation will capture markets while commoditisation will steal profits. Sometimes, as commoditisation starts, it initiates a reciprocal process of de-commoditisation, ie it occurs in the value chain where attractive profits were hard to obtain in the past and are now freed up.

The reciprocal process of de-commoditisation involves

"...i) the low cost strategy of modular product assemblers is only viable as long as they are competing against high-cost opponents. This means that as soon as they drive the high-cost suppliers of proprietary products out of a tier of the market, they must move up market to take them on again in order to continue to earn attractive profits.

ii) because the mechanism that constrains or determines how rapidly they can move up-market is the performance-defining subsystems, these elements become not good enough......

iii) competition among subsystem suppliers causes their engineers to devise designs that are increasingly proprietary and interdependent. They must do this as they strive to enable their customers to deliver better performance in their end-use products than the customers could if they used competitors' subsystems.

iv) the leading providers of the subsystems therefore find themselves selling differentiated, proprietary products with attractive profitability.

v) this creation of profitable, proprietary product is the beginning, of course, of the next cycle of commoditization and de-commoditization..."

Clayton Christensen et al, 2003

An example of this process is the personal computer industry in the 1990s. Initially money flowed from the customer to the organisations that designed and assembled computers; later on, less and less of the total potential profit stayed with the computer makers - most of it flowed through to the suppliers, such as Microsoft, Intel, etc. At different times, circumstances will make different points on the value-adding chain more profitable and others less profitable. Remember:

"...the companies that are positioned at a spot in the value chain where the performance is not be good enough to capture the profit. That is the circumstances where differentiated products, scale-based cost advantages, and high entry barriers can be created......the processes of commoditization and de-commoditization are continuously at work, causing the place where money will be to shift across the value chain over time..."

Clayton Christensen et al, 2003

2. Usage of biological evolution to explain unpredictability and randomness

- biological evolution explains mutations that arise in what appears to be random ways.

"...Evolutionary theory posits that whether a mutant organism thrives or dies depends on its fit with the 'selection environment' - the conditions within which it must compete against other organisms for resources required to thrive. Hence, believing that good and bad innovations pop-up randomly, these researchers advise corporations to focus on creating a selection environment in which viable new business ideas are culled from the bad as quickly as possible......if the process is not intrinsically random......then addressing only the context is treating the symptoms, not the source, of the problem..."

Clayton Christensen et al, 2003

Remember: the acceptance of randomness in innovation is not a stepping-stone on the way to greater understanding and business success; it can be a barrier!!!!!!

3. "Best-by-consensus"

- using attribute-based categories, such as incremental vs. radical change and product vs. process change. However, there are too many attributes to any phenomena to just select a few. There needs to be external validity checks on the soundness of categorisation schemes for usability in other industries. These validity checks can define the areas where the categorises are applicable or not, ie boundary conditions.

4. Defining markets by attribute-based or customer-based demographics or organisational boundaries

- this is best illustrated by the hiring of market researchers to quantify the size of opportunities rather than to understand the customer's desire to perform a job or to achieve a certain outcome. This promotes a headlong, rush to undifferentiated, one-size-fits-all products/services, like the Swiss Army knife, that has a proliferation of features and functions, etc but performs specific jobs poorly, ie a good knife, terrible scissors, an OK bottle opener and "next to useless" screwdriver. Need to change to circumstance-based analysis, ie job-to-be-done. An example is the handheld wireless device: the job-to-be-done or outcome that customers are seeking is the more productive use of small bits of time, ie make-me-productive-in-small segments-of-time.

5. Powerful investor pressure to increase or maintain returns on current assets

- many organisations have made large investments in assets, including infrastructure, and are keen to realise an adequate return on their investments. This mindset can result in a blind focus on the current situation and not the future circumstances to where the money will be. For example, most traditional telecommunication organisations have large investments in overhead phone lines and associated structures, yet the future is moving away from fixed phone lines. Many of these organisations are still showing a preference for the fixed phone lines owing to their desire for a decent return on their investments. A better investment strategy for future success would be focusing on the innovations away from fixed phone lines, etc and moving away from their current assets, ie selling them or finding alternative uses for them. This is sometime called the "ROA-maximizing death spiral trap". Ideally this situation is best handled by getting rid of the assets by outsourcing.

6. Traditional approach of going with new technology to existing, large and known markets

- however, exciting growth markets of tomorrow are small today. Owing to their small size initially, they appear less attractive in the short term, but they have the long-term potential.

7.Under-estimating the importance of customers at the low end of the market as the entry point for disruptive innovations

- and believing that these current users of mainstream products/services are not interested in paying a premium for improved performance products/services, ie

"...The key to success with low-end disruptions is to devise a business model that can give attractive returns at the discount prices required to win business at the low-end..."

Clayton Christensen et al, 2003

8. The alternative is to look for new market customers (non-customers)

- this can be harder than winning business at the lower end of the current market, especially as non-customers may consider that it isn't a job that needs to be done. A more productive area can be where people use others, ie tradespeople, to do a particular job as it may be too expensive or too complicated. Making the product/service less complicated, more convenient, less expensive, etc can attract new consumers. For example, Sony's introduction of the world's first battery-powered transistor radio (1995) allowed people who had no radio to buy one. Similarly, the introduction of Sony's 12 inch black-and-white portable television (1959) allowed people who had no television to obtain one. As the alternative was no television or no radio, quality was not an issue. Furthermore, it allowed the discount retailers to become the preferred distribution channels as there was limited follow-up service required compared with the traditional radios using vacuum tubes, etc

9. Innovator's dilemma

- involves some basic questions, ie

"...Should we invest to protect the least profitable end of our business, so we can retain our least loyal, most price sensitive customers' Or should we invest to strengthen our position in the most profitable tiers of our business, with customers who reward us with premium prices for better products.....the source of a dilemma: sustaining innovations are so important and attractive, relative to disruptive ones, that the very best sustaining companies systematically ignore disruptive threats and opportunities until the game is over..."

Clayton Christensen et al, 2003

Furthermore, as part of the innovator's dilemma, every organisation is preparing the way for its own disruption. Most organisations move into the high-margin tiers of the markets and shed least profitable products at the low end as a way to keep their margins strong and stock price healthy. Otherwise, if they stagnate, they are competing against hard-to-differentiate products and against competitors whose costs are comparable.

Solutions to the innovator's dilemma

- never follow strategies that target customers and markets that look attractive to an established competitor

- focus on customers who are looking for simple, inexpensive products/services as an alternative to having nothing.

- focus on exploring whether a low-end disruption is feasible, ie

"...devise a business model that can attract profits at the discount prices required to get the customers at the low-end of the market, who cannot use all the functionality for which they currently must pay..."

Clayton Christensen et al, 2003

- focus on helping customers get the job done more conventionally and inexpensively

- need to segment the market in ways that mirror the jobs that customers are trying to get done. Don't focus product/service or marketing plans on market segments whose boundaries mirror your organisation's boundaries; be careful about targeting markets that are segmented along traditional lines or for which data are already available, eg product service type, price point, or demographic category.

- don't assume that competition will not change and that success of the past will continue into the future; focus on the low-end of the market for opportunities

- be wary of following industry standards as the basis for comparison

-- be wary of using outsourcing/partnership /alliance, etc as this can remove you from face-to-face contact with customers

- focus on developing competencies in areas where the money will be in the future

- ideally the venture should not fit your organisation's core competencies; 3 questions will help check this aspect

i) Do you have the resources to succeed?

ii) Will your processes - the way you have learned to work together to succeed in your established businesses - facilitate what needs to be done to succeed in a new business?

iii) Will your values, all the criteria that staff members use to prioritise one thing over another, enable the critical people to give needed priority to this initiative when compared with other initiatives that are competing for time, money and talent?

Use the answers to these questions to choose the most apt organisational structure and home for the new venture. Furthermore, use these 3 questions on different parts of the current supply chain.

- in choosing the management team for the new venture, don't look for attributes or the magnitude of past responsibilities; instead look for staff who have had to handle problems similar to what the new venture will confront

- maintain a flexible approach in terms of strategy as expressed by products/services, customers and applications

- be impatient for profit. If it is suggested that the organisation will initially suffer substantial losses, then it is a case of an incorrect strategy, such as a disruptive technology being treated like a sustaining technology in established markets

- be patient for growth

10. Not understanding product architecture and interfaces including interdependence and modularity

- "...A product's architecture determines its constituent components and subsystems and defines how they must interact - fit and work together - in order to achieve the targeted functionality. The place where any two components fit together is called an interface. Interfaces exist within a product, as well as between stages in the value added chain. For example, there is an interface between design and manufacturing, and another between manufacturing and distribution. And architecture that is interdependent at an interface in one part cannot be created independently of the other part......when there is an interface across which there are unpredictable interdependencies, then the same organisation must simultaneously develop both of the components if it hopes to develop either component. Interdependent architectures optimize performance, in terms of functionality and reliability. By definition, these architectures are proprietary because each company will develop is own interdependence designed to optimize performance in a different way..."

Clayton Christensen et al, 2003

Independent architecture is the same as optimized and proprietary architecture.

"...In contrast, a modular interface is a clean one, in which there are no unpredictable interdependencies across components or stages of the value chain. Modular components fit and work together in well understood and highly defined ways. A modular architecture specifies the fit and function of all elements so completely that it does not matter who makes the components or subsystems, as long as they meet the specification site. Modular components can be developed in independent workgroups or by different companies working at arm's-length. Modular architecture optimizes flexibility, but because they require tight specification, they give engineers fewer degrees of freedom in design. As a result, modular flexibility comes at the sacrifice of performance. Pure modularity and interdependence are at the ends of the spectrum: most products fall somewhere between these extremes......companies are more likely to succeed when they match product architecture to the competitive circumstances..."

Clayton Christensen et al, 2003

It is of interest to note that introducing radical new technology is not as easy as imposing new technology on the old, as usually the new has unexpected ramifications, such as the transition from analogue to digital for all optic-telecommunications networks. Furthermore, integration is the best way to handle all of the interdependencies that need to be managed. For these reasons IBM initially dominated the computer industry by virtue of its integration; similarly for Ford and General Motors in the automobile industry. These firms enjoyed near monopoly power; their market dominance was the result of the not-good-enough circumstance, which mandated interdependent product or value chain architectures and vertical integration. This dominance was only temporary as they had to compete to make the best possible products and, as a result, made products that were more than the market required in functionality and reliability, ie they overshot.

Customers are happy to accept improved products but unwilling to pay a premium price unless there is improvement in speed, convenience, functionality and customisation. When this occurs there is an evolution in product architecture from interdependent, proprietary architecture that was OK in the not-good-enough era to broad modular designs in an era of performance surplus. Modularity becomes important because it enables independent, non-integrated organisations to sell, buy and assemble parts and subsystems. The modular system allows outsourcing and allows firms to mix-and-match components from the best suppliers in order to respond to the specific needs of individual customers. This sequence repeats itself with the introduction of new technology. For example, in personal computers, Apple computer was most integrated company with proprietary architecture and initially had the dominant position in the market. Ultimately, when functionality of desktop computers became good enough, IBM's modular architecture became dominant. Thus

"...Apple's proprietary architecture, which in the not-good-enough circumstance was a competitive strength, became a competitive liability in the more-than-good-enough circumstance. Apple as a consequence was relegated to niche-player status as a gross explosion in personal computers was captured by the non integrated providers of modular machines..."

Clayton Christensen et al, 2003

Similar sequences will occur with the next generation of disruptive computer products, like notebook computers and hand-held wireless devices, ie organisations which are most successful initially will have optimized, interdependent architectures. By contrast, those organisations whose strategy is prematurely modular will struggle in the early years when performance is the basis of competition. However, before long, architecture and energy structures will evolve toward openness and disintegration.

The drivers of this sequence are

i) the pace of technological improvements exceeds the ability of customers to utilize it, ie overshooting of customer needs

ii) as a result, the basis for competition changes with improvements in functionality and reliability becoming more customised; yet, simultaneously, customers become less willing to pay premium prices for these improvements.

iii) competitive pressures force organisations to compete on responsiveness and speed. To handle this, their products/services evolve from being proprietary and interdependent to becoming modular

iv) modularity encourages the disintegration of the industry as non-integrated organisations out-compete the integrated traditional players. Initially integration was a competitive necessity; it later becomes a competitive disadvantage.

NB

"...the circumstances of performance gaps and performance surpluses drive the viability of these strategies of architecture and integration..."

Clayton Christensen et al, 2003

Furthermore,

- customers' needs change but generally at a slower pace than the technological improvements

- basis for success, ie attracting unsatisfied customers, varies at different tiers of the market, ie at the low tiers, it is speed, flexibility and low-cost.

11. Need to understand the 3 conditions for competing in a modular world, ie non-integrated specialist

i) specificability, ie specifications known

ii) verifiability, ie able to measure attributes so that specifications can be verified

iii) predictability, ie interdependencies across the customer-supply interface are known

If these 3 conditions are satisfied, then there is sufficient information for an efficient market to emerge at the interface

12. Keeping development of disruptive innovations in an established organisation and using the current supply chain that is organized for traditional product/service categories

- established organisation and current supply chain players have too much interest in maintaining the status quo to take advantage of disruptive innovations. Sometimes, even for the development of sustaining innovations, it is best to start a new organisation. Usually these new, focused organisations can develop new products/services better than larger organisations. One example is in the health-care industry where the new sustaining innovations are developed for sale to other industry players.

Remember:

"...established companies are prone to cram disruptive ideas into the mainstream market, forcing them to compete against consumption on a sustaining-technology basis......an organisation's processes and values ensure that it can only implement sustaining innovations..."

Clayton Christensen et al, 2003

If this happens, the chance of success with the disruptive innovation is very low!!!!

13. Fear of focus

- management prefers to have a product/service that has a general, rather than specific, range of use, ie need to satisfy a specific job-to-be-done or outcome that customers are seeking.

14. Management's demand for quantification of opportunities

- usually market research is done in the resource allocation process to quantify the size of the opportunities, not to understand customers nor how markets work. This quantifying focus incorrectly assumes that the customer's world is structured in the same way that the data is aggregated, under headings of products, customers and organisational units, ie how it is sold, how profitable each is, which customers are buying which products/service, and what costs and revenues are associated with servicing each customer or business units. This incorrect market segmentation causes managers to aim innovations at phantom targets. For example, framing markets in terms of customer demographics, ie averaging across several different jobs-to-be-done, or outcomes that customers are seeking, that arise in customers' lives inevitably produces a one-size-fits-all product that rarely leaves the customers satisfied. Furthermore, defining markets in terms of an organisation's boundaries further restricts innovation from developing products/services that will truly help the customers execute the jobs-to-be-done or provide outcomes that they are seeking.

"...the solution is not to use data that is collected for historical performance measurement purposes in the processes of new-product development. Keep such data quarantined: they are the wrong data for the job. The size and nature of job-based or circumstance-based market categories actually can be quantified, but this entails a different research process and statistical methodology..."

Clayton Christensen et al, 2003

15. Advertising (including brands) or product category by market segmentation

- such as age, gender, lifestyle, geography, industry, size of business, etc. Branding efforts that concentrate on the products/services/attributes being flexible enough to do many jobs can result in misdirected or undirected effort. It is best to define the circumstances which get the job done which can then be communicated with a 'purpose' brand. Therefore, when the customers think about themselves in those circumstances: they will think instinctively of the brand and know what to buy in order to get the job done, or achieve the outcomes that they seeking. Customers pay a significant premium for a brand which produces an outcome they desire. An example of purpose branding is the Marriott Hotel Chain where its hotels brand themselves differently depending on the market segments they are targeting: Courtyard Hotels are the hotels "designed by business travellers for business travellers"; the Fairfield Inns are a good holiday place for a family; Residents' Inns are a home-away-from-home.

Brands are at their peak when they are created at stages of the value-added chain where products/services are not-yet-good-enough. The aim of brands is to help create price premiums. On the other hand, when competitors' products/services are more than adequate, any price premium disappears. Yet shifts in the value chain can create opportunities for branding. For example, initially computer systems were complex and unreliable. IBM, with its superior service capabilities, could charge a price premium up to 40 percent compared with competitor's comparable equipment.

Remember: the movement of branding power in a market that has many tiers is a process, not an event. Thus branding is aimed at customers who are still not satisfied with functionality and reliability. On other hand, where speed, convenience and responsiveness drive competitive success, profitable brands are found at the levels of subsystem and distribution channels - away from the product/service.

16. That differentiation and/or low costs are growth strategies

- differentiation is destroyed by the mechanism that leads to modularization and disintegration. Low cost strategies are only viable as long as there are not enough low cost competitors to satisfy the market.

17. Using categories of core competency to decide whether to insource or outsource

- this means if it is a core competency, it is performed inside the organisation; in contrast non-core activities are sent outside. The problem with this is that what is currently non-core may be core in the future, and vice versa.

The classic example of this is IBM's decision to outsource the micro processor for its PC business to Intel and its operating system to Microsoft. IBM made these decisions in the early 1990s so that they could focus on what they do best - designing, assembling and marketing computer systems. At the time these appeared good decisions. Subsequently, these decisions resulted in most of the future profits of the industry going to Intel and Microsoft. To avoid these outcomes, the following questions should be asked

"...What do we need to master today, and want will we need to master in the future, in order to excel on a trajectory of improvement that customers will define as important. The answer begins with the job-to-be-done approach: customers will not buy our product unless it solves an important problem for them..."

Clayton Christensen et al, 2003

Furthermore, core competence is an inward-looking notion. An alternative notion addressing competitiveness, ie what customers value, rather than what you think you are good at. Competitiveness involves a willingness and ability to learn new things, rather than clinging hopefully to past successes.

When the functionality and reliability of a product/service becomes more than good enough, the basis of competition changes.

"...the customer interface is a place in the value chain with the ability to excel.....Hence, companies that are integrated in a proprietary way across the interface to the customer can only compete is not-good-enough dimensions more effectively......than in those firms that interface with customers in an arm's-length, modular manner......why Dell computer was more successful than Compaq during the 1990s. Dell was integrated across an important not-good-enough interface, whereas Compaq was not......the proper cost accounting would show that Dell's profit from retail operations are far greater than profits from its assembly operations..."

Clayton Christensen et al, 2003

18. Not realising that

"...An organisation's capabilities become its disabilities when disruption is afoot..."

Clayton Christensen et al, 2003

Three factors (resources, processes and values) comprise the RPV framework, which defines an organisation's capability (what it can and cannot accomplish).

The RPV framework:

i) Resources - includes people, equipment, technology, product designs, brands, information, cash, relationship with suppliers/distributors/customers. Of these resources, the most critical is the people, especially managers; failure will occur if the wrong people are chosen to lead the venture. The selection process is very difficult to get right. For example, someone who has a successful track record and the right attributes for the current business may not necessarily handle a new business venture. It is better to look for people who have the skills, intuition and experience that is similar to the new business venture, ie can handle unpredictable situations. Most existing managers are not suitable as their experience is based upon

"...finely honed operational skills in managing quality programs, process improvement teams, and cost-control efforts......many managers who are intensely focused on delivering ever improving results often are the worst at developing next-generation management bench strength. It takes extraordinary discipline and vision on the part of senior executives to balance the tension between putting in fully qualified employees to drive results now versus giving learning opportunities to high-potential employees who need development..."

Clayton Christensen et al, 2003

This can be a case for bringing in outside managers and/or outsourcing activities.

Starting a new business venture involves problems that are very different from those in a well-established organisation. In fact, failure and bouncing back from failure are critical experiences in developing the necessary skills to handle a new business.

"...The school-of-experience theory, however, says that potential should not be measured by attributes, but rather by the ability to acquire the attributes and skills needed for future situations......the ability to learn what needs to be learned.....focusing on ability to learn, it is possible to avoid......the infinite list of competencies important for today are those that will be required in the future. Performance appraisal......focus on learning-orientated measures such as 'seeks opportunities to learn,' seeks and uses feedback,' 'asks the right questions,' 'looks at things from new perspectives,' and 'learns from mistakes'......the quest is to determine whether an employee is willing to learn new skills..."

Clayton Christensen et al, 2003

Of the capabilities in the initial stages of a new venture, resources (especially people) are critical. For example, the attitudes and actions of a founder are critical to initial success. However, over time there is a shift to the processes and values. Sometimes a new venture starts well but will falter if the founder and/or management fail to institute processes and/or values, ie

"...Success is easier to sustain when the locus of capability to innovate successfully migrates from resources to processes and values..."

Clayton Christensen et al, 2003

Furthermore,

"...once members of the organisation begin to adopt ways of working and criteria for making decisions by assumptions, rather than by conscious decision, then those processes and values come to constitute the organisation's culture......culture is a powerful management tool......culture enables employees to act autonomously and causes them to act consistently..."

Clayton Christensen et al, 2003

However, to handle new problems, challenges, etc it is easier if the organisation's capabilities reside primarily in the people; if the capabilities reside more in processes and values so that they have become embedded in the culture, change can be very difficult to achieve.

ii) Processes - organisations create value by transforming resources into products/ services of great value. The transformational patterns of interaction, coordination, communications and decision-making are described as processes. Processes can be

- formal (explicitly defined, visibly documented and conscientiously followed)

- informal ( habitual routines or ways of working that have worked over time)

- cultural (ways of working that people have unconsciously followed as they are effective)

Remember: a process that works in one situation is not necessarily effective in another situation. In contrast to many resources being flexible, processes by their very nature are not meant to change. Processes need to be aligned with their task.

"...very often the cause of a new venture's failure is the wrong processes were used to build it..."

Clayton Christensen et al, 2003

More often than not the processes that support the investment decisions, such as the way market research is conducted, translating analysis into financial projections, negotiations of budgets and plans, etc are the problem: processes, rather than logistics, development, production, customer service, etc

iii) Values - the organisation's values are the standards by which staff make continuous prioritisation decisions around resources, products/services, processes, etc.

"...where as resources and processes are often enablers that define what an organisation can do, values often represent constraints - they define what the organisation cannot do..."

Clayton Christensen et al, 2003

Generally, financial indicators revolve around acceptable gross margins and the size of the business in order to be interesting. As an organisation grows, it can lose the capability of entering into small emerging markets as they are too small.

Unless large organisations are flexible, size becomes a disability in creating new growth businesses.

The RPV framework can be used to help integrate acquired organisations, and the following questions will help identify if you are buying resources, and/or processes, and/or values

"...What is it that really makes this company that I just bought so expensive? Do I justify the price because of its resources - its people, products, technology, or market position? Or was a substantial portion of its worth created by its processes and values - its unique way of working and decision-making that enabled the company to understand and satisfy customers; develop, make, and deliver new products in a timely way; and to do so within a cost structure that gives it disruptive potential?..."

Clayton Christensen et al, 2003

If the processes and values were the reason for the acquisition's historical success, it is better strategy to leave it as a stand-alone business. On the other hand, if the organisation's resources were the primary rationale for acquisition, then integrating it into the parent is a good idea so that the acquired people, products, technology, customers, etc can leverage off the parent's existing capabilities, such as processes

19. Factors that influence incorrect allocation of money

The factors are

i) too much focus on successful core businesses - thus no money diverted to new growth activities

ii) growth gap - this refers to the difference between investors' expectations as expressed in present value calculations and the current share price. Generally, senior management expects to meet investors' expectations using sustaining innovations rather than disruptive innovations; the latter's new revenues and profits are unknown. Yet

"...Creating new disruptive businesses is the only way in the long-term to continue creating shareholder value..."

Clayton Christensen et al, 2003

Remember: investors expect organisations to continue to grow

iii) impatience for growth

"...When the corporation's investment capital becomes impatient for growth, good money becomes bad with the subsequent cascade of inevitable incorrect decisions..."

Clayton Christensen et al, 2003

Most disruptive businesses will initially not grow very quickly as they need to compete against non-consumption and follow an emergent strategy process. This will work against disruptive innovations being selected

iv) tolerance of initial losses for the sake of growth, ie impatient for growth but patient for profit - as sustaining innovations will be competing in established markets, executives accept the potential for initial loss before growth will occur. Disruptive innovations, in contrast, are more likely to be immediately profitable and yet have small initial growth

v) mounting losses - this results in members of the management team being changed and an unrealistic focus on immediate growth that will favour sustaining over disruptive innovations

20. How to manage this dilemma of investing for growth?

- most shareholders want regular, strong, consistent returns as expressed by dividends and share price increases but to invest for growth can mean a temporary decline in these returns.

Remember: current financial outcomes are results of past investment decisions.

"...Financial results measure how healthy the business was, not how healthy the business is..."

Clayton Christensen et al, 2003

Past financial data is not necessarily a good indicator for the future

Ways to handle this include

i) start early - start new growth businesses while the organisation is financially healthy, ie core businesses are performing well. Waiting until current business slows may mean that the resources are no longer available. Furthermore, need to be careful of the strategy of aiming for growth by acquisition. Usually the decision is driven by numbers, such as discounted cash flow projections, and an assessment of whether the business is undervalued or fixable or can yield cost savings through synergies with an existing business. These are not the best techniques for decision-making as they are based on historical evidence rather than a general strategy for creating and sustaining and organisation's growth (see earlier).

ii) start small - new growth opportunities should be launched as new small business units that are patient for growth

"...A decentralized company can maintain the values required to see and enthusiastically pursue disruptive innovations far longer than can a monolithic, centralized one, because the size of a disruptive venture must reach to make a difference to a small business unit......in the multi-business-unit there are more managers seeking disruptive growth opportunities, and more opportunities will look attractive to them......most of the companies that appear to have transformed themselves over the past 30 years or so - companies such as Hewlett-Packard, Johnson and Johnson, and General Electric, for example - have been composed of a large number of smaller, relatively autonomous business units. These corporations have not transformed themselves by transforming the business models of their existing business units into disruptive growth businesses. The transformation was achieved by creating new disruptive business units and by shutting down or selling off mature ones..."

Clayton Christensen et al, 2003

iii) demand early success - be impatient for profit. Generating profit quickly and limiting expenses does 2 things, ie

a) accelerates the emergent strategy process by forcing the venture to test assumptions as quickly as possible; with quick feedback on the success or otherwise of the venture

b) by becoming profitable, the venture protects itself from decision makers changing their minds, especially if core business is not performing well

A disruptive business model is a valuable corporate asset

Disruptive business models as used by the likes of Amazon (books), PayPal (payment), Uber (taxi), Airbnb (accommodation), etc are moving into industries in which there is
- charging of excessive fees and/or
- making of excessive profits
and/or
- poor customer service/high customer dissatisfaction and/or
- under-utilised assets and/or

- using out of date technology.

Some examples of industries under threat for the above reasons are:

- the data intelligence/analysts industry, like Thomas Reuters, Bloomberg, Gartner, etc, that have been in the industry for decades and built a US$ 10+ b. market. They have had little impetus to change owing to their market dominance combined with their public shareholders' expectations from this cash cow, ie short-term profit and the dividends. Yet almost all customers are dissatisfied. This has provided an opportunity for a disruptor, like FiscalNote (started in 2013 and worth US$ 18 m. in late 2015), to come in to differentiate itself by speed and breadth of information delivered, its superior design platform and customer service disrupt the research divisions at analyst companies. These disrupters are using their ability to predict what customers will want. (Rachel Botsman, 2015b)

- the taxi industry.  Uber, a technology-based disruptor that provides a ride-sharing service, is doing what years of inquiries, complaints reforms, etc have not been able to do to a monopolistic industry, ie taxi. Customers in the taxi industry are fed up with delays, bad drivers, excessive fees and poor service. Uber's popularity and increasing protest of established taxi licence holders about Uber are putting pressure on regulators and state transport authorities to find a solution. In addition to Uber, booking and payment apps, like goCatch and ingogo, are providing alternate payment systems to the likes of Cabcharge. Cabcharge has dominated the Australian taxi industry since 1976 and charges a flat 10% fee on every fare paid via its eftpos terminals (in 2015 this was dropped to 5% in some States).

Uber adopts combative tactics. It targets "poorly serviced" cities by giving drivers iPhones, with the Uber app installed. The legal Uber black posh-car service enters the market first; once established, Uber X is introduced, (Jessica Sier, 2016b)


These models use the latest technology to generate an asset-light approach, with low overheads.

"...A disruptive business model that can generate attractive profits at a discount price required to win business at the low end is an extraordinarily valuable growth asset. When its executives carry the business model upmarket to make high-performance products that sell at high price points, much of the increment in pricing falls to the bottom line - and it continues to fall there as long as the disruptor can keep moving up, competing at the margin against the higher-costs disruptee. When a company tries to take a high-cost business model down market to sell products at lower price points, almost none of incremental revenue will fulfill its bottom line. It gets......into overheads. This is why......established burdens that have to capture the growth created by disruption need to do so within an autonomous business with a cost structure that offers as much headroom as possible for subsequent profitable migration upmarket......disruption does not guarantee success, but it sure helps......following a strategy of disruption increases the odds of creating a successful growth business from 6 percent to 37 percent......is also clear what executives who seek to create new growth business should do: target products and markets that the established companies are motivated to ignore or run away from. Many of the most profitable growth trajectories in history have been initiated by disruptive innovations..."

Clayton Christensen et al, 2003

Does the innovation have potential to be disruptive

Three sets of questions that will determine whether an innovation has the potential to be disruptive

i) new-market disruptive

- Is there a large population of people who historically have not had the money, equipment or skill to do this job for themselves, and as result have gone without it altogether or have needed to pay someone with more expertise to do it for them?

- Will the product/service be more convenient, more effective, more reliable, simpler and lower-priced than the current available product/service?

- Will organisations providing the product/service be able to stay connected with a given job as improvements are made?

- Can a purpose brand be developed so that the customers know what to buy?

ii) potential for low-end market disruption

- Are the customers at the low end of the market happy to purchase the product with adequate but lower performance than what competitors offer, ie trade-off some performance attributes (like slower speed, less reliable, more basic, etc), in exchange for a lower price?

- Can you create a business model that enables you to earn attractive profits at discount prices required to win the business of these currently over-service customers at the low end?

iii) degree of disruption

- Is there a similar impact of the innovative disruption on all the significant players in the industry?

Remember: if one or more significant player in the industry will not be disrupted by the innovation, then the entrant is unlikely to win.

There are 4 elements to developing new market disruption

"...i) the target customers are trying to get a job done, but because they lack the money or skill, a simple, inexpensive solution has been beyond reach

ii) these customers will compare the disruptive product to having nothing at all. As a result, they are delighted to buy it, even though it may not be as good as other products available at high prices to current users with deeper expertise in the original value network. The performance hurdle required to delight such new market customers is quite modest.

iii) the technology that enables the disruption might be sophisticated, but disrupters deploy it to make the purchase and use of the product simple, convenient, and foolproof. It is this 'foolproofedness' that creates new growth by allowing people with less money and training to begin consuming

iv) the disruptive innovation creates a whole new value network. The new consumer typically purchases the product through new channels and uses the product in new venues..."

Clayton Christensen et al, 2003

In other words,

"...What kind of customer will provide the most solid foundation future growth? You want customers who have long wanted your product but were not able to get one until you arrived on the scene. You want to be able to easily delight these customers, and you want them to need you. You want customers you can have all to yourself, protected from advances of competitors. And you want your customers to be so attractive to those you work with everyone in your value network is motivated to co-operate in pursuing the opportunity..."

Clayton Christensen et al, 2003

Furthermore, in the organisation's resource allocation process

"...Managers need to frame the disruption as a threat in order to secure resource commitments, and then switch the framing of the team charged with building the business to be one of a search for growth opportunities. Carefully managing this process in order to focus on those ideal customers can give new growth ventures a solid foundation for future growth..."

Clayton Christensen et al, 2003

In addition, the current competition views the entrants in the emerging market as irrelevant to their own well-being. Initially the new growth market has minimal impact on the mainstream market. In fact, the traditional players will prosper for a while because of the disruption as they will concentrate on the more profitable segments of the market. This allows the disruptive strategy to get a foothold and eventually topple the traditional players (including the distribution channels). Sometimes traditional players will try to compete head-on with the disruptor; again, most will fail.

This can be explained by the mindset of seeing a disruptive innovation as a threat rather than an opportunity. This is sometimes called 'threat rigidity', which means having less flexibility and becoming more 'command and control' orientated, ie refocusing everything on countering the threat in order to survive by protecting their current customers and business. To deal constructively with this scenario, the mindset needs to change so the situation is seen as an opportunity. An ideal strategy is to set up an autonomous business unit. For example, soon after the newspapers went online, some players took the online business out of the organisation and set it up as an autonomous organisation to handle the Internet.

This is a good example of an 'asymmetry of perception' with a new entrant seeing the situation as an opportunity while the established players see it as a threat. Furthermore, the disruptive innovation should be treated separately from a sustaining innovation opportunity.

Remember: in the resource allocation process, for disruptive innovations it is better to handle budget considerations based on the innovations fitting with a pattern (see above points i to iv), not numbers, ie

"...Fit constitutes a much more available predictor of success than do numbers in the uncertain environment of new market disruptions. If a project fits the pattern, executives can approve it with confidence that the initial conditions are conducive to successful growth..."

Clayton Christensen et al, 2003

Some examples of sustaining and disruptive innovations included

- high speed photocopier business (in the 1970s and 80's IBM and Kodak attempted to defeat Xerox. These companies were far bigger yet they failed to defeat Xerox in a sustaining technology competition. On the other hand, Xerox was beaten more recently with a disruptive innovation that included tabletop copiers)

- computers (corporate giants, such as RCA, General Electric and AT&T, who threw massive resources into the battle, failed to stop IBM in the development of sustaining-technology of mainframe computers. In the end, it was the disruptive personal computer makers, not the major corporations, which successfully competed with IBM. The centralised large computer changed to personalised computing (desktop to laptop), then to interconnected or cloud model and mobile phones)

- phones (landlines to mobile phones, etc, eg in Africa, there were around 10 m. fixed landlines in 2000 & in 2014 there are 700 m. mobiles; in early 2014, more mobile phones than world population (around 7 b. ); smart phones around 1.75 b. users. Smart phones are phones and have encouraging the use of apps over text, mobile Internet & are as powerful as best computer in 1987).

- power (use of solar power, with leasing option to reduce initial capital investment, is putting increasing pressure on the traditional power generator utilities. Solar is cheaper and customers are signing up for decades under the leasing option. Furthermore, total power usage is declining which is putting additional pressure on traditional suppliers to increase prices to cover their costs and this is making solar more attractive. The only drawback to solar's progress has been is the need to develop cheaper electricity storage that will allow solar generators to store the energy they generate and provide for use as required. Recent technological advances in batteries which store solar power is creating the possibility of home owners being able to divert their own solar power reserves to neighbours; energy is heading towards an interconnected system.. This could make it unnecessary to be connected to mainstream electricity networks.)

Further developments include water is being replaced with carbon dioxide to generating steam from solar energy.  Also, using utility solar (concentrated solar power - CSP) which uses the sun's heat rather than its light. CSP concentrates heat from the field of heliostat mirrors that are slightly curved to initially create the concentration and are controlled by actuators that track the sun.

"...The sun's heat is reflected upwards at a receiver, a 4.5 metre square hole at the top of the Tower that contains pipes.  When water runs through the red hot pipes it turns to steam which drives a turbine..."
Robbie McNaughton as quoted by Mark Abernethy, 2016

Some of the challenges are around the heat not melting everything, plus storage (so that it can handle peak loads and provide power when the sun is not shining) and efficiency (salt has a natural limit of 590 degrees which is well below temperatures to create optimum thermal efficiency). To help with storage, the heat is stored in molten salt, ie it is heated by the solar receiver and when the sun goes down, heat from the stored salt is used to drive the turbines.

Efforts are now being focused on using carbon dioxide, ie heat carbon dioxide to 720 degrees so that able to run carbon dioxide turbine at greater than 50% thermal efficiency (water and salt run at just around 40%).

"...storing the heat is done through a steel tank at the base of the tower in which special ceramic balls are heated by the initial solar process, a secret heat-transfer liquid is run down the tank into a heat-exchanger, from which a turbine can be driven when there's no sun..."
Robbie McNaughton as quoted by Mark Abernethy, 2016

To be commercially viable techniques, they need to produce at least 500 MW

Some examples of disruptive innovations creating new customers/new markets for products/services that were more convenient and/or low priced, etc were

- smart phones are replacing personal computers that replaced the main frames

- Sony's first battery powered transistor public radio that replaced the immobile plug-in wireless

- Canon's desktop photocopiers that replaced the large photocopiers that needed a technician to operate

- Japanese auto makers (Toyota, Honda, etc ) followed by the Koreans' (Hyundai, Kia, etc) entry into the North American market at the low-end of the market via fuel economy and low purchase price

- the minimills in the US steel industry

- discount retailing (Wal-Mart and Kmart) competing against the department stores

- plastic makers (Dow, Dupont and General Electric, etc) continue to displace steel

- VOIP (Skype, etc) considerably cheaper than the traditional land lines and mobile phones despite poorer quality and the need for computer linkage.

- pre-paid phones (Virgin and others) created a new market for low income customers (including young people) who were ignored by traditional phone firms as these people were not creditworthy enough to have accounts.

- digitalisation including downloading of the music from the Internet and communications (Apple's iPod)

 - drones and autonomous cars delivering products

- 3-D printing upending manufacturing

- predictive algorithms causing upheaval in insurance and banking

Organisations need to have the right culture to handle the new technological changes. The "right culture" includes encouraging and reinforcing innovation, taking some risks and tolerating experiments that fail. This is the culture that ultimately drives innovation.

(NB The music industry is a good example of technology changing the business model from wax cylinders in 1880s; 78rpm recording discs in 1910s; flexible vinyl long player, eg single and EP (extended player) after WW2; analoguewith plastic records (singles, eg 7 inch and LP - long plays) and cassette players and recorders (encouraged home taping from the radio or original LP) in 1960s; more recently, digitalisation via computer software is facilitating mixing of albums and soundtracks, compact disc (CD) with disc pressing technology, DVD, videos (VHD), video games, starting with Pac-Man and developing into the home computer games; Internet (digital downloading, social networking, such as YouTube, MySpace, etc), and Apple's iPod - combining communications (mobile phone, etc) and music recording/playing (2007s)

- Video streaming impact on TV industry (For example, Netflix is "over-the-top" video streaming that is a threat to all forms of television, including free- to-air). In the first 3 months of 2015, Netflix added 4.9 m. viewers to reach 62 m. worldwide; with share price hitting $US 562. Its market capitalisation is US $34 b. and this is greater than CBS (highest ranking US TV broadcast network that has been in business for decades). Next areas for Netflix to focus on include Japan & China.

Netflix is a virtual private network (VPN) is an extended private network across a public network like the Internet (Max Mason, 2015). It enables a computer or a network enabled-device to send and receive data across shared or public networks as if it were directly connected to the private network, while benefiting from the functionality, security and management policies of the private network. It is a virtual point-to-point connection through the use of dedicated connections. The best way to handle the VPN is true global licensing.

The TV channels are no longer just competing with each other; they are competing with the past. Owing to the vast libraries of content available online, ie

 "...if you make a new TV show, you are really competing with every TV show that has been made before...:
James Murdoch as quoted by Dominic White, 2014a

This has coincided with great reductions in the price for quality digital equipment, eg DSLR video cameras are now just a couple of thousand dollars.
Users pay a monthly subscription. Next likely development is to include advertising as happened with cable TV.
It encourages "binge viewing" with its downloading of all episodes of, for example House of Cards as against the release of one episode at a time of scripted TV. This is forcing the TV channels to re-examine theor traditional ways of doing thing. For example in Australia
i) it is cheaper to use shows from US or Britain than commission original content
ii) there is an increasing focus on live news, event television and sporting rights to guarantee big audiences
iii) commission one reality show and continually replay it until viewers tire of it
iv) as people are time poor but own mobiles, ie able to access content in many different ways like Netflix, Amazon, tablets, etc
NB The market dictates what it wants, ie

"...People have remotes, they watch what they want to and all the networks provide a wide range of programming..."
Beverley McGarvey as quoted by Dominic White, 2014a

- shared /collaborative/on-demand  economy & organisations

It is based on the old notion of rural/village sharing or bartering of capital stock but using the latest technology (smart phones, connectivity, internet, etc.

It has capital-light, technology-driven ability to unlock value what were previous;y neglected or under-utilised goods & services

It is definately a productivity driver & will create more value in the broader economy than it destroys. Industries already in the sharing economy include global holidays & short-term property rental, car sharing networks, skills exchanges, crowd financing for banking & investment, shared workspaces, new marketplaces for unwanted goods, etc.

"...The share is shaking things up the world over; how it's empowering communities to make real changes, and that it is taking the efficiencies of an interconnected digital space and applying them to real-world problems......it's an ecosystem built around sharing services and resources - or, its people exchanging things they have and skills they possess......it offers undeniable efficiencies: if you happen to have a spare room just sitting there, a property with unused parking space, a video camera you barely use, or a car that remains under driven for most of the day, then there is a way to make a little cash by connecting with somebody who is prepared to pay for short-term use..."
Andrew P Street, 2014


Some examples include taxi (Uber), Airbnb (accommodation), life-style hints (Lifehacker ), knowledge/communications (TED), etc; the hiring tools (OpenShed, Freegler, Friends with Things, etc); odd jobs (Airtasker); locating a car park (Parkhound, Parking Made Easy, FindACarPark, etc)


Organisations developing this concept vary from those seeking to redistribute resources in a more effective way to those seeking to make money out of developing the possibilities created by the new technology by either creating new markets or entering existing markets.


It works by buyers and sellers registering; they are rated on the quality of the interactions and those that don't reach of a prescribed standard are banned. It relies on communities acting ethically and honestly; with users rating one another.

To the established firms in this space already competition is appearing like Uber competitiors include Backseat, RideSurfing, Coseats, Transfercar, etc; for Airbnb, competitors include VRBO

The taxi industry pays massive fees to operate, has a stringent licensing system and makes huge investments in fleets of vehicles and comprehensive radio and digital networks. On the other hand, its major threat, Uber provides a relatively unregulated car share service which has little accountability and responsibility but provides good customer service. Similarly for Airbnb, where in New York there are rental restriction laws that prohibit renters from subletting their apartments for less than 30 days at a time; in California it is legal to be a squatter after residing for more than 30 days.

"...it's going to take the legal system awhile to catch up with the realities of this new model..."
Andrew P Street, 2014

Our current legal system is based around ownership of goods and the resultant accountabilities and responsibilities. In contrast to this status quo, a collective ownership model is a burgeoning legal headache. Examples of activities challenging the status quo include food sharing networks and neighbourhood power generation like solar leasing.

It is expected that a shared economy will work best in neighbourhoods/communities that already have a level of trust and accountability.

Part of the problem is that governments, bureaucrats and society, etc look at handling future problems with our past or present mindset. Just because something worked in the past, there is no guarantee that it will work now and/or in the future. There is a need to look with "new eyes" at the challenges created by on-demand/shared economy.

. Henry Ford mass production of cars is a good example of the concept of the on-demand economy. Henry Ford's moving assembly line with mass labour to make building cars much cheaper and quicker, with the result that automobiles moved from being a rich man's toy to transport for the masses. Just as Henry Ford gave the masses access to a motor car, current day entrepreneurs are trying to supply to a wider audience the luxuries that were once the preserve of the wealthy and elite. Some examples
- Uber provides chauffeurs
- Handy supplies cleaners
- SpoonRocket delivers restaurant meals to your door
- Instacart keep your fridge stocked
- Click on the Midicast app and a doctor will visit within 2 hours
- Axiom will supply a lawyer
- Freelancer.com & Elance-oDesk Link up to 9.3 m. workers for hire with 3.7 m. firms

The on-demand economy has profound implications for everything from the organisation of work to the nature of social contract in a capitalistic society. For example, since the 1970s, the dominance of the firms and the trade unions in manufacturing has changed with many jobs being automated or outsourced overseas; corporations have abandoned the notion of providing lifetime employment with one organisation. It is estimated that around 50 m. American workers already work as free-lancers (The Economist, 2015a). The two major forces driving this are
i) technology - cheap computing power that allows home-made videos to rival products from Hollywood studios, 3-D printers manufacture products, shared economy allows society to tap and rent under-utilised resources such as your spare room, vehicle, etc
ii) changing social habits - people used to be divided into those that own the means of production and those that work for them. Recently, the divide is between people who have money, but no time, and people who have time but no money. This gives workers more flexibility in how and when they work. On the other hand, it reduces security as fewer workers are being employed full-time with guaranteed pay and benefits. For example, the Uber drivers get paid only when they work, and are responsible for their own pensions and healthcare. Risk previously borne by companies is being pushed back to the individual.
Linked with this is the fact that the transactional cost of using an outsider to fix something, rather than in-house, is falling.
. The battle with the on-demand economy around safety and regulatory issues is all described as "teething problems" of a new industry
. On-demand economy gives consumers greater choice, with society gaining because otherwise idle resources are put to use, eg if not for Uber, most of its cars would be parked and idle in garages
. Regulators have not caught up with the new situation of the on-demand economy: with most laws, rules and regulations still give preference to full-time employees and treat freelancers as second-class citizens.

The shared economy and Internet is increasing the numbers of freelancers, eg self-employed, one person micro-businesses, start-ups, etc, who are facing greater risks and uncertainty than more permanent employees, eg nine-to-five workers on longer-term contracts with benefits like training, pensions, insurance, healthcare, etc
It is estimated that around 1/3 of the US workforce does some freelance work (2014); similar for the UK where the greatest growth areas is self employment that has emerged not from among low-pay contract workers but senior managers and directors. The challenge of freelancers is that it can be seen and used as a cheap form of direct employment as companies avoid paying employment taxes and indirect benefits (health, pensions, training, etc) while treating them like an employee

Uber
is an example of an organisation in the shared economy. It is asmart phone application for car service booking & on-demand ride sharing. It started in May, 2010 by 2 people (Garret Camp & Travis Kalanick); in 2015 in 50 countries & 260 cities globally; 900 staff. It tapped into dis-satisfaction with normal taxi operators, ie not being able to find a taxi when it is needed. It has been praised for challenging anti-competitive behaviour of taxi firms (Harper's Competition Review, Australia, 2014). It offers a cheaper, technologically-savvy, customer-friendly, more reliable service than a normal taxi service; it provides an extremely simple service whose implementation is technically brilliant and easy-to-use. Uber is car pooling at the push of a button. By using a computer platform that connects passengers directly with drivers so that passengers order & pay for a car using their phone with geo-locating technology connecting them to nearest available vehicle; fares fixed directly with driver. Its app provides free traffic information, driver-source information about location of people requesting cabs, the ability to securely process credit cards via smart phones and comprehensive stats and reporting on fares

Uber is not only cheaper, but provides a better service than its competitors like taxis. It claims 50,000 new drivers join every month (Samantha Hutchinson, 2014). The company is a mirror image of its founder, ie aggressive, ruthless and overly ambitious.

Uber is aiming to become a kind of global transportation service that will formally allow city dwellers to not own a car; in addition to taking people from place to place, it will transport goods and its has the potential to use driverless vehicles. Like other digital giants including Google, Facebook, Apple, Airbnb, etc, they have global ambitions; more than just a niche market. This has happened because of globalisation combining with digitalisation. Uber can be very arrogant in its approach and has found itself at loggerheads with countless cities around the world because its business model violates local laws, rules and regulations.

Uber ride sharing services are causing problems for legislators and regulators plus the traditional players in the taxi industry. The challenge is to force the Uber drivers into the regulatory system without destroying competitive tensions that Uber has brought to the taxi industry. The public who are annoyed with the delays, bad drivers and poor service have welcomed the likes of Uber using the latest available technology like apps. The only group that gets upset are the established taxi operators and their organisations

"... Disruptive technology-based services are doing what took years of inquiries, complaints and reforms haven't - tearing apart a monopolistic industry in record speed..."

Jessica Sier, (2015),

Regulations governing the taxi industry were developed before iPhones and GPS technologies were available. The regulators are struggling to catch up!!!

Linked with ride sharing are mobile booking and payment apps like goCatch and ingogo that are alternatives to Cabcharge which has been dominating the taxi industry since 1976 and charges a 10% fee; recently this fell to 5% in Victoria and New South Wales

Uber's model involves giving taxi drivers iPhones with the Uber app installed; the legal Uber Black posh car-service enters a market first; once Uber Black and Uber taxi take hold, then UberX is introduced

Uber's founding vision was "everybody's private driver"; its mission statement is "transportation as reliable as running water, everywhere for everyone". more recently the concept of a "perpetual ride", ie a driver would always have a customer in the car. In order to achieve its vision and mission, Uber needs to achieve price leadership and continually search for ways to deliver transportation at lowest prices, ie deliver the highest possible value to the customer at the lower price. Also, as the demand is highly elastic, ie as prices fall. the demand increases significantly, the lower prices deliver a much better value proposition to the passenger. Many cities have witnessed more than 6 price cuts in a 2 year period resulting in Uber's fares being 40 to 50% below that of the local taxis. Uber's lowers fares are backed up by income guarantees for drivers

As Uber has accessto an immense historical base of supply and demand curves at different price points, it can predict how the markets will evolved

Uber's technology goes beyond smart phone application. There are intelligent systems that provide demand predictions, congestion predictions, supply matching, supplied positioning dispatch, dynamic pricing, etc. It has data from 1+ m. rides per day to draw from. Its app provides free information, ie comprehensive stats on traffic information, about location of people requesting cabs, the ability to securely process credit cards via smart phones and reporting on fares

UberPool - a single car is like a bus, ie collecting and dropping passengers who travel in the same direction, eg ride-sharing (with each driver averaging more than a single passenger per trip). This has resulted in behavioural changes with many passengers traveling the same route regularly like 5 days a week.

Uber uses 3 models, ie

i) uses professional drivers with luxury vehicles

ii) UberX uses anyone over 24 years old with a licence, no criminal record and a four door car

iii) UberPool (ride sharing with more than one passenger going in the same direction plus collecting passengers en route like a bus; results in

- more income for driver

- lower fare for passengers

- higher revenue turnover fore Uber

NB To computerise Uber Pool, with its many permutations, requires "desiccated heuristic approximation" methods that have to solve challenges around

- multiple potential drivers who are constantly entering and leaving the system

- destinations are dynamic

- vehicles have limited seating capacity

- new requests for rides at continually coming in

Positive impact of Uber, ie
- creating jobs
- raising local taxes
- reducing car ownership
- reducing drinking and driving
- reducing the need for parking
- reducing congestion on the roads
- fewer cars on the road lowers pollution, ie carbon emissions
- more effective utilisation of an underutilised resource, ie private car (most private cars are idle around 95% of the time)
- application beyond just transporting people into broader logistics, ie multiple stops with multiple cargoes

The taxi industry's response to Uber is a good example of how traditional firms can react to a threatening new player. The taxi industry has put pressure on governments worldwide to react negatively to Uber, ie uses current laws, rules and regulations to try and to protect its traditional position. This is doomed to fail as the public has a strong desire for a better taxi service, which currently regarded as inefficient, and the public scepticism of government regulations. The regulator's main roles are around market competition and public safety; Uber is increasing market competition and the public don't agree with the argument that it is unsafe

Uber has weathered rolling taxi strikes (New York, London, Paris, Canberra and Melbourne), violent attacks by taxi-drivers (Brisbane) and slow-moving State government regulation (partly due the powerful taxi lobbies); they are forcing governments to rethink existing taxi regulation and traditional transport structures.

The way Uber operates is to challenge the law and use customer and drivers support to pressure governments to accommodate them. Generally they use the UberBlack platform (using private hire car drivers) to enter a new market. Once established they then expand to recruit existing cab drivers. This is followed by UberX which bypasses the expensive barriers to entry in the taxi industry with drivers receiving 75% of each fare. UberX can be up to 40% cheaper than traditional taxis. Despite its unregulated status, it has conducted around 10 million journeys in Australia and has around 1 million clients (2015).

Sometimes traditional players partnering with their potential disruptor, ie frenemies - this is a shift in attitude from disdain several years ago to a greater willingness to partnering with disrupters; some examples include

- Google introduced. Apple Pay (a mobile payment service) that uses existing bank and credit card system

- American Express moved into Silicon Valley focusing on innovation in big data, cloud computing, social networks, online retailing and mobile payments

- Citigroup has a venture capital group that invests in companies that have the potential to disrupt and transform financial services like LoopPay , which has a technology that allows mobile devices to convey payment data to existing magnetic card readers
- Wells Fargo established a "start-up accelerator" to invest in firms that develop tools for the financial industry
- SunTrust Banks acquired the online lender Firstagain (2012) and renamed it as LightStream (2013); it offers unsecured personal loans of up to $100,000
- MUFG Union Bank uses Lending Club to offer unsecured loans to its mortgage customers
- MasterCard is linked with Behalf, which makes quick credit decisions by using limited information that includes crunching data from social media and online sources to determine the risks

. The catalyst for working with potential disrupters was the advent of Square (a mobile payment service started in 2010). More recently P2P are more threatening as they offer loans at rates below those of credit cards and banks, and offer investors returns above what they would get on bank deposits

At the same time, as new technology enters the real world, it can be potentially misunderstood by governments and their agencies. For example, when the car first appeared, it was banned from roads as it would disturb horses!!!!!

Some people are using design thinking as a methodology that helps people develop the technology into products that are more acceptable to the public. It involves creating prototypes of the product and testing with consumers as a basis for continuous improvement and for their acceptance. For example, Airbnb's founders spent nights at the homes of their first users to test the suitability of their product, etc

 Disruptive technological advances are making fantasy into possibility and launching entire new industries like

 - iPhones making the phone into a minicomputer

 - Driverless cars

 - all the world's knowledge condensed into an easily accessible digital map

- algorithms controlling 70% of all trading on the stock market

 - development of drones for commercial use such as deliveries, data collection, etc

 - artificial intelligence, etc

 "...the digital revolution isn't just altering specific sectors of the economy, it is changing the way we think and live..."

 Thomas Schulz, 2015

 Each of these disruptors created a new value chain and usually worked with new customers, rather than the incumbents.This has been true through-out history, ie transport. In the 18th century, the development of canals resulted in a monumental change in transporting goods. Previously goods traveled overland by road by horse and dray; this transport method of necessarily limited quantities was very slow and dangerous, ie rough roads limited the types of goods that could be transported effectively; the goods need to be unbreakable. The use of canals, however, resulted in larger quantities of goods being transported more quickly, with less breakage risk. It is estimated (Simon Winchester, 2001) that transport costs were halved by using canals This was followed by the introduction of railways. The railway network has all the benefits of the canals, was quicker and able to carry larger quantities. Thus the effectiveness advantages of canals disappeared. Now they are tourist attractions.

Some disruptions are hybrids that combine new markets and low-end approaches. Examples include

- Southwest Airlines (initially targeted customers who were not flying (previously used cars or buses or trains) and eventually pulled customers out of the lower end of the airline industry).

- Charles Schwab (stockbroking- stole customers from the full-service brokers with discounted trading fees and created a new market by enabling people who historically did not own shares to become share investors and traders).

- VOIP (considerable cheaper than traditional land-line and mobile phones despite poorer performance quality)

In fact the fundamental driver of Japan's economic miracle of the 1960s to the 1990s was disruptive organisations like Sony, Toyota, Nippon Steel, Canon, Honda, etc. who successfully competed against America's most successful organisations like General Motors, etc. Now they are producing some of the world's highest quality products for their respective markets ie they have moved to the high end of the market where there is limited growth. This partly explains the stagnating economy in Japan.

Many successful organisations have been disruptive at least once. These include IBM, Intel, Microsoft, Hewlett-Packard, Johnson & Johnson, Cisco, Southwest Airlines, Apple, Google, etc. Some like Sony have done it many times.

In the case of Southwest Airlines, as a market disrupter it attracted new customers who would not normally fly. Furthermore, the airline targeted non-major airports, thus staying away from head-on competition against the major airlines. On the other hand, other "low-fare" airlines, which fly to the major airports, have since created the "chronic unprofitability" situation in the industry.

How technology around the mobile phone has changed the game for Microsoft, Apple and Google

The iPod and iTunes changed the way people purchased, listen to and stored music by replacing CDs and MP3 players; similarly, iPhone was a disruptive innovation as it was a true mobile computer, it

- collapsed the power of a desktop computer into mobile phone with powerful operating systems

- integrated Wi-Fi and mobile Internet access

- allowed software writers to operate on it

- introduced centralised app stores where Apple could manage and distribute all mobile computer programs

- changed the keypad and freed more space for a larger screen

- included sensors like GPS (tell you where you are), magnometer (tells which direction is North), accelerometer (detects iPhone mobility), etc

- allowed further development of apps

By using the android system, Google ran an open source software approach, ie anybody in the world, including smart phone manufacturers like Samsung, BlackBerry, etc, could use the android software and tailor it to their own particular needs. This was different from Apple with its iOS system only operating on Apple-made hardware

Technology companies are rising and falling faster. The development of android and iOS destroyed Microsoft's near monopoly in operating systems in a mere 5 years with people adopting mobile computing more than 3 times faster than they did a desktop. It took around 15 years for Microsoft to dominate the desktop market after starting in the 1980s. Also, 2013 marked the worst decline in global PC shipments in history, ie 7 consecutive quarters of decreasing orders,

As consumers, businesses and computers are becoming more mobile and data intensive, the likes of Microsoft, Apple and Google are becoming vulnerable to smaller, nimbler competitors. For example, the once invincible Microsoft failed in its attempt to take on Apple's iPad. It is hoping to counter this through the purchase of Nokia (US $7 b.) to protect its core business (Windows Operating System, Office & Software, etc) from the likes of Apple, Google, etc. This acquisition turned another industry icon into a footnote in history books.

People wanted computers to be mobile, ie

Many people only ever interact and see the mobile version of a business. Therefore one needs a mobile strategy and to think differently about content and experiences. Mobile design is very different from desktop, eg the mobile relies on finger taps and swipes, not mouse clicks; it is faster and simpler; different screen size, screen orientations, display densities, etc. Gestures and touch interfaces make things easier and create ways to shortcut and leapfrog mouse clicks and keyboard commands. On the other hand, the size of the iPhone provides constraint.
Do not assume that because it works on the desktop it is suitable for the mobile. Some thoughts on getting the mobile experience right and how to avoid common mistakes, ie
- observe how people behave, rather than trying to anticipate users behaviour; for example bring users into your office to test whether the way you thought they would use a feature is true.
- observe people using your services in their world: can they figure it out on their own? Where do they get stuck? Understand where people get frustrated, etc
- use the service yourself, so that you know it inside out, ie empathise
NB Mobiles provide new tools but also force you to be selective. The platform provides a new level of design rigour that is totally different from the Web

Some user numbers in China (2014)
"...China ended 2014 with 618 million Internet users, of which 500 million were mobile Internet users. 81% of Chinese are now accessing the Internet via mobile. Mobile Internet browsing as a percentage of total Internet browsing has reached 23% by January 2014 - this is a 83% increase in just one year. If the above trend continues, then mobile is going to represent the majority of all personal computing platforms by 2016. In 2015, the number of smart phone users is expected to hit 2 billion. The lower cost of mobile devices combined with the growth of mobile broadband networks will actually see the next billion people who come online bypass desktop computing entirely and go straight to mobiles..."

George Berkowski, 2014

 - QQ (chat service) has 500m. users
- Qzone (social network arm of QQ) has 600m. monthly active users
- WeChat ( messaging app like WhatsApp) has 270+m. users
- Mo Mo ( social dating app) has 100+m. users
- Taobao (Internet shopping site) is twice the size of eBay and Amazon combine\

Chinese disposable income trebled over the 8 year period from 2005 to 2013

"...A typical smart phone user looks at their phone around 150 times per day. In 2013, the average consumer spent an average of two hours and 38 min per day on their smart phone and tablet. That accounts for a whopping 70% of their waking time - that's almost one fifth of the time we spend with their eyes open. Those consumers spend 80% of that time using apps and only 20% on mobile Web. Apps offer the better mobile experience - and a result holds four times more of our daily attention than the mobile web. Almost 60% of our time on games, Facebook or entertainment-related apps..."

George Berkowski, 2014

On average a person checks their smart phone around 150 times per day (Mobile Almanac as quoted by George Berkowski, 2014). this is broken down into
- message related ( 23 times per day) ( WhatsApp, Tango, Viper, Snapchat, Line & WeChat, etc)
- voice-call related (22 times per day) (Skype ( Microsoft), Viper, Hangout (Google), Facetime (Apple), etc
- clock (18 times per day)
- music player (13 times per day) (iTunes, Spotify, Pandora, etc)
- gaming (12 times per day) (Nintendo Game Boy, Sega Game Gear, Sony PSP, Angry Birds, Candy Crush, Clash of Clans, Puzzles, Dragons, Hay Day, etc)
- social media (9 times per day) (Facebook, Twitter, Pinteret, Weibo, etc)
- alarm (8 times per day) (Sleep cycle, etc)
- camera (8 times per day) (Instagram, etc)
- news & alerts (6 times per day) (Flipboard, etc)
- calendar (5 times per day)
- search (excludes internet) (3 times per day)
- other random web browsing (3 times per day)
- charging phone (3 times per day)
- voicemail (1 times per day) (Apple, Spinvox, etc)
- other miscellaneous uses (10 times per day)

· Facebook's app and Apple's Safari dominate mobile web browsing

· Apple and Google are the middlemen (taking up to 30% of revenue); they dominate with about 90% of 102 b. apps that were downloaded in 2013. Extra income sources

i) the transactions income from apps when you enter your credit card information directly

ii) in-app purchases, ie extension of pay-before-you-download model; it made downloading the app free (plus encouraged more people to do it) and gave the app developer the opportunity to sell other services or products with the app. For example, "Clash of Clans" game makes 100% of its revenue via app payments, ie US $890 m. In 2013, similarly, e-commerce via mobile apps account for an estimated US $ 43.2 b. in mobile sales; up from US $ 21 b. (2012).

"...This means that mobile represented around 13% of the US$ 260 billion total e-retail sales in 2013. Amazon doubled its mobile sales in 2013 to $ 8 billion, with eBay doing $ 8.8 billion..."

George Berkowski, 2014

iii) advertising via app magazine

· The app stores were very popular with developers as they could

- build up massive audiences

- make it easier for users to make purchases with credit card details, ie a single click

- the app store owner manages everything to do with the accounts, payments and any hassles, such as fraud & chargebacks

· Facebook's app and Apple's Safari dominate mobile web browsing

App (an example of mobile-centric business model)
Introduction
What happens to App firms
Successful (worth US 1+ b.) 0.07%
Successful (reach IPO stage) 11.00% (takes an average 7 years)
- survive 3 years 60.00%
- survive 10 years 35.00%
Fail (loss all money invested) 39.00%
(National Venture Capital Association as quoted by George Berkowski, 2014)
This requires the following expertise (not necessarily in order of importance)
- entrepreneurial flair (understand what people want and need)
- development of better products and services
- great leadership
- constant innovation
- spontaneity
- superb execution
- good people skills
- thinking big
- time
- luck
- timing
- perseverance
- mass appeal
- simple
- speed
- convenience, ie to use and pay for
- usefulness
- understanding of technology
- failure is a learning experience
- refusal to take no as an answer

Need to determine if there is a big problem(s) causing, for example, frustration, etc and create solutions to it or them. Solutions will come via disruptive thinking and reinvention, solid execution, management of complexity.

- Problem-solving. One of the best ways to link in problem-solving is with understanding the 76 universals (comprise those features of culture, society, language, behaviour and psyche for which there are no exceptions, ie common to all human cultures). They are

"...age, grading, athletic sports, bodily adornments, calendar, cleanliness training, community organisation, cooking, cooperative labour, cosmology (the study of the universe), courtship, dancing, decorative art, divination (predicting the future), division of labour, dream interpretation, education, eschatology ( what happens at the end of the world), ethics, ethno-botany (relationship between humans and plants), etiquette, faith healing, family feasting, fire making, folklore, food taboos, funeral rites, games, gestures, gift giving, government, greetings, hailing taxis, hairstyles, hospitality, housing, hygiene, incest, taboos, inheritance rules, joking, kin groups, kinship nomenclature (system of categorising relatives), language, law, luck superstitions, magic, marriage, mealtimes, medicine, obstetrics, pregnancy usages (childbirth rituals), penal sanctions ( punishment for crimes), personal names, population policy, postnatal care, property rights, propitiation of supernatural beings, puberty customs, religious rituals, residence rules, sexual restrictions, sole conceptions, status differentiation, surgery, toolmaking, trade, visiting, weather & weaving..."
Donald Brown, Uni. of California as quoted by George Berkowski, 2014
Use sharing to develop expertise in problem-solving that is hard to copy, simple, disruptive, step change, ie solves existing problems differently from other traditional ways.

Developing the basic business model using an apps as an example

1. Identifying business opportunities
a) find problems that people want solved in a large market by developing innovative solutions that are hard to replicate
b) define and design a business model with suitable products and/or services that solve the people's problems
c) appreciate the importance of timing and luck; people's attention is a limited commodity
2. Conduct p
ilot run on target market to test idea(s)
a) check product-market fit, assumptions, etc
b) develop the "wow" factor for users, ie determine an excellent product-market fit
c) importance of first impressions*i, eg domain name, taglines, icons, logos, names, etc
d) developing awareness*v via multi-interfaces/channels/media, etc eg
- press kit (information on company/app, photos, logos, screenshots, videos, etc)
- mobile (smart phone), tablet, desktop, webpage, etc
- social media like Twitter, You Tube, Facebook, Blogs, LinkedIn, Pinterest, Google, etc
- e-mail contact list, etc
- professional societies
- educational markets
NB focus on high-volume, high conversion and low-cost channels
e) test every step so that it is solution-and-user-friendly plus simple, efficient, effective, cheap, convenient, quick, findable*iv, etc
NB Don't build something clever - build what people want, ie user-centric/solution-centric; give people what they want, when they need it, ie instant gratification; around 26% users only visit once
3. Based on the results of the pilot run, develop and implement strategies that build and market products/services; users find convenient, solution-centric and are willing to pay a price for that is less than the benefits to them but greater than your costs by
a) understanding the target audience and who the early adopters are in this group
b) focusing on customer's retention & referral with appropriate rewards
c) differentiating plus adapting faster than any competitor
d) growing the business to first gain, and then maintain, a sustainable and profitable market position
e) developing a suitable company/organisational structure
f) develop suitable name, brand, style and design*ii
g) developing data-driven decision-making from appropriate, automatic, performance-related feedback from analytics*iii, ie trends, users' behaviours like why and how people use the app, who is using, where users originate (country, organisation, profession, job title, etc) etc
h) establishing suitable payment systems like currencies, PayPal, credit cards, bank deposits, etc
i) some important questions
- what products/services are you building?
- are the products/services solving the right problem?
- who are target users and is it delivering value to them?
- what is the app going to look like?
- what percentage of users are repeat users (aim for greater than 40%)?
- what is the rate of referral, ie would you recommend it to a friend?
j) keep away from "cookie cutters"
k) start B testing
4. Recruit a good team of people with complementary management, execution and technical skills that fit the strategy and organisational structure; skills to cover
a) product(s)/service(s), eg change management, etc
b) industry expertise
c) technology (software, research and development, etc)
d) marketing (promotion, advertising, social media, market surveys, collection and analyses of performance analytics, understanding trends, understanding target audience, etc)
e) finance (raising money, etc)
f) accountancy (accounts, tax, debtors/creditors, etc)
g) management (HR, people handling, communications, delegation, training, etc)
h) customer service (handling complaints, exceed expectations, etc),
i) business development (products/services, technical, analytics, etc)
NB This team is flexible and learns as it goes but has a shared vision and members are passionate about what they are doing; a culture of experimentation dominates and encourage people to innovate, create and disrupt; invest in people, not infrastructure; 80% of time on improvements and 20% on innovation
5.
Continually improve business models/products/services
a) use regular feedback (including analytics, etc) as basis for data-driven decision-making
b) need to follow sequence of build (prototypes, etc), measure (feedback, etc) and improve (change, modify, etc)
c) review relevant literature like journals, etc
d) consider the effect of removing features
NB don't chase perfection; chase speed
6. Developing exit and acquisition strategies
a) value determined by
- users and their activity, eg download-to-user-acquisition rate, ie greater than 80%
- revenue*vii/profitability/cash flow/balance sheet, etc
- product-market fit*viii, etc
- risks, etc
- future directions, etc
b) sources of finance
- Angels (percentage of ownership for investment, invest in people and idea, etc)
- Venture Capital (percentage of ownership for investment; risk-takers*vi, possess privileged insights, eg knowledge of markets, industry, etc)
- Bankers (lend money for interest, amount depends upon security, are risk averse, etc)
- Accelerate (incubators who invest for a fixed duration, ie to get the start up going, etc)
c) organisation needs to be incorporated with a bank account
d) legal documents include non-disclosure agreements, secure source codes (software), founder vesting (hang around for a time, eg 4 years), etc
e) use advisers who are experienced in the industry and technology
f) collaboration with others, eg partnerships, joint ventures, franchising, licensing, bartering, etc
Notes
i) The importance of first impressions, so the name needs to be short, catchy, memorable, distinctive, clever, become a verb, etc. Linked with the name is the domain name, tagline, icon, logo, etc.
ii) A good design is functional, simple but detailed, environmentally friendly, thorough, long-lasting, honest, unobtrusive, understandable, aesthetically pleasing, useful, innovative, etc; it should educate, entice, excite and exhilarate users
iii) Analytics are required to be valuable, measurable, relevant and actionable, ie acquisition, activation, retention, referral and revenue (ARR); so as to drive decisions. Acquisition (how often visited, ie get users to stay more than 10 seconds; multi-channels); activation (convenient, satisfying experience, amount of money spent, etc); retention (users come back, ie number of visits/purchases); referral (use "freebies" to encourage new users); revenue (sales over time and/or per user, discounts, users life cycle, etc).
iv) Find-ability depends upon title (html), brief description, eg what it's it doing (1 to 2 sentences describing the app that include keywords that are relevant, high-volume, unique, don't repeat words, uncluttered, no phrases, etc), more detailed description (including reviews), etc
v) Awareness includes protecting domain name, monitor traffic ranking, importance of keywords, back-link, create a site map, minimal clicks, image description, fixed content with regular updates, etc
vi) on average venture, capital expects to double its investment but what generally happens from 10 venture capital investment experiences
- 1 gives a return of 10 times
- 3 give a return of 5 times
- 4 break even
- 2 lose money
vii) in 2012 a revenue in excess of US$ 2.75m. was rerquiredfor investors to show interest
viii) rule of thumb question - what would happen if you are unable to use the app? Need 40% of users would be upset.

NB concentrate on software, not the hardware, as the latter is too expensive
Some challenges involve the compatibility of web with mobiles, and anticipating future trends that are coming quickly like better integrated interfaces (desk top, laptop, tablets, mobile, watch, glasses, etc), miniaturisation (smart watches), etc

As it is a long journey, understand that there are sacrifices to be made if you want to be successful

System, ie Android (Google, etc) v iOS (Apple)
- Android is open/public, free, collaborative (sharing), etc which allows developers to build on the work of others and has lower barriers to entry, ie third-party development; has 1.9b. users v APPLE 700 m (2014); in 2012, 4k devices using Android, in 2013, around 12k devices and 600 manufacturers. While iOS it is close.

In summary
Need to shift to focusing on convenience, usability and utility to solve a big universal problem by using a disruptive approach so that the solution is novel.

Ways to make money from apps:
- transactional income
- in-app purchases
- advertising

5 business models

i) Gaming (user pays)
ii) E-commerce ( user pays for "real" goods and services) eg Uber, Square, etc
iii) Consumer audience/Advertising (it has a downside as it tends to corrupt), eg Instragram, Snapchat, Flipboard, etc
iv) Software as a Service (SaaS) (subscription model), eg WhatsApp, Dropbox, etc
v) Enterprise (pay for software), eg big data companies

Software
- mybilliondollarapp.com (general)
- Apple (App Store, etc)
- Google (Google Play, Google analytics, AdMob (awareness), AdSense (awareness), etc)
- MixPanel (provides a detailed profile of each user, ie , lifetime value (LTV))
- Localytics (analytics)
- Flurry (analytics)
- mobileapptracking.com (analytics)
- Kissmetrics (analytics-cum-dynamic notification platform)
- Dribble.com (design)
- behance.com (design)
- www.pttrns.com (design?)
- proto.io (?)
- Moqup.com (test blue-print)
- Bootstrap (social media awareness)
- Hoosuite (social media)
- PRWeb (press release)
- Business Wire (press release)
- AngelList (investors)
- Techstars.seriesseed.com (investor)
- Desk.com (customer)
- usertesting.com (customer)
- CrunchBase (customer)
- Fiksu (customer)
- FreeMyApps.com (customer)
- Launchrock (B-testing)
- Yelp (advertising)
- Groupon (advertising)
- Tumbir (advertising)
- QlikView (big data)
- Zynga (viral app)
- Flipboard (viral app)
- WebTranslattelt (words)
- Smartling (words)
- BelugaLinguistics (words)
- Lingo24 (words)

How are apps found?
- 63% from AppStores & Google Play (50% searching the new apps weekly)
- 61% from search box
- 50% from family/friend
- 39% from social media
- 30% from else where

Seventeen ways to maintain disruptive growth

1. Create ambidextrous organisations, ie create 2 different organisations within a business unit. This involves more than spinning off autonomous units; it means

"...Responsibility for managing the disruptive and sustaining organisations needs to be at a level in the organisation where the two are not treated as businesses in a portfolio. Rather, they should be within a group or business unit whose management has the bandwidth to pay careful attention to what should be integrated across the groups, and what should be implemented autonomously..."

Clayton Christensen et al, 2003

2. It has been found that the best way for separate organisations to remain leaders in industries when confronted by disruptive technologies is to establish a completely independent business unit that has no restrictions on building a completely new business and business model to handle the challenge. Examples include

- IBM when minicomputers disrupted mainframes and again when personal computers emerged

- Hewlett-Packard retained its leadership in the printers of personal computers when it created a separate division to handle inkjet printers that was completely independent of its traditional printer division

- Schwab became the leading online broker

- Teradyne, the makeup of semiconductor test equipment, became the leader in PC-based testers

3. Need to understand the difference between attribute-based and circumstance-based categorization

4. In developing strategy for disruptive innovation, ensure that the right process is used in the right circumstances. Most innovative ideas need to be nurtured via a business plan which includes strategy as a basis to win funding. There are 2 simultaneous processes in developing strategy, ie deliberate and emergent

i) deliberate is a conscious and analytical approach based upon rigorous analysis of data on market growth, segment size, customer needs, competitors' strengths and weaknesses, technological trends, etc. Usually there are discrete beginnings and endings with a top-down approach. There are 3 conditions which must be met:

- the strategy must correctly address all the important factors required for success; those implementing the strategy must understand their responsibilities

- if the strategy requires collective action, then all stakeholders need to have ownership of the strategy and its implementation

- there is little unanticipated or unpredictable impact from outside influences, ie influences not covered by the strategy

ii) the emergent strategy is based upon the cumulative impact of day-to-day priorities and decisions made by all staff.

"...emergent processes should dominate in circumstances in which the future is hard to read and in which it is not clear what the right strategy should be..."

Clayton Christensen et al, 2003

This is most appropriate way of working if the past is not going to be a good indicator of the future, such as when confronted with unexpected crises and opportunities.

In fact, using the emergent approach can be an important way to approach the initial development of innovations. It will help determine what works and what does not, and a chance to cycle the learnings back into the processes, ie

"...openness to emergent strategy enables management before everything is fully understood - to respond to evolving reality rather than having to focus on a stable fantasy......emergent strategy itself implies learning what works - taking one action at a time in a search for the viable pattern or consistency..."

Mintzberg & Waters as quoted by Clayton Christensen et al, 2003

In most waves of disruptive growth, only a few organisations succeed. The reasons for failure are

i) lack of flexibility in implementing their strategies

ii) mishandling the allocation of resources

The evolution from emergent to a deliberate strategy mode is pivotal in the success of the initial disruptive business. It is important that senior management understands the need for the evolution and is aware of the resource allocation process that filters out disruptive innovations and favours sustaining innovations. While encouraging the growth of the disruptive innovation by emergent processes, established businesses still need a deliberate strategy process to handle sustaining innovations that will help keep the organisation competitive and profitable.

5. There are 3 important executive leverage places in the strategy process:

i) control the initial cost structure of a new growth business - usually expenses are ramped up before revenue, and this can make the proposition unattractive

ii) choice about strategy should not be left to policy, habit or culture; it should be based upon circumstances

iii) use techniques to actively accelerate the process by ensuring that the business plan is designed to test the critical assumptions and to get the initial conditions right. One technique is called discovery-driven planning (see table below)

6. A discovery-driven the method for managing the emergent strategy process

Sustaining innovations: deliberate planning*i

Disruptive innovations: discovery-driven planning

(note: decisions to initiate these projects can be based on numbers and rules)

(note: decisions to initiate these projects should be based on pattern recognition)

1. Make assumptions about the future (usually based on the past performance, eg financials) and revisit assumptions, if required

1. Make the targeted financial projections, ie income statement and return on investment

2. Find a strategy based on those assumptions, and build financial projections based on that strategy and assumptions

2. What assumptions must prove true in order for these projections to materialize Rank assumptions*ii

3. Make decisions to invest based on those financial projections

3. Implement a plan to learn - to test whether the critical assumptions are reasonable

4. Implement the strategy in order to achieve the projected financial results

4. Invest to implement the strategy (including investment)

Notes

i) For disruptive innovations this process is of limited use as assumptions used are based on past experience

ii) Assumptions relate to

- possibility of low-end or new market disruptions

- target customers will utilize new product/service for the outcome they are trying to achieve

- new venture will lead the organisation to the point in the value chain where the money will be in the future, etc

Both processes of developing a strategy are filtered through the resource allocation process which determines which initiative gets resourced and implemented. There needs to be clear guidance to help prioritise decisions in resource allocation. It is important to remember that the outputs of the resource allocation process are more important than the inputs, ie you need to pay attention to what is done, rather than what they say.

Remember: strategy is never static and the strategy development process should not operate on auto pilot. Entrepreneurs rarely get their strategies exactly right the first time. It is a process of trial and error, with much learning about what works and doesn't work. There is a need to match the strategy-making process with the stages of business development.

In the resource allocation process, it is middle management which decides which ideas are promoted. Their criteria are based upon past experience with applications to senior management. Two factors have an important impact, ie

i) the organisation's cost structure (this determines the desirable gross margin)

ii) the threshold size that the new opportunity must meet in order to get through the resource allocation process, ie needs to be big enough to be interesting. The more successful an organisation becomes, the higher the threshold. Other factors may have an impact, such as

- internal management turnover (with short tenure appointments) in any assignments that results in the recommending of projects that have short-term playoff, ie

"...they want to produce improved results that will merit effective promotions..."

- sales incentive systems can result in pushing products/services that give the most compensation quickly

- customers, by their preferences, can impact on the resource allocation process

- competitors' actions, especially when they threaten to steal customers for growth opportunities

In other words

"... the resource allocation process......is a diffused, unruly, and often invisible process..."

Clayton Christensen et al, 2003

7. Need to understand that for disruptive innovation, people will need to interact with different people about different topics and with different timing; a one-size-fits all approach will not work

8. Say no to a strategy that targets existing customers and markets that look attractive to established competitors. Need to establish disruptive footholds that established competitors will be happy to ignore or be relieved to walk away from.

9. Target new customers (non-customers) who will be delighted to have a simple, inexpensive product as the alternative is having nothing

10. Focus on finding ways to help customers get things done more conveniently and inexpensively than they already are trying to get done

11. Need to segment the market in ways that reflect that it based on the jobs that customers are trying to get done. Do not focus on market segments whose boundaries mirror current organisational boundaries or where targeted markets are segmented along the lines for which data already exists, such as product type, price point, or demographic category, etc. Furthermore, it is not an one-size-fits-all market.

12. If non-customers are not available, you need to explore whether a disruption is feasible, especially at the low-end of a market. This means changing the business model to make attractive profits at the discounted prices required to capture "low-end" customers who cannot use all the functionality for which they are currently paying. If the assessment is that the basis of competition will not change and the types of improvements that have resulted in good margins in the past will continue into the future, look at the lower end of the market. Often there are opportunities at this end to change the basis of competition.

13. If your disruptive product or service is not yet good enough and your organisation is happy with industry standards, and current outsourcing and partnering deals, this can spell trouble. If you prematurely pursue modularity as an open standard, or if you keep a proprietary architecture closed while the basis of competition changes, you will struggle to succeed, ie

"...It is better to develop competencies where the money will remain in the future than cling tenaciously to those skills that made you successful in the past..."

Clayton Christensen et al, 2003

14. Need to be careful if your new venture fits your organisational core competencies. Three questions will help determine if the right organisational structure and channel are present on the project, ie

i) do you have the resources to succeed?

ii) will your processes facilitate what needs to be done to succeed in the new business?

iii) will your organisational values (including how you prioritise activities) enable the critical people to give the necessary priority to this new initiative when compared with other activities that compete for their time, money and talent?

There are 4 types of organisational structures (heavyweight, lightweight, functional and established) that can be used to integrate the challenges of dealing with different types of innovation with the mainstream organisation

i) heavyweight - innovation that fits with the current status of the organisation but needs new processes to handle the interfaces between the different activities and problems. This requires new types of interaction and coordination among groups and individuals, and usually involves taking people away from the functional roles and placing them in a team to tackle the new venture (with its different issues that operate across the boundaries of the functional organisation). This means that team members bring their functional expertise but do not represent their functional group's interest. For example,

"...Companies as diverse as Medtronic in the cardiac pacemakers, IBM in disc drives, and Eli Lilly with its schizophrenia drug Zyprexa have used heavyweight teams as a basis for creating different, faster processes..."

Clayton Christensen et al, 2003

ii) lightweight - organisational processes etc fit with the new venture. Thus it is possible to coordinate across functional boundaries within the existing organisation so that existing processes can be utilised

iii) functional - a disruptive technological change that fits neither the organisation's existing processes nor the way ir operates - need to create an autonomous organisation

iv) established - selling products/services in the mainstream with a fundamentally lower-end business model. These ventures can benefit from the main organisational logistic management processes that have different profiles on budgeting, management, profit and loss, etc

15. Managers who have consistently delivered results in the past may not be suitable to deliver results in the new growth business. Rather than focusing on attributes or the magnitude of past responsibility, search for people who have had the mindset to confront the issues that the new venture will produce.

Need to keep an open mind and be flexible about what strategies to use in terms of products/services, customers and application

Need to be patient for growth but impatient for profit- if you require immediate growth, you may be pursuing the wrong strategy, such as focusing your disruptive technology into an established market. Furthermore, the sources of capital, such as corporate vs. venture, are not as important as a willingness to be patient for growth.

Remember

"...investments in sustaining technologies with extensive interdependencies across the value chain can indeed require years of massive investment......in disruptive circumstances, patiently enduring years of losses generally demonstrates that you have been pursuing the wrong strategy for a long time..."

Clayton Christensen et al, 2003

16. Senior executive has 3 roles:

i) interfere in the traditional process of allocation of resources between current and new activities, especially where processes do not exist to handle disruptive innovations

ii) encourage disruptive growth activities and distribution of earnings throughout the organisation from new growth businesses

iii) sense and respond to the signals of continually changing circumstances, eg basis for competition

This includes the practice of "management by walking around" which can help management get a sense for what the important questions are, so that they can ask for the right information needed to make good decisions

17. Need to develop a process called "disruptive growth engine". Critical to success is the senior executive's involvement. His/her role is to understand a circumstance-based approach, ie

"...discern the circumstances in which their direct involvement actually is critical to success and the circumstances in which they should delegate..."

Clayton Christensen et al, 2003

Need to be careful of middle management filtering information needed for senior management decision-making, ie there is an asymmetry of information. The best way to handle this is to drive decisions down to the lowest organisational level possible.

Remember

"...potentially disruptive businesses are small. But with ill-defined strategies and demanding profitability targets, make-or-break decisions arise with alarming frequency, and such businesses have no processes for making the decisions correctly. In contrast, large businesses in successful organisations typically have established customers with clearly articulated needs, and have finely honed resource allocation and production processes to serve their needs. The decision-making requirements of these organisations......are......made by the orderly functioning of established processes......because the plans of disruptive businesses by definition need to be shaped by different criteria, the values of the mainstream business have evolved to weed out the very sort of ideas that have disruptive potential..."

Clayton Christensen et al, 2003

"... There are countless examples from our own lifetime - Kodak, Xerox, all of those traditional companies that failed to recognise that their world was fundamentally changing......one of the impediments they faced was that they had made so much money and they had been so successful that so long that they denied and denied the reality of the future would not be like the past......the best time to drive change is before the crisis hits. Rather be too soon, than too late, that you cannot predict the timing of when you are going to reach that strategic inflection point in a business. By the time it is staring you in the face, it's too late. So you're got to be willing to drive the change rather than let the change drive you..."

Mark Scott as quoted by Dominic White, 2015

Furthermore, in most circumstances, sustaining innovation encourages delegation of decision-making. In contrast, the disruptive innovation model requires senior management's focussed because the most apt processes are not yet in place to create and manage the disruptive innovation.

Generally an organisation's founders tackle disruption better than professional, non-founder managers. Some examples:

- Charles Schwab (on-line brokerage)

- David Packard (Hewlett-Packard - microprocessor-based computers)

- Bill Gates (Internet-based computers; SQL and Access database software, etc)

- Akio Morita (Sony - transistor-based electronics)

- Sam Walton (Wal-Mart - Sam's club)

- Steve Jobs (Apple), etc.

It is thought that founders have more self-confidence to override separate processes in interest of issuing disruptive opportunities.

Other imperatives for senior management are

- start before you need to, ie have the resources to handle the new situation

- establish a team of movers and shakers, ie they are responsible for shaping disruptive ideas and responding appropriately

- train the troops - staff closest to the market need to know what to look for and to develop the right processes

Summary - 3 approaches to creating new growth business

Dimension

Sustaining innovations

Low end disruptions

New market disruptions

Targeted performance of the product or service

Performance improvement in attributes most valued by the industry's most demanding customers. These improvements may be incremental or breakthrough in character

Performance that is good enough along the traditional metrics of performance at the lower end of mainstream markets

Lower performance in traditional attributes, but improved performance in new attributes - without losing functionality, simplicity & convenience

Targeted customers or market application

The most attractive (profitable) customers in the mainstream markets who are willing to pay for improved performance

Over-serviced customers in the low end of the mainstream market

Targets non-consumption: customers who historically lacked the money or skill to buy and use the product/service

Impact on the required business model (processes & cost structures)

Improves or maintains its profit margins by excluding the existing processes and cost structures and making better use of current competitive advantages

Utilizes a new operating or financial approach or both - a different combination of low gross profit margins and higher asset utilization to gain attractive returns at the discount price required to win business at the low end of the market

Business model must make money at lower price per unit sold and at unit production volumes that initially will be small. Gross margin dollars per unit sold will be significantly lower.

(source: Clayton Christensen et al, 2003; Richard Branson, 2008))

Nine industry examples of the application of the S-curve, ie trying to re-invent themselves

1. Automobile

2. Computers

3. Movies

4. Music

5, Books

6, Gambling (Las Vegas)

7, Financial centre (Hong Kong)

8. Surf Brands

Automobile

Model T Ford (1908)

The Model T was the first mass-produced car that was priced so that most Americans could afford it. Every single part was made in one factory.

GM's motto: "car for every purse and purpose" (1924)

General Motors reinvented the car by injecting price differentiation, fun and fashion into the car industry

VW Beetle (1950's)

Introduction of the small, second family car as a 'shopping basket'

Toyota Land Cruiser (late1960s)

Introduction of "up-market" 4WD resulted in the increasing popularity of 4WDs for non-primary industry usage, ie leisure travel, urban "run-about", etc

Japanese fuel-efficient cars (mid-1970s)

The Japanese carmakers focused on small and reliable models in response to a global fuel crisis. Car parts made by many different firms forming an intricate relationship with suppliers

Chrysler minivan (1984)

With its minivan, Chrysler created a new class of vehicles that are easy to use as a car but have the space of a van

Environmental-friendly cars (2000)

The introduction of the hybrid motor vehicles

Driveless cars/robotics

As 90% of traffic accidents in America are due to human error (Steve Johnson, 2014), the driverless car is seen as a way to reduce these accidents. Remember: an automakers typically spend 5 to 7 years developing an automobile. An example of driveless vehicles is Rio Tinto (global miner) operatings 50+ autonomous trucks at Australian mining sites

Software makers like Google, Apple, etc are linking with automobile industry global suppliers like Bosch, Continental, Denso, Magna Steyr & Delphi; not with automobile manufacturers like Ford, Toyota, General Motors, Fiat, Chrysler, etc. These suppliers are very strong in technology that guides and controls cars; they have invested heavily in research and development on electronics and automation. For example, Google is testing a self-driving car that uses Bosch sensors (Bosch employees 34,000 engineers of which about 1/3 work in software)

Software, electronics, automation and communications are an integral part of the new generation of vehicles, ie
"...as with computers and mobile phones, they can own technology and license software, rather than shaping metal..."

John Gapper, 2015

As automobiles turn electronic, the suppliers are building a bigger proportion of each one; the cost of electronic parts in the average vehicle will rise from 20% in 2004 to 40% in 2015; a premier class car contains 100 microprocessors and runs on 100 million lines of software code (John Gapper, 2015). To a software engineer, a car looks like a computer, ie

"...a networked device founded on software and applications that can be designed in California, built from modules made by suppliers, and put together in contract factories..."

John Gapper, 2015

NB After dominating the world car market for around 70 years, GM has losing its no. 1 spot to Toyota. Furthermore, with the economic downturn starting in late 2008 and the resultant financial difficulties of the major car producers, such as GM, Ford, Chrysler, Toyota, etc, does indicate that their business model is under significant threat, eg GM went into volunteer bankruptcy in 2009

Also, with the advent of ride sharing technology (Uber - $US 40 b., Lyft - $US 1.2 b., etc) and driverless/electronic cars (Telsa - $US 25 b.), traditional car companies like Ford, Nissan, etc are working with tech companies to connect cars to the Internet; these companies are now seeing themselves as software and technology companies. Automakers spent $US 100+ b. on R & D (2014), making them the third biggest spender behind health care and technology hardware (The Lex Column, 2015b)

Computers

IBM system/360 (1952)

IBM created the business computer industry by simplifying and reducing the size and price of existing technology

Apple II computer (1978)

Although not the first home computer, the all-in-one, easy-to-use Apple II revolutionised home computers

Compaq PC server (1992)

Compaq's ProSignia server gave buyers twice the file and print capability, all in a mini computer at a third of the price

Dell built-to-order (mid-1900s)

In a highly competitive industry, Dell created a new purchase and delivery experience for buyers by building to order

Laptop (late 1990s)

Allowing for the mobility of computer

Wireless (early 2000s)

No need to plug computer into a phone land-line, etc

Movies

Nickeldeon (1905)

The first Nickeldeon opened its doors a century ago, showing short films around-the-clock for working-class audiences at minimal prices

Palace theatres (1914)

Created by Roxy Rothapfel, these theatres provided an opera-like environment for cinema viewing at affordable prices

AMC multiplex (1960)

The number of multiplexes in suburban shopping malls mushroomed, giving viewers greater choice while reducing costs

AMC megaplex (1995)

Megaplexes offered every blockbuster and provided spectacular viewing experiences in complexes as big as stadiums, at a low cost to operators

NB Hollywood has had an uneasy relationship with technology

"...they hated television. They went to court to outlaw the VCR. These days, they have to contend with digital piracy, Internet distribution, and TiVo boxes. They are keeping a wary eye on the user-generated content on YouTube and the dazzling new videogame players from Microsoft and Sony..."

Marc Gunther, 2006

On-line streaming (2013)

On-demand movies, on-line (Napster, Sam, Netflix, etc)

4. Music

Start of recordings

- wax cylinders (1880s)

- 78rpm recording discs (1910s)

- plastic records (singles, eg 7 inch, LP; then EP - extended play, containing 2 or 3 tracks on each side) (after WW2)

- radio stations playing music, eg disc-jockeys

Pre-digitalisation (dominated by global organisations such as Philips, Sony, His Master's Voice, RCA, etc but an increasing number of "small" independent producers, such as Virgin Records - 1960s)

- expensive recording studios and large stores for selling records

- mass production technology of plastic records (vinyl records)

- cassette players/recorders (encouraged home taping from the radio and/or original LP)

Digitalisation (new entrants, such as Sony, JVC, PolyGram, Atari, Apple, etc) (since 1980s)

- computer software allowing mixing albums and soundtracks

- compact disc (CD) with disc pressing technology, and later DVD

- videos (VHD)

- video games, starting with Pac-Man and developing into the home computer games

- Internet (digital downloading of music, social networking, such as YouTube, MySpace, iTunes, etc. Music is recorded on lap tops and then put on on the Internet so that it can be downloaded. For example, in 2007 Radiohead released their album (In Rainbows) digitally for whatever customers wanted pay. They sold 3 million physical and digital copies.)

For several decades, musicians had to be linked with major record labels to have any chance of succeeding in selling records to the public. With the Internet, this has all changed.

- Apple's iPod (combining technologies and communications - mobile phone, etc with music recording/playing)

Furthermore, technology changes around the Internet and digitalisation has increased the number of titles exponentially as anyone can produce and market an album. It has changed the power relationship between the artists and record firms, with the artists more in control of their destiny. It has increased the marketing options from digital-only-singles to ring tones, streaming, online sites, social networking, exclusive downloads from the digital portals and mobile phone wallpapers, etc.

Until recently, around 50% of total music revenue money came from record sales. But this fell to 33% by 2009 and continues to fall; on the other hand, touring, merchandising and other income has increased significantly.

"...Music will be a giveaway to build a fan base to support your touring and your merchandise..."

Dave Weiner as quoted by James Eyers, 2010

NB

Since the 19th-century, most recording technology has had a life of 30 years; this has changed drastically in recent years, with technology moving significantly faster. Each development has resulted in different ways of making music, marketing, purchasing and acquiring it. In general,

- music has become more accessible

- greater variety is possible

- the artist has acquired more power than the recording organisations.

It has been claimed (Andrew White et al, 2012) that piracy in the form of peer-to-peer file sharing, followed by Apple's iPod and iTunes have halved the size of the record industry in the past decade.

Streaming

Streaming is changing the music industry. The music industry has a one-stop-shop streaming service, Spotify, ie for a monthly subscription ($12) able to listen to almost any artist. The TV and movie industries do not have a similar one-stop-shop streaming service; you need to subscribe to Netflix is the currently the nearest to a one-stop-shop movie streaming service.

In the USA, streaming music like Spotify, Rhapsody,etc and radio services like SiriusXM, Pandora, etc have exceeded CD sales and digital downloads are the largest source of revenue in the music industry (2014). Revenues from USA subscription streaming was around $US 2 b. in 2014 ( 28% increase on 2013and equivalent to 27% of total music industry revenues)
Downloads have been the US music industry's largest source of digital revenue for a decade but peaked in 2012; in 2014 download revenue fell by around 9% to US $ 2.6 b.

"...record companies are now digital music firms, earning more than two thirds of their revenue from a variety of digital formats..."

Cary Sherman as quoted by Matthew Garrahan, 2015
The growth of streaming has created a new power struggle in the music industry between the creators of music and the companies which distribute it. Artists are objecting to the free service which is used by distributors as a marketing tool to attract paying users.

Books

. Since the printing press was invented centuries ago, the business model of the book publishing industry has not changed much. German goldsmith Johannes Gutenberg developed the first movable type printing press. This revolutionised how knowledge was recorded, copied and shared. It tested the power and the craft of literacy, ie the monastic scribes. As a result, very few monasteries still boast the craft, ie printing press killed the scribe. Will digital books kill the printing press and books go the way of cassettes, ie into history.

. Books may survive as digital books are based on one huge algorithm with no connection to customers; while bookselling in stores is about a more personal approach to satisfying the customer's needs. There is one area in which the traditional booksellers are dominating: it is the picture-based books in general and children's books in particular. For example, there was a 30% growth in printed children's book sales from 2010 to 2014. Yet children are a tech-savvy group.
. Every time children's books are made into movies, book sales increase significantly, eg Harry Potter, Twilight, etc
. It is thought that books that you might be embarrassed to be seen reading in public like erotic romance or comics sell better as digital titles. Other popular digital titles are in crime, sci-fi, fantasy and general fiction, ie books regarded at the lighter end of literary sales
. Some paediatricians recommend that children and adolescents limit their online screen-based media use to less than 2 hours per day but children can be exposed to many more hours during a typical school day
. There is some evidence that printed books result in a better recall than digital books (Jonathan Barrett, 2015)

Yet recent changes in technology linked with the digital revolution, like e-books and on-line retailing, are transforming the industry; these changes include

- e-books replacing printed ones and on-line retailers replacing traditional bookstores, like

i) Amazon has around 80% of the e-book market in USA and UK

ii) the disappearance of large retail bookselling chains like Borders, Angus and Roberts, etc

iii) global marketplace allowing immediate on-line purchasing from anywhere; thus ending the splitting of publishing rights between geographical areas

iv) on-line retailers don't need expensive retail space

v) with e-books as a loss leader, ie use books to sell a device like Kindle from Amazon

vi) the demise of the book critic as on-line operators use "Big Data" concepts to analyse data like sales, clicks, etc to determine popularity of books, etc

- lowered barriers of entry allowing writers to self-publish and self-market, eg some authors, like JK Rowling of Harry Potter fame, are selling via their own website and by-passing the traditional players

Other changes include

- more people are reading but in different forms like e-books; they are most popular in romance, crime and pulp fiction

- wholesale rationalisation of the corporate structures behind publishing, such as massive mergers financed by private equity, eg Penguin merged with Random House to create the world's biggest publishing house. This new identity will employ 10,000+ people worldwide and generates around $ 4 billion in revenue. This is a reflection of lower margins forcing businesses to merge to rationalise and reduce cost structure, and to improve economies of scale. This means less money for authors, editors, designers, etc, ie

"...In the old days, the retail price was 5 or 6 times the manufacturer's price; booksellers took 20 to 25% of that. If the prime retailer, though, is selling at say $10 and manufacturing at 5, then there is probably not enough money there. Then you have e-books and there is a huge difference there in cost of production but that creates customers expecting books at $6 rather than $15. No one will pay $15..."

Andrew Schuller as quoted by Andrew Cornell, 2014

- increase in independent, small publishers as niche players in local markets that they understand

- authors becoming celebrities, ie authors are not just writers, they are brands, eg JK Rowling of Harry Potter fame

- booksellers and publishers are closer, ie less of a focus on "us and them"

- focus on a small number of books with large sale potential and this is linked with the increase in importance of discount stores like Big W that want high unit sales as their shelf space is limited. Also, Big W has its own book club and does authors' events

- increase in on-line reading communities like

i) Goodread (purchased by Amazon in 2013) is very influential in recommending books

ii) US start-up Scribd (a cloud-based subscription service) is linked with HarperCollins

- university courses training people for careers as full-time writers

Gambling (Las Vegas)

Las Vegas started as a gambling town dominated by organised crime.

In the 1970s and 80s, Las Vegas marked time as a gambling mecca, with shady night clubs, etc.

In the 1990s, Las Vegas was re-invented by introducing the concept of theme parks. This attracted tourist as well as the gamblers.

Then around 2,000, luxury resorts were introduced to provide sites for conferences and an up-market retailing and entertainment experience more than gambling.

More recently the latest trend is towards apartments

Financial centre (Hong Kong)
When British rule ended in Hong Kong (1997), the Chinese government talked of "one country, two systems" for 50 years. Hong Kong was an important financial centre and gateway linking the Western world with China. Since 1997 it has had to handle the Asian Financial Crisis, a property crash, SARS and poor administration with a small elite reaping most of the benefits, eg 39 billionaires, etc.

Recently this has changed with the growth of financial centres inside China like Shanghai & Beijing; they have bigger economies than Hong Kong (it currently accounts for 3% of Chinese total GDP in 2014 as against 19% in 1997). Also, Singapore has emerged as a serious rival to Hong Kong for global corporations looking to set up their Asian headquarters.

Thus Hong Kong now relies more on mainland Chinese tourists (up to 50+ m expected in 2014; more than 7 times the local population) visiting Hong Kong to buy products cheaper than in China, especially luxury goods. It is estimated that these tourists spend around US $ 50 b. (of this, around US $ 12 b. is on luxury goods). This influx of tourists has significantly changed Hong Kong, with upmarket luxury goods stores replacing small family stalls and putting pressure on the city's infrastructure, ie it is one of the most crowded cities in the world.

The decline of Hong Kong's middleman status has created fewer opportunities for young professionals, ie
"...Hong Kong has become ever more reliant on China via its tourism and banking sectors, but at the same time it has become less important to China..."

Lisa Murray, 2014

Also, there is increasing competition from mainlanders for school and university positions plus mainlander mothers giving birth in Hong Kong so that their children can claim permanent residency status.
As Hong Kong's economic base narrows, its risk profile increases, ie the past 5 years, Hong Kong exposure to mainland China has grown by around 6 times. This equivalent to over 300% of GDP; up from 70% in 2008. Additionally, China continues to open up its economy by loosening state controls on interest rates, setting up more free trade zones & promoting Shanghai as a viable alternative.
One advantage Hong Kong still enjoys is the rule of law (in the Western sense).

Surf brands
This industry is full of examples of the dangers of quick success that comes from explosive growth; players in the industry then lost contact with what made them valuable in the first place, ie their customer base who put surfing ahead of work and want surfing to fit into their lives in a way they choose.

Starting in the 1970s, companies like Quicksilver and Billabong grew to be billion-dollar companies that were favourites on the stock market in 1990s. Then this was to be followed by declining sales and profitability.

In the early 2000s, the big surf brands, flushed with funds, tried to lock in vertical retailing by buying bricks and mortar surf retail shops that only stocked their own brands. This approach provided an opportunity for other retailers to become multi-branded and to look at online retail sales; the latter became more important with the expanding broadband and smart phones usage highlighting online retail selling advantages. One company, SurfStitch (owned by Justin Cameron & Lex Pedersen), saw the opportunity. At the same time, the large surf companies overproduced and were frantic to get rid of excess stock. SurfStitch, which was at one time sold to Billabong, is now listed on the ASX with a turnover of A$ 200m. In 2015, it was in 130+ countries; with a market capitalisation around A$ 500 m (January 2016) - this is greater than both Billabong's and Quicksilver's combined at thier peak.

SurfStitch has spent around A$ 60 m. on 4 seemingly unconnected acquisitions
- surfer media company (stabmag.com)
- surf forecaster (Magicseaweed)
- action sport video producer (Garage Entertainment)
- surfboard accessory producer (Surf Hardware International). This last one is SurfStitch's only direct link to production.

Their main strength is selling surfboard and hard goods online, as most bricks and mortar retailers are unable to stock bulky items. SurfStitch's online presence relies on images and action clips and made hard the fastest growing proportion of their business.

Their main market emphasis is men in the age group 15 to 35 who are looking for what's new and what's next, ie being cool
(source: Nick Carroll, 2016)

Some organisational examples of the S-curve, ie trying to re-invent themselves

i. GE

ii. Apple

iii. Google

iv. Coca Cola

v. McDonalds

vi. Royal Dutch Shell

vii. Nokia

viii. IBM

ix. FedEx

x. Nike

xi. PepsiCo

xii. Tupperware

xiii. Blackberry

xiv. Channel 10 (Australia)

xv. Microsoft

xvi. Australian Post

xvii. News Corporation

xviii. Westfield Group

xix. Amazon

xx) Telstra

xxi) Facebook

xiii) White cotton T-shirt

xxiii) Levi

xxiv) Virgin

GE (starts in 1878)

One example of how to successfully use the S-curve concept is the approach used by GE under Jack Welsh. Jack Welch was CEO from 1981 - 2001, ie pre GFC

In the 1960s it had profitless growth. Initially he

- reduced hierarchy from 9 to 4 levels

- replaced 12 of 14 business heads

- reduced staff from around 400,000 (1980) to 292,000 (1989); as a result is nicknamed "Neutron Jack", ie like a neutron bomb, he "destroyed" staff but kept assets in place

- focus on killing the competition

- focus on services as good cash flow compared with products, eg acquired around US $15 b. in Japan

- opportunistic with GE seeing crisis as opportunities, eg after Mexican Peso crisis (1995) buys 16 businesses.

Their vision:

"...the most competitive enterprise in the world..."

Furthermore, Jack Welch wanted GE

"...to operate with the speed, informality, and open communication of a corner store..."

Jack Welch as quoted by Jack Welch et al, 2005

In the 1960s GE had profitless growth.

In the 1970s, GE started to move away from businesses, such as TV sets, small appliances, air conditioners, etc which were becoming more commoditized, towards manufacturing high-value technology products or services. Quality, costs and services were not good enough in the commodity business in the face of increasing competitors, ie Japan; these businesses were suffering from declining margins.

Jack Welch was CEO from 1981 - 2001, ie pre GFC. Initially he

- reduced hierarchy from 9 to 4 levels
- replaced 12 of 14 business heads
- reduced staff from around 400,000 (1980) to 292,000 (1989); as a result is nicknamed "Neutron Jack", ie like a neutron bomb, he "destroyed" staff but kept assets in place
- focus on killing the competition
- focus on services as good cash flow compared with products, eg acquired around US $15 b. in Japan
- opportunistic with GE seeing crisis as opportunities, eg after Mexican Peso crisis (1995) buys 16 businesses

He stated that businesses, not organisations, are global

Furthermore, GE Capital demonstrated that it was easier to make money in the financial services where there were

"...no union factories, no foreign competition and plenty of interesting, creative ways to offer customers differentiated products and services..."

Jack Welch et al, 2005

The new businesses he invested in included media (RCA, NBC, etc), and high-technology products in power, medical, aircraft engine and locomotive businesses

The underlying belief was

"...commoditisation is evil and people are everything..."

Jack Welch et al, 2005

Furthermore, best practices need to be continually adaptive and improved, ie innovative; otherwise they will not provide any sustainable competitive advantage as competitors can copy best practices

To achieve this optimisation, different strategies were used to continually "kick start" or reinvent GE. Under Welch, these strategies were based on the S-curve concept and revolved around 5 initiatives:

i) differentiation (both businesses and staff)

ii) globalisation

iii) services

iv) 6 sigma

v) E-business

Some examples of strategies:

- no. 1 or 2 in the marketplace within eighteen months or got rid of, ie be number 1 or 2, "fix, sell, or close" strategy. This helps to differentiate between performing and under-performing businesses and/or products/services, which varied from the long-held practice in GE of 'sprinkling a little money everywhere', as every business unit received something irrespective of the need or worth

- globalisation and boundaryless behaviour, ie an idea can come from anywhere

- change in emphasis from products to products-plus-service (this is linked with large investments in technology that have short payback periods, such as 1 to 2 years)

- upgraded leadership training at Crotonville

- six Sigma quality programs (see Volume 4)

- E business (it relies on speed and focuses on the cost savings aspect, such as streamlining internal processes, rather than marketing, such as strengthening brands, etc. E business was linked with digitisation. Furthermore, at GE it involved "reverse mentoring" with young computer nerds mentoring senior management on how to use the Internet, etc).

"...E business initiative led to many new ways of doing business. Plastics use electronic sensors in the storage silos of some of its major customers. They automatically alert GE warehouses when material levels drop, triggering a new order via the Internet to replenish the product. GE capital is using the Net to monitor the daily flow of cash in and out of a loan customer's income statement. The business knows instantly when the customer might be short, reducing the potential for losses. Most GE business leaders now have digital cockpits on their computer screens that update in real-time all the important data to help them manage their businesses.....E business is the only activity......seeing where targets set only 30 days earlier can look ridiculous 30 days later because the learning curve is so steep"That workflow to digitisation would create huge savings......30 percent of our total overhead expenses"E business improved many jobs.......30 to 35 percent of a salesperson's face time is spent with the customer. Salespeople spend too much time on administrating, expediting orders, arguing over receivables, and finding late shipments. The Internet can do all this more efficiently. We're increasing the face time salespeople have with customers, transforming their roles from order takers and expediters to true consultants......E business became part of the DNA of the company"see it as a way to reinvent and transform GE..."

Jack Welch as quoted by Jack Welch et al, 2001

- only 10% of business from core markets (reversal of the first way to reinvent GE - see first dot point. This aimed to expand the definition of industry, change mindsets and discover new opportunities for growth. For example, you could imagine if you are in the chair manufacturing industry, this could be enlarged to cover all furniture)

- produce 20 to 30% intellectual-content sales, ie look for ways to sell information to the organisation's customers

- "no back office", ie need to digitise or outsource the parts of business that do not deal directly with customers and use "digital cockpits" that let managers track the fundamentals of the business in real time. Remember:

"...your back room is somebody else's front room..."

Peter Drucker as quoted by Jack Welch et al, 2001

The next lot of measures introduced by Jeff Immelt (he replaced Jack Welch as Chairman & CEO in 2001); Jack Welch was focusing on USA market and Jeff Immelt's approach is driven by global markets, ie

"...he globalised the US-centric business with new low-cost products suited to developing Asia and put big bets on industrial infrastructure and a shift to the low carbon economy....his focus on energy, technology and health infrastructure..."

Peter Roberts, 2010

Under Jeff Immelt

- "70/70/70" policy, ie 70% of its staff are outsourced, 70% of outsourcing is offshore and, of that, 70% is located in India.

- over 60% of GE's revenue is coming from emerging markets, such as China, India and Eastern Europe (in 2001 70% of GE's business was in USA). Aiming for 10 % growth targets in "BRIC" countries plus resource countries serving those emerging markets.

- exited media, plastics, security and insurance while increasing involvement in oil and gas business (like in Australia) plus skewing focus to "climate change" goods and service (eco-imagination) to handle the carbon-constrained future. As a result, 25% of GE's turnover comes from super-efficient jet engines, hybrid railway locomotives and energy (wind, gas & nuclear). Since the GFC, increasing importance of industrial side of its business (oil & gas, power & water, health & transport)

- decentralised decision-making to globalise the firm, ie

"...When I got home, I just blew the place up......we made a massive resource shift to the regions, we completely changed the decision-making dynamics..."

Jeff Immelt as quoted by Peter Roberts, 2013

(NB The last 4 are measures introduced by Jeff Immelt (he replaced Jack Welch as Chairman & CEO in 2001); Jack Welch was focusing on USA market and Jeff Immelt's approach is driven by global markets, ie

"...he globalised the US-centric business with new low-cost products suited to developing Asia and put big bets on industrial infrastructure and a shift to the low carbon economy....his focus on energy, technology and health infrastructure..."

Peter Roberts, 2010

In his 20 year period as head of GE, Jack Welch increased GE's profit from US$ 1.6 to 10.7 billion. While Jeff Immelt has not maintained the same growth rate, it needs to be acknowledged that times are different, ie the Global Financial Crisis started in 2008.)

Owing to all the changes made in GE, its sources of revenue had moved from manufacturing to more financial-based sources. Thus, in 1999 Fortune Magazine reclassified GE from electrical equipment to a diverse financial services organisation in its industry listing in the Fortune 500

It is worth remembering the vision that Jack Welch had for GE in 1981

"...the most competitive enterprise on earth. My objective was to put a small company spirit in a big company body, to build an organisation out of an old-line industrial company that would be more high-spirited, more adaptable, and more agile than companies that are one-fifth our size. I said then that I wanted to create a company where people dare to try new things - where people feel assured in knowing that only the limits of creativity and drive, their own standards of personal excellence, will be the ceiling on how far and how fast they move..."

Jack Welch as quoted by Jack Welch et al, 2001

Remember: Jack Welch was initially nicknamed "neutron Jack" owing to the number of staff that were dismissed or left GE early in his time as CEO. Yet later on he was able to soften this image and loss this nickname!!!!! Not many CEOs are able to shake-off or change their initial image and reputation

The keys to GE's future success are an ability to change direction unabashedly, to performance-manage its staff

i) ability to change direction unabashedly

"...Most people inside GE learn from the past but have a healthy disrespect for history......they have an ability to live in a moment and not be burdened by a past which is extremely important..."

Jeff Immelt as quoted by Geoffrey Colvin, 2005

"...it's hard to find any other organisation that so enthusiastically destroys its own creations. Copper created an organisational structure based on functions; Ralph Cordiner (CEO, 1950 -63), broke it into pieces. He got GE into computers, and then Fred Borch (CEO, 1963 - 72) bailed out. Reg Jones (CEO, 1972 - 81) established a layer of senior executives and bought a coal-mining company; Jack Welch (1981 - 2001) abolished the layer and sold the mines. Welsh built up the insurance business; Immett offloaded it. Immett is putting his own stamp on the company by re-emphasising its scientific research labs and long-dormant marketing function. The result is GE's seamless, constant reinvention of itself...."

Geoffrey Colvin, 2005

As a result it is the only organisation still in business of the original 12 that made up the Dow Jones industrial average starting in 1896

ii) ability to performance-manage its staff

"...most companies, frankly, don't have the stomach to give frequent, rigorous evaluations - and to fire those who need to be fired..."

Dan Mudd as quoted by Geoffrey Colvin, 2005

"...GE is really a meritocracy..."

Shelly Lazarus as quoted by Geoffrey Colvin, 2005

GE personnel are required

"...to spend a huge amount of their time on human resources processes - recruiting, reviewing, tracking, training, mentoring, succession planning. When I was at GE, I spent over half my time on people-related issues. When you get the best people, you don't have to worry as much about the execution, because they make it happen. Another secret that keeps GE ticking is the culture of lifelong learning at the personal level and the concept of always try to make everything better at the business level. The philosophy is that there is an infinite capacity to improve..."

Larry Johnston as quoted by Geoffrey Colvin, 2005

Current GE's growth strategy is based on 5 pillars
i) technological leadership (including innovation)*i
ii) services acceleration
iii) enduring customer relationships
iv) resource allocation
v) globalisation

Notes
i) increasing focus on this pillar by reviewing business's engineering pipeline, organisational structure of its engineering function and evaluating the potential of engineering talent. This has resulted in increasing technology-orientated managers' representation in senior roles

NB These pillars have less to do with strategic planning and more to do with attracting, recruiting, developing and deploying the right people to drive the pillars.

· GE sold its Appliances and Lighting division (David Welch et al 2014). This division started the early 20th-century with electric light first invented by co-founder Thomas Edison; now it produces white good items like dishwashers, refrigerators, cooktops, clothes washers, etc. Despite this generating more than US$8.5 m. sales in 2013 and generating around 6% of the company's total revenue, it does not fit into the organisation's strategy of being a leader and/or for growth potential and/or global focus. Recently it has sold its plastic business, real estate holdings, stakes in foreign banks and NBCU Universal.

· At the same time (2013) it has made purchases in the oil and gas market

Apple

Since starting in 1976 Apple has continually reinvented itself with different products such asthe Apple 11, Apple Mac, Pixar, iPod, iTunes, iPhone 3G and iPad, eg

- Apple II (released in 1976) was the firm's first computer that was very popular in the education market and developed a loyal following.

- Apple Mac (released in 1984) was the firm's attempt to get into the personal computer market dominated by IBM. It was the first PC to feature a mouse. It lost the battle to machines powered by Windows Microsoft software. However, a cult following developed with its Mac desktops and notebooks

- Pixar (in 1986 becomes a maker of animated films)

- iMac (launch 1998)

- iBook (launch 1999)

- Apple store (opens first in 2001)

- iPod (released in 2001) was Apple's attempt to access entertainment through a smart phone. The iPod was the basis for Apple's current success.

"...in the final 3 months of 2006, iPod sales accounted for 48 percent of Apple's revenue......While iPods no longer hog the spotlight, almost 19.5 million of the devices were sold in the most recent Christmas quarter..."

Brian Corrigan, 2011

- iTunes (released 2003)

- iPhone (released in 2007) impressed the well-established mobile phone market. It became the favourite; 16.2 million units of iPhone 4 were sold during the final 3 months of 2010. The iPhone ended the dominance of Blackberry phone (pocket email and web surfing device that started in 1990s

- iPad (released in 2010) re-energised the stagnating tablet computer market. It revolutionised this market and sold more than 14 million units in the first 3 financial quarters.

- iCloud (announced in 2011)

NB Not all the Apple products have been successes, eg The Cube (a well designed but expensive desktop computer launched in 2000) & Apple TV

Apple is the archetypical technological startup. It was started by Steve Jobs and Steve Wozniak in the mid 1970s in a garage, and ended up selling millions of Apple-Macintosh computers while creating the home-computer market. After six years Steve Jobs and Steve Wozniak were listed in the Fortune 500 Rich List. In 1980 it went public. In 1990s the firm nearly went "broke" and in 1995 Jobs was asked to leave. In mid-1997 he was reappointed as CEO and reinvented Apple with music, mobility, grand design, ruthless execution, inspired marketing (including a different approach to retailing).

Since it started, Apple has twice been close to bankruptcy!!!!

Apple has a reputation for knowing exactly how to design, manufacturer and then deliver high-quality products to market.

"...Apple did not invent the MP3 player, online music retailing, the smart phone or the electronic tablet, but it did redesign and popularise iPod, iTunes, iPhone and iPad - products that demonstrated the company's design flair, pricing power, marketing skills and arrogant approach to customer service..."

Neil Shoebridge, 2011

Apple used R&D expenditure as a basis for re-inventing itself in the 2001-2003 recession. Despite revenue falling by 1/3 in 2001, Apple increased R&D expenditure by 15% in 2001 and maintained that level for the next 2 years. This research resulted in Apple introducing iTunes music stores and software in 2004, iPod and iPod Photo in 2004, etc. This instigated a period of rapid growth.

It is claimed that Jobs' greatest strength was focus, ie what it is, what it's going to offer and how it's going to offer it plus what is the firm's purpose (why they are in business). Apple focuses on 12 production lines and 4 of them are iPods; they are ruthless about selecting the right products. Furthermore, they do not follow Google's famous 10% rule, ie time allocation to staff to work on innovations.

One of the co-founders of Apple, Steve Wozniak, has stated that the unique ownership system that Apple has built around its digital content in retail is the key to its success

"...The retail process is owned by Apple, the application is owned by Apple, the operating system is owned by Apple and the hardware is Apple's. Apple has managed to create this entire world that all the products fit into......there is no other company in the world that has these benefits..."

Steve Wozniak as quoted by Paul Smith, 2012

Apple is not interested in backward compatibility, ie their new products don't need to work with old products.

Apple is linked with personal technology and media/entertainment industry.

"...Introduced into the USA in April 2003, ITunes stores are now open in 23 countries. In the year to September 2009, revenue from non- iPod music products and services, a category dominated by iTunes sales, jumped 21 percent to $US 4.04 million. Now Apple is out to replicate a model with its iBookstores. Sales via iTunes account for 70 percent of the online music revenue..."

Emma Connors, 2010

Apple is the largest company in the world by market capitalization, ie around $US 565 billion (mid 2012) (Guardian, 2012). From the start of 2012 to mid 2012, it has added around US $200 billion worth. This is roughly equivalent to the entire market capitalisation of organisations like Procter and Gamble, Johnson & Johnson and Wells Fargo. Apple is larger than the US retail sector combined. The case for continuing growth is built around the still-low penetration in some personal computer smart phone markets, such as China and Brazil, and it is poised to enter television and mobile. On the other hand, it usually gets harder to maintain the growth pace as the market-leading organisations historically underperform once they have reached the top position. They become less nimble and more vulnerable to attacks by regulators and the media. Also it is hard to continue impressive earnings growth on a large base.

 In April 2012, Apple has around $US 90 million in cash after recording gross margins of $US 20 million on sales of $US 46 million in the December 2011 quarter. With iPads selling 15 million units worth $US 9 million; iPods sold 15 million units for $US 2.5 billion

 The death of Steve Jobs (October 2011) has ended another chapter in Apple's journey. New CEO is insider Tim Cook and he will have to prove that Apple has a life after Steve Jobs. Currently there are products that Steve Jobs has his mark on and are 3 years in the queue. On the other hand, some industry experts are talking about the "post-PC" era; with the mobile phone replacing the PC.

 The areas that might "kick" Apple along are China and TV. In early 2012 Apple started to tap into the Chinese market. Some analysts are expecting Apple to sell 40 million iPhones in China in 2012 and it is claimed that Apple is working on "iTV" which could be as disruptive as the iPod was to the music industry.

 On the other hand, China is posing some problems for Apple with its halving of market share to around 5%. There are some technical problems linked with the 3G network and lack of agreement with Chinese Telecoms. Furthermore, the Indian market, which is very price sensitive, prefers to use basic phones on prepaid contracts rather than the more expensive iPhone.

Apple watch - with its rectangular touch screen face including sensors to detect pulse rates and other health-related features, it must be peired with an iPhone to work properly; it comes in 2 sizes and 3 styles, ie classic, sports and gold editions

It is of interest to note that Wozniak (2014), co-founder of Apple, stated that the death of Jobs could result in Apple being less secretive and more open to outside ideas. He, also, believes that both the smart watch and smart glasses are lacking a compelling reason to exist when compared with the smart phone; they shouldn't just be a replacement for what the phone does. This is irrespective of the technical brilliance of the product, which needs to have a wow factor and a commercial application. He predicts a good future for the Internet-connected cars and mobile banking.

In first quarter of 2015, Apple posted a record profit of US$ 18 b. and has a market capitalisation of US $ 758 b.

The music industry for Apple is an example of the life cycle approach. Over a decade ago, Apple disrupted the traditional music industry with a new business model allowing for downloading of music from the Internet via iTunes. As a result, Apple became the dominant player in the music industry. Recently streaming has starting to replace the business model used by iTunes, ie downloading. As Apple has been slow to adapt to streaming, it has lost its dominance in the music industry. Apple's purchase of Beats (2014) which is a streaming digital music services provider is a belated attempt to regain its dominance.

Google

. Google has become an engine of change. It started as a powerful Internet-based search engine. In fact, it has "democratised" information by allowing the free flow of information, knowledge and ideas. It has continually reinvented itself via innovations such as Gmail, Assense, Google Earth, Google Maps, Google News, Google +, etc.

"...the company excels at IT and business architecture. It continually conducts experiments to test its system, and then improvises and improves, and it has a backbone of people who are actually analytical...:

Richard Branson, 2008

. In addition to being the world's number 1 search engine, it is expanded to other industries like media, telecommunications, consumer electronics, advertising (it is the world's number 1 advertising company), publishing, automobiles, etc. In 2014 it had around 40 products. It focus is on developing new ways to work, play and organise digital information.

· Dynamics in digital marketing are changing - there is a swing away from desktop to mobile as the fastest growing area of digital advertising; it is around half of mobile ad spending (2014) but these ads have less impact than targeted social media ads

 

· Google has been losing market share to the likes of Facebook, ie Google market share is falling below 40%. Facebook, which has a higher ad market share on mobiles than on desktops, has seen its click-through rate triple since 2013.

 · Other players are getting into mobile advertising, eg

 - Snapchat (a popular photo-sharing app is launching ads)

 - Yahoo! is trying to boost its mobile offerings with its acquisition of Flurry

 Google is re-inventing itself as it owns

 . YouTube which has 1/5 of US digital video ad revenue; attracts 1 b. users monthly; its music videos are very popular (2014)

 . Android internet software (from mobile phones to tablets, home appliances, watches, automobiles, health monitoring, TV, etc)

 . Google wallet (collecting customer transaction data & replacing credit cards for purchases via smart phones), etc

 . Driverless cars

 . Uber (on-line, non-licensed car booking services)

 . Skybox Imaging (satellite operator & fibre-optic cabling connection including submarine cable linking Asia to the US)

 . Robotics

. purchased Magic Leap (US$ 542 m. - augmented reality technologies)

. cardboard viewer (2016) (virtually reality via app)

. Project Fi (phone service launched in 2015) to compete against Verizon, AT&T and other US wireless service providers; it is attempting to blend several communication tools and multiple ways of calling people like cell phone calls, online (VOIP), etc into a single phone number and service. It has limited use as only in the USA using Google's Nexus 6 phone. It will allow for a greater overlap with Google's expanding world of devices and services. It will mix traditional wireless technology, where calls are rooted through cellular towers, with the wireless Internet service found in Star Bucks, airports, etc. Also, it is teamed with Sprint and TMobile to provide the traditional wireless service and will allow talk and text on phones, tablets or laptops. It is considerable cheaper than the traditional cellphone carriers.

In late 2015 Google changed its name to Alphabet and in Jan 2016 was the first time its market capitalisation exceeded Apple.

Some problems facing Google (The Lex Column, 2015) are

i) anti-trust investigations like EU anti-trust investigation into Android, ie the EU anti-trust regulator's claim it has illegally abused its market dominance (2015)

ii) search revenue is slowing down from around 13% to 8% currently and losing market share to rivals like Baidu and Microsoft

In 2014 Google mobile ads had dropped by 17% in two years. Google owned around 80% of the US$ 2.24 b. search market.  By 2016 the revenue generated by US mobile market turns around US$ 18 b. but Google's share had dropped to under 70%.  The difference is explained by how we are more fragmented in the way we search, ie Google gives us the answer to everything but won't necessarily be able to help us find the best restaurant in one click.  Thus the rise of the niche apps. Even though Google is losing market share, it is not losing its revenue.
It is estimated that people are spending 34 hours monthly using the Internet on smart phones compared with 27 hours on desktop

iii) revenue from desktop searching still exceeds mobile search; smart phone users search less and when they do they tend to do it within apps

iv) increase capital expenditure, eg from US $3.3 b. (2012) to US $11 b. (2014)

In summary

Google started as an Internet-based search engine with information-based services. Their mission is to organise the world's information and make it universally accessible and useful. It has expanded to other industries like media, telecommunications, consumer electronics, advertising, publishing, automobiles, etc. They have around 40 products (2014) like YouTube (video sharing service), Panoramio ( map-based photo sharing), Scholar (academic papers search), Blogger (blogging platform), driverless cars, Chromocast (television streaming), Google Glass (wearable technology), etc. They continue to look at new ways to use digital information. Their concept of innovation is about creating change in a way that creates value like making users' lives easier.

"...start-ups have a bias for disruptive over incremental innovation, so it's those people who can change entire industries with a new product..."

Maile Carnegie as quoted by Paul Smith, 2014a

Coke-Cola

Coke-Cola, which started in 1885, is also a fascinating example. On the face of it, it would appear to be the exception to the rule. For over 100 years the company has sold the same product.

The only time they changed the formula they were forced by customers to reverse this decision. Their secret lies in their motto: the world belongs to the discontented. The basis for this motto is to warn against complacency and advocate a perpetual curiosity. For example, Coca-Cola's Japanese company market tests a new soft drink variety or other product every month.

The company has continually re-vitalised itself by updating advertising and packaging, so that it is in line with the ever-changing youth culture

After 1990 its share price increased from $US 10 to over $US 88 in 1998; subsequently, the share price fell to around $US 40 in 2003; by mid 2004, the share price had recovered to around $US 50. These fluctuations in share price correlate with the S-curve phenomenon. The fall in share price is linked with the

- problems with management, especially with succession planning at the CEO level after the death of the legendary CEO Roberto Goizueta in 1997. Douglas Ivestor succeeded Goizueta. Next came Doug Draft but he was regularly over-ridden by the Board, such as in the abortive Quaker deal. Neville Isdell followed Draft as CEO.

- poor governance by the Board (sometimes referred to as "Coca-Cola keiretsu" as it resembles a web of interlocking relationships typical of Boards in Japan).

By mid 2004, the financial performance improved with a 35% increase in net income and a 13% increase in revenue to $US 5.1 billion

To handle increasing criticisms (2013) that it is adding to youth obesity (estimates claim that 17% of American children are obese and 36% of adults) and fear of government regulation on 'soda consumption', Coke has re-enforced its agreement of

- 2009 to put calorie labeling on the front of all packages;

- 2007 not to direct advertising to children under 12 years old;

Furthermore, it has expanded its physical activity programs in 200+ countries and promotes low-and no-calorie drinks like Diet Coke and Coke Zero.

Youth-culture focus with change from traditional promotions via radio, TV, print, etc. to social media (Facebook, Instagram, YouTube, etc) via teen influencers

. Used to be no. 1 world brand & associated with sociability, happiness & convenience. But allegations that its products are increasing obesity are eroding its brand value

. Coke is under pressure due to the increasing popularity of healthy drinks like bottled water, coconut water & juice, plus move away from sugar-based & artificially sweetened carbonates like Coke with its caffeine hit

. Coke is chasing the changing market with new "healthier" products

McDonalds

McDonald's is an example of an organisation that had reached its peak and started to progress down the right hand side of the S-curve. However, recently, it has started to pull itself out of the decline.

On the surface McDonald's appear to have everything going for it, eg famous brand, broad public appeal and decades of growth with a chain of global restaurants. It is the world's largest restaurant chain with around 30,000 restaurants in 119 countries, $US 17 billion in annual sales and has 1.6 million employees.

By 2002 the strategy of growth by expansion had failed with profits in 2002 being half those of 2001, and in the final 3 months the company lost money for the first time in living memory. Furthermore, its share price plummeted to a 7-year low. The quality, service and cleanliness (QSC) elements that had always been the trademark of McDonald's had also slipped. Furthermore, McDonald's was receiving bad publicity about its fast food and how its products were adding to obesity problems, especially in children; coupled with failure to offer something fresh.

A new management team was employed with a new strategy: improve quality, service and cleanliness, introduce new product lines and change the marketing strategy including a move to healthier, fresher, fast-food options, ie less fat and sugar, eg taking sugar out of the buns. Starting offering chicken products as people eat more chicken than beef. These changes are a reflection of society's move to more health-conscious products, such as salads. Previous product changes had not taken into account the health-conscious market requirements. Introducing health-conscious products coupled with nutritional labelling has been successful in enticing more customers into the restaurant and has had a flow-on effect to older products such as Big Macs and Filet-O-Fish. Initially, these new products were targeted at women (working women and mothers). However, more retirees were becaming regular customers. The introduction of McCafes and healthier food, such as Salad Plus, etc, has attracted more older people.

McDonald's has automated many parts of its operation, such as pushing a button rather than holding a lever for dispensing beverages, self-order kiosks are being trialed, bulk oil machines are being introduced, etc. The aim of these changes is to free staff from time-consuming tasks

Furthermore, the company has introduced "hot spot" wireless technology, allowing computer users to log onto the Internet from McDonald's restaurants which open for longer hours and have been refitted to reflect the new image, etc

As a result of these changes, 2003 global sales increased by 10 percent, while in the US sales rocketed by 20 percent. McDonald's share price doubled in the 12 months from mid 2003. In 2003 the company made a profit of US1.5 billion, compared with less than $900 million in 2001. In other words, with these changes McDonald's started another upward S curve.

Remember: image and marketing have been the cornerstone of McDonald's strategy.

Royal Dutch Shell

Another fascinating example is Royal Dutch Shell. The approach that they have used is called scenario planning (see Volume 4) which involves exploring possible alternative scenarios to what you're doing now by challenging mindsets and conventional assumptions. Scenario planning in the 1970's helped the company handle the "Oil Crisis" better than its competitors, ie jumped from being number 7 to 2 in the petroleum industry. On the other hand, the more recent problems with conservationists on off-shore oil rigs and allegations of corruption in African oil countries, such as Nigeria, have highlighted the need for Shell to re-invent itself.

Nokia

In the early 90's this Finnish conglomerate decided to bet everything on new, unproven digital technology for mobile phones known as GSM. Over the next 4 years Nokia divested everything from rubber boots to diapers to consumer electronics.

Nokia turned the mobile phone from a clunky brick into a sleek piece of branded electronics. It dominated the industry with 30%+ market share in the late 1990's and led the likes of Motorola, Sumsung, etc.

Since 2000, Nokia's revenue has flattened. To restore the company to double-digit revenue growth, Nokia plans to re-invent itself, and transform from mobile phones to an IT consumer electronics powerhouse. The aim is to sell devices that will allow people to do everything from playing video games to sending e-mails via cell phones. This involves a new business model which will depend upon the widespread availability of big, wireless data pipes linked with 3G (a new wireless broadband technology).

In 2003, Nokia began taking sales from the digital camera industry by making a phone that shoots and sends pictures. It made Nokia the world's largest camera manufacturer.

Furthermore, the company has been re-organized to focus on 2 new promising areas: those devices with multimedia capabilities and those that also effectively function as pocket-sized mobile PCs. In early 2004, this accounted for around 15% of Nokia's revenue. At the same time it is maintaining its position in the cellular network equipment market

"...whether Nokia can reinvent itself again affects not just it but the entire telecom industry, which has been laid low by bankruptcies, accounting scandals, and plain bad business..."

Janet Guyon, 2004

To handle the new products, Nokia will have to learn how to partner with the software industry and to sell business directly to the public, not just to mobile phone operators.

Nokia's Lumia smart phone that uses Microsoft's Windows software has not competed successfully against products from Apple and Samsung

Nokia aims to revitalise its crucial smart phone business with a number of flagship launches in 2013; this includes a move into the super-sized tablet phone market. This is different from Apple which focuses on one phone per year. One of Nokia's innovative devices can work as a phone and tablet (phablet) and is similar to Samsung's popular Galaxy Note. This will be Nokia's first move with Lumia into the larger screen mobile smart device markets currently dominated by Apple Samsung. Other launches will be

- Lumia smart phone using advanced Pureview imaging technology, ie a handset with 40 megapixel camera and flash

- lighter and more advanced versions of the existing flagship Lumia 920

Other activities will include continued availability of Windows phones, working closely with mobile operators to encourage sales with exclusive phone launches, and new devices in the feature phone business. But the last one is coming under pressure from cheaper smart phone companies in Asia.

Apple with iPhone hit Nokia significantly, ie in 2007 Nokia was the leading global handset maker - selling around 400 million units. Its share price nearly doubled but had fallen by 75% in early 2009.

It is claimed that Nokia became the victim of its own success and size, ie focused on protecting and servicing its successful products, eg smart phone. As a result it missed opportunities like

- the 8 inch tablet computers before iPad emerged

- touchscreens before Apple introduced them.

Nokia wanted to maintain its position rather than innovate. Nokia wasted chances by focusing on servicing existing products at the expense of fresh innovation.

In 2013, Microsoft bought Nokia (handset business) for $7.1 billion as computers are going mobile and Microsoft wants to protect its core business (Windows operating system, Office & Software) from the likes of Apple, Google, etc. In 2015 Microsoft writes-off it Nokia investment as a "dud".

IBM

Until the 1990s IBM was viewed as one of the greatest organisations in the world. Then it crashed and a new CEO (Lou Gerstner) was appointed. During his 9 years he saved IBM from self-destruction (it was going to be split into 13 separate units), changed focus, rebuilt it and expanded business by 40%. One of his most important insights was that services were more important than the mainframe computer sales

"...while hardware accounted for 49% of revenue in 1993, the year Gerstner arrived, ten years later it represented only 32%. Far from shrinking, IBM grew: today it is 40% larger than when Gerstner took over. The services unit alone rakes in $US 43 billion in revenue - making it bigger than any freestanding company in technology except Hewlett Packard..."

David Kirkpatrick, 2004

Furthermore, Gerstner got IBM focused on the client (not customer). The connotation of the term "client" is of a lifelong relationship. It is interesting to note that a mere 100 clients represented 20% of IBM's revenue in 2003

The current CEO, Sam Palmosano, took charge when the dot-com bubble burst and revenues were declining by US $5 billion plus!!! The stock market price of IBM is $US89 in mid 2004; this was around 40% below its 1999 high. Yet in 2003, IBM had started to grow with a 10% revenue jump and 43% profit growth.

The current aims of IBM are to increase its services approach with

- annual sales growth to exceed 5% (this is equivalent to generating one Fortune 500 company every year)

- double digit profit growth

- return on invested capital to exceed the S&P 500 average, ie over 10% earnings per share

- to return to the dominant role that it once played in the tech industry, ie it was untouchable

For IBM to achieve these aims, it will need exceptional performance and to have an unique impact

Some of the obstacles to this are

- the law of large numbers, ie growing one Fortune 500 company every year

- currently IT industry is sluggish, (growing at around 4% annually) yet IBM claims that the IT industry has an untapped growth potential of $US 500 million

- competitors are bigger and tougher since the dot-bubble burst, such as HP (high-tech, low cost), Dell (low-tech, low cost), EMC, Oracle, Microsoft, etc. Furthermore, there is possibility of Microsoft or HP joining forces with an IT-strategy consultant, such as Accenture, Deloitte, etc.

IBM's challenge that all people, such as from hardware/software/service

"...can really cross pollinate all more effectively within IBM than anywhere else in the world, and that the customer clearly benefits..."

David Kirkpatrick, 2004

- the margins on software (86%) are considerably greater than those for supplying services (25%) and hardware (29%)

- the complete services approach makes it harder for clients to go to a competitor, ie locks the client into IBM

- to get the bulk of IBM staff to embrace the solutions approach

IBM is getting into new areas for growth by using different business models around IT, ie outsourcing and "give us your hardest problem to solve" (solution provider or service heavy approach), etc. Some examples of this include

- handling other organisations" non-core functions such as finance and accounting, HR, after sales support functions, call centres, etc. This can involve employing the customer's staff

- increasing R&D funding to service-related activities, such as developing shopping carts that help people shop in large supermarkets by displaying maps of the store, offering specials on those items placed in the cart, etc

- linked with Linux who offer software free

- purchased PricewaterhouseCoopers Consulting to form IBM's Global Services so that IBM's staff would be linked with PWC's consultants, ie

"...Marrying the consultants with the sales guys, eggheads and engineers..."

David Kirkpatrick, 2004

An example of this involves Charles Schwab where IBM set up a team that developed a grid to speed up selecting personalised investment portfolios. The grid is independent of the specialised servers that were previously used and got bogged down when things got busy, upset customers and thwarted sales

- around 150 scientists started focusing on "computational biology", such as biotech and medical-research for health care industry. An example is the Mayo Clinic that has maintained one of the world's largest and complete sets of patients" medical data. IBM helped assemble all the information into a single, user-friendly data base. Furthermore, they are developing ways to cross-reference genetical profiles of patients so that data-driven decisions can be made for more individualized treatments

- increased focus on developing countries, such as China

One way to meet the growth targets is to commodify the customer-designed solutions, ie take a design for one customer and resell to other customers. On the other hand, commoditisation by fast-growing, increasingly sophisticated, low-cost generic competition has shifted the centre of the computer industry away from mainframes and is now threatening IBM's services. Furthermore, IBM's costs are those of a mature First World corporation. To handle this IBM has shut its European head office and is increasing its involvement in "strategic low-cost geographies or locations", such as India, Brazil or China. India accounts for the largest numbers of IBM staff outside USA. Growth in the developing world is part of IBM's strategy called "global delivery model".

Other ways include

- IBM is tightening the 'services supply chain", ie getting the right people to the right place at the right time, which involves developing a database and profile of all IBM's staff (around 250,000 in services, sales and distribution)

- using collaborative innovation to invent new technologies, IBM has multiplied collaborative projects in all major segments with customers and rivals, such as

i) global services (under Service Science concept, IBM provides top US science and engineering universities with money and expertise to create new academic disciplines. Participants include UC Berkley, Brigham Young, UCLA, MIT, Rensselaer Polytechnic, Stanford, University of Texas at Austin, Georgia Tech., etc)

ii) hardware (with Sony & Toshiba - since selling most of the hardware group to Lenovo, the 3 organisations jointly developed the powerful new chip processors, such as Cell, that will go in Sony's upcoming PlayStation 3 and Toshiba's TVs. Also, it will provide a foundation for IBM's entire next generation of computers)

iii) software

- with Apache, IBM contributes code to this free open-source "web server", then incorporates Apache into its commercial software.

- with Linux, IBM pays 600 programmers to work on this open-sourced operating system and recently donated a key patent to the group that helps manage Linux.

Creation of "patent common" in which IBM gave away 500 software patents worth $US 10 million to anyone working on an open-sourced project

IBM gave a retail-industry group rights to patents for internet access to stores

Furthermore, divisions that are not sufficiently profitable are being sold. For example, IBM sold its $10 billion personal-computer unit to China's Lenovo

Recently, it has started to give away its intellectual property (IP) in the form of software, patents and ideas. The rationale is

"...Spread enough of those riches around"and the entire industry will grow faster, opening new frontiers. That, in turn, should create opportunities for IBM to sell high-value products and services that meet the new demand..."

David Kirkpatrick, 2005

FedEx

Despite FedEx being one of the most admired organisations in US, the market for its main product, over-night express delivery, in the US has flattened owing to the popularity of e-mail and a shift to cheaper shipping

To handle this situation, FedEx has adopted some interesting strategies and good acquisitions with excellent execution, ie

- has focused on Asia (buying Flying Tigers) and more recently on China which is now around half of its business by volume

- entered less-than-truckload freight hauling business in the U.S. such as for items that are too big to be sent by regular ground service but too small to fill an entire truck. FedEx purchased 2 successful firms in this industry and with the synergies provided by FedEx has been able to demonstrate that the "whole is greater than the parts". Currently this market is booming. Furthermore, FedEx has implemented a money-back guarantee system and provides superior tracking technology

- established a hub in Anchorage (the rationale for this was that Anchorage, a remote Alaskan city, is within 10 hours of 90% of the industrialised world and its airport never closes)

- owns and operates its own cargo planes which gives FedEx an advantage over competitors who buy cargo space in the belly of passenger planes and, as a result, are more vulnerable to capacity fluctuations. Furthermore, in China competitors rely upon state-owned Chinese parcel carriers for local pickup and delivery, while FedEx has a joint venture with a Chinese firm rather than the government

- uses latest technology, such as outfitting its loading-dock forklifts with wireless scales which weigh pellets and transmit the data instantly to dock managers; this cuts out the need to move pallets to separate buying areas, ie reduces time)

- Kinko's copy centers (this is proving tougher to integrate than first expected as it is outside core business)

FedEx is well-positioned because of the breadth of services it can offer, the expanding Asian market with sea shipping delays to Asia that makes airfreight more attractive, and its labour is not unionized.

Remember: FedEx has

"...39 hubs around the world with 677 airplanes, over 90,000 vehicles, and more than 200,000 employees delivering 6 million packages a day in 220 countries..."

Geoffrey Colvin, 2006a

Nike

In the 1960s when jogging first became popular, Nike's co-founder Bill Bowerman identified the potential of this form of exercise. He co-authored a book, with a cardiologist, on jogging. The book became a bestseller and helped to create the market for the company's future products.

Teaming up with one of his athletes, Phil Knight, he started experimenting with home-made shoe designs. By 1970, they had created a new lightweight sole that offered athletes unprecedented cushioning and bounce. The product was called The Waffle Trainer and went on to become the bestselling trainer shoe in USA

A series of high profile sportspersons, such as tennis players Jimmy Connors and John McEnroe, and Steve Prefontaine (athletics) wore Nike's footwear. Then in 1979, Nike developed its air cushioning system with a little plastic window on the side of the shoe and sales boomed. In 1984, Carl Lewis won 4 gold medals while wearing Nike's shoes and 58 Nike-sponsored athletes collected 68 medals.

In 1987, sales slumped as a rival, Reebok, successfully developed a soft shoe that cashed in on the women's aerobics boom. Luckily, Nike predicted another trend, ie Nike used Michael Jordan as its inspiration for a new shoe called "Air Jordans" that became a highly sought-after fashion statement by urban males. The product became even more popular when the first model was banned for being too colourful by the NBA!!!!!!

By the end of the 1980s, Nike appeared to have an unbeatable recipe for success by developing attractive

"...high-tech products, endorsement from athletes across a wide range of disciplines, an instantly recognisable brand and a memorable slogan: Just Do It..."

Emily Ross et al, 2004

In 1996, Nike signed an unknown Tiger Woods. The following year, Tiger started winning major tournaments and Nike's share of the US sneaker market reached around 50%. On the other hand

"...as the brand......Nike was no longer young and fresh......its strategy of market domination had succeeded so well that Nike was now firmly mainstream - which began to turn-off young buyers. In 1998 Nike had its midlife crisis. The sneaker market was fragmenting. Soft, bulbous shoes designed for skateboarding and classics, such as Puma's and Adidas's revamped 1970's styles, were now fashionable alternatives to Nike's high-tech athletic look. New Balance, with a wider range of sizes and fittings, was stealing hardcore runners who didn't care what the shoes looked like as long as they were comfortable..."

Emily Ross et al, 2004

Furthermore, Nike's image was being tarnished by allegations of using cheap labour in developing countries. This was making them a target of the anti-globalisation campaigners. This, plus the Asian economy downturn and its unsuccessful sponsorship of Brazil in the 1998 soccer World Cup, resulted in profit falling by 50%

Nike needed to counter its negative associations (too mainstream, use of cheap labour, etc.) It changed its slogan from "Just Do It" to "I Can". Phil Knight apologised for the loss of direction and failings in the Third World, etc and Nike started to reinvent itself by

- launching a Yoga shoe

- establishing Nike Goddess brand

- developing a chain of stores designed more like up-market fashion outlets than sports shoe stores

- launching a range of skateboarding shoes available from limited specialised skateboarding shops

- announcing new sponsorship deals with elite athletes, such as Lance Armstrong

PepsiCo

Most investors were happy with PepsiCo's strategic moves and steady reliable growth. The share price has more than doubled since 2003.

Much of Pepsi's success is based upon the merging of the 2 cultures into one company in 1965; the 2 cultures comprised:

i) the "get-things-done" expertise of Frito-Lay

ii) the "never-take-anything-for-granted" underdog mentality of Pepsi-Cola, which has successfully beaten Coke

"...result was a contrarian, risk taking big company that prided itself on acting like a small company and had posted an eye-popping compound annual growth rates of 13% over the past 42 years. Since 2000 the company's revenue has nearly double..."

Betsy Morris, 2008

There has been a changing emphasis on increasing health food products and less focus on "junk food" and 'soda pop" products, ie

"...new Pepsi"getting beyond soda pop and into healthier, faster-growing noncarbonated beverages (bottled water, sports drinks, and teas) that it commands half the U.S. market, about twice Coke's share, according to Beverage Digest. Not that PepsiCo is anywhere near becoming purely a health food company"the bulk of its products (upwards of 70%) are still in what is euphemistically called "fun for you" foods, as opposed into 2 other internal categories, "better for you" and "good for you". But its acquisitions and product reformulations, even in the fried-food-loving markets like Mexico, indicate the strategic shift is more than just show..."

Betsy Morris, 2008

Other changes include

- recruiting PepsiCo's first chief scientific officer from the pharmaceutical industry

- in 2007 either purchase or partnered with "healthy food" firms, such as a Bulgarian nut package, an Israeli hummus maker and Naked Juice (which makes additional beverages like smoothies)

- using the motto of "Performance with Purpose" as a means of getting the organisation to work together and of presenting PepsiCo globally, ie less monolithic and more receptive to local needs, such as in Russia, around 50% of its beverage business is noncarbonated drinks (juice, water, tea, energy drinks, etc)

At times in this journey, speed bumps have occurred. For example, in the mid 1990's PepsoCo's recipe for growth suddenly wasn't working anymore. Its restaurant operations (Pizza Hut, Taco Bell and KFC) stalled. Also, attempts to increased sales outside America and compete with Coke on the international market failed. This was the time when the U.S. fast-food marketplace was saturated and the real estate was a hard investment to maximize. So PepsiCo sold the restaurant business in 1997 which shrunk the company by a third. At this time PepsiCo conducted a scenario planning exercise which led to their assessment that the health movement was a trend and not just a fad, and demanded attention. Thus, they purchased organisitions and/or brand names like

- Quaker, maker of Gatorade and introduces Propel Calcuim, the first calcium-enhanced fitness drink

- Tropicana, the world's largest branded-juice producer

- SoBe, makers of noncarbonated drinks

- Izze, a Colorado-based maker of sparkling juice drinks

- Naked Juice, a Californian maker of bottled smoothies and other fruit drinks

Furthermore, it reduced 'trans-fats' from products like Doritos, Tostitos and Cheetos.

All this helped change its reputation and to increase the sales percentage of "better for you" and "good for you" from 30 to 50% and adding to product portfolio grains, nuts and fruits.

Tupperware

- Tupperware is the example of how an apparently mature brand has reinvented itself.
- It is a global organisation that sells plastic food-storage containers to suburban housewives at Tupperware parties that has moved well beyond its popular-culture stereotype with revenue now exceeding $US 2 billion from sales in over 100 countries
- In Australia, from 1998 to 2009 sales tripled and almost all homes have some Tupperware products
- Even during the GFC the organisation performed well with more people cooking at home and storing leftovers using Tupperware products plus unemployment pushed people into the home-based Tupperware sales force.

Its success is linked with a competitive advantage around products, selling methods and career opportunities for women. Yet these could be thought to be the biggest problems facing Tupperware, ie

"...daggy products, sold at 1950s-era morning tea parties by women who now have far better career opportunities in the salaried workforce..."

Lucinda Schmidt, 2010

Furthermore, during the 1980s, Tupperware had to handle the cheap imitations that flooded the market.

Tupperware reinvented itself by bringing in female cosmetic-industry designers to replace the male-dominated industrial designers. The beauty designers introduced colours, sharper designs and the categories, such as serving utensils and kitchen gadgets. Rather than compete on price, Tupperware decided to innovate with, for example the silicon cake mould, and produced products that offer lifetime guarantees. This is its competitive advantage around products.

Around selling methods - 90 percent of its products are still sold at Tupperware parties. The type of parties has changed over time from "lonely" mothers meeting their neighbours to girls" night-out for busy working women. These night-outs are more interactive and less structured than in the past and often include cocktails and cooking tips.

Around career opportunity - the initial success of Tupperware in the post WW2-era was a way for women to earn some money and to meet socially. Now most of the women involved are in full-time paid work with Tupperware and earning money similar to professional people. Furthermore, it is giving women a chance to build their own business, especially in cultures where opportunities for work outside the home is limited. In developing countries, it allows women to develop some financial independence

BlackBerry

The firm that produced the BlackBerry started in 1984 and reached its peak in 1990s as a mobile phone plus pocket e-mail and Web server device. It provided security by using its own global indication network to send e-mails. It became very popular in the corporate market until 2007, when Apple launched the iPhone with its standout feature being on screen pop-up keyboard plus music player, built in camera and app store.

BlackBerry did not see the iPhone as a threat, even when Apple lowered its prices for the corporate world and offered them mobile e-mail security. Also, the BlackBerry e-mail network was exposed to embarrassing global blackouts

BlackBerry stuck to its no-frills approach, even as Google began marketing phones based on its Android operating system that had similar features to the iPhone.
In the first-quarter of 2012 BlackBerry lost over US $120 million and had a 25% drop in sales to $US 4.2 billion. The company is valued at 1/10th of its 2008 peak market capitalisation of $US 78 billion.

Channel 10 (Australia)

In the early 1990s, Channel 10 was in receivership. Then it turned itself into a successful TV station using a low-cost business model aimed at younger viewers, ie under 40s. It left its competitors, Seven and Nine, to battle for the rest of the market.

By the mid-2000s it was generating around $1 billion in revenue and over a $1/4 million in net profit. This was more than its competitors (Channels 7 & 9) combined. The youth network focus and a proud history of broadcasting risk-taking shows, such as Number 96, Prisoner, The Dismissal, Big Brother and the 7 PM Project. In other words, it was at the 'top of the S-curve'.

By 2012 it was a shadow of its former self. Ratings actually dropped to the worst night in the history of Australian TV rating, ie 6.5% of the metropolitan viewers.

"...In a few short years, Ten has gone from being the cheeky upstart to being hit by weak morale, mass redundancies and a resurgent rival in Nine..."

James Chessell et al, 2012

Channel Ten's recent decline is linked with

- the start of new digital channels by rivals Seven and Nine, like GO, GEM, 7Two, etc that competed directly with Ten's main market, ie youth.

- the rise of the Internet with global video suppliers, such as YouTube and Australian National Broadband Network; the latter allowed for on-line giants like Google to compete. While Seven and Nine had online partners, Ten did not

- the increasing use of mobile phones for entertainment, sport, etc

Furthermore, management/board's mistakes added to its problems; for example

- confusion over whether Ten's digital station, Channel One, was for entertainment or sport (second tier sports like netball, major league baseball, the Indian Premier league cricket, etc). Sport won and it was expected to compete with pay-TV sports broadcaster, Fox Sport Australia (half-owned each by Rupert Murdoch's News Corp and James Packer's Consolidated Media)

- ill-conceived expansion of Ten's news and current affairs coverage to complete directly with Seven and Nine by hiring 100 journalists plus the ageing George Nexus. Ten was trying to build a news brand from zero.

- disastrous launch of Channel Eleven aimed at the 13 to 39 year old cohort

- disruptive share ownership changes in Ten started when Ten approached the Packer group to do a deal around Fox Sport and for Packer to take a stake in Ten. This was expanded by James Packer to include Lachlan Murdoch; then Gina Ginehart (mining magnate) purchased a 10% stake.

- the continual micro-managing by the Board which culminated in the appointment of Lachlan Murdoch as "interim CEO"

- Ten's poor program performance continues. Even the successful Masterchef (in 2012, in its 4th year) is losing audience share; shows like The Shire, Being Lara Bingle, Everybody Dance Now, Breakfast, etc have all gone. Loss of AFL rights and an unsuccessful NRL bid have added to Ten's programming problems. In contrast, Nine has had great success with The Voice and The Block.

Microsoft

The dominant player in computer software for desk tops/lap tops since the 1980s but now under threat from mobile phones/pads players like Apple, Google, etc in the post-PC world

In 1985 Microsoft starts Windows Operating System (managed the complex interface with other hardware/software, etc) for personal computers (PC); by 2005 it dominates all computers (96%); but now under threat from mobile phones/pads players like Apple, Google, etc. Microsoft has exploited its dominance with computer users via Windows software.

With the rapid technological advances in mobiles phones/pads and less around desk tops, Microsoft has lost its dominance as there is no indication that desktops and phones/pads will use the same operating system and user interface. The loss of dominance by Microsoft is shown by the poor performance of Windows 8, ie the latest, mobile-inspired version of its operating software and its earlier Vista fiasco. Players in the mobile phones/pads arena like Apple, etc have pushed Microsoft aside, ie

"...Windows 8 is a remarkable piece of engineering but the world does not buy remarkable pieces of engineering, it buys useful products..."

Michael Cusumano as quoted by John Gapper, 2013

In addition to falling behind on new trends like mobile,internet search, cloud computing, etc, Microsoft is overstaffed with 50% more staff than Apple yet 50% less revenue & profit (2013)

For years Microsoft has squeezed cash out of existing businesses and it expected to continue to do so. Its challenge is that its operating systems and business software divisions account for 80% of operating profits.These divisions' core products were developed for personal computers (PC). Yet the PC is in decline, eg 2013marked the worst decline in global PC shipments with 7 consecutive quarters of falling demand; this threatens Microsoft's core products while mobile phones are rising and there is a transition to"cloud", ie

"...The new cloud workloads and mobile apps that are redefining how millions of people interact with the digital world are already running on Amazon Web Services and the iOS and Android platforms...Google has beaten Microsoft...creating a hardware ecosystem with the free android operating system; a position it has cemented with the pending sale of its Motorola handset business to Lenovo, which removes the risk. It will compete with its own hardware partners. Apple has taken the profitable high ground with the alternative, integrated approach represented by the iPhone. That has forced Microsoft to buy Nokia's handset division to maintain even its current tenuous foothold in the business..."

Richard Waters, 2014

The development of android and iOS destroyed Microsoft's near monopoly in operating systems in a mere 5 years, with people adopting mobile computing more than 3 times faster than they did a desktop. It took around 15 years for Microsoft to dominate the desktop market from the 1980s. 2013 marked the worst decline in global PC shipments in history, ie 7 quarters of declining revenue. Microsoft has fallen behind on new trends like mobile,internet search, cloud computing, etc & overstaffed with 50%more staff than Apple yet 50% less revenue & profit (2013)

Some recent products have had a mixed impact. One new product (server software) is a success while others (online services, Xbox, phones) have been failures.

There is a trend towards software sales becoming server sales. It is uncertain how the license sales/action sales mix is going to change.

Technology companies are rising and falling faster. As consumers and businesses are becoming more mobile and data intensive, the likes of Microsoft, Apple and Google are becoming vulnerable to smaller, nimbler competitors. For example, the once invincible Microsoft failed in its attempt to take on Apple's iPad. It is hoping to counter this trend to computers going mobile, it purchased of Nokia's hardware division (US $ 7 b.) to protect its core business (Windows Operating System, Office & Software) This acquisition turned another industry icon into a footnote in history books!!!

In early 2014, there was a senior management shakeup in Microsoft when it appointed Satya Nadella as CEO to replace Steve Ballmer; Bill Gates has moved into a more technical advisory role.

Also, Bill Gates has moved into a more technical advisory role. Microsoft is trying to re-invent itself by  i) re-branding (2011 - 2012), eg logos, products, services, website, etc
ii) acquisition (since 1986 purchased around 200 firms; with 22 in 2015) iii) new products iv) staff changes Some acquisitions - aQuantive (US$ 6 b. in 2007 - Internet advertising) - Skype (US$ 8.5 b. in 2011 - VOIC) - Yammer (US$ 1.2 b. in 2012 - social network) - Mojang (US$ 2 b. in 2014 - maker of home video games like Minecraft; replaced Xbox that started in 2001)
- Noki's handset business (US 7 b. in 2014) to protect its core business (Windows Operating System, Office and Software) with computers going mobile
- LinkedIn for US$ 26.2 b. (2016) Developed some new products  - Bing with Yahoo (2009) - Azure (2010 - entry into cloud computing market for Windows) - Windows server 2012 - Patent tracker (2013) - Kinect (2010 & upgrade in 2013 - motion sensing input device) - Surface (2012 - first computer in the company's history to have its hardware made by Microsoft)
- Outlook.com web service (2012 - competes with Gmail)
- Surface Hub (2015 - interactive whiteboard)
- Windows (2015 - latest version of computer operating system)
- HaloLens (2016 - 3D headset)

Staff changes
- Changed CEO, ie Satya Nadella replaced Steve Bulmer (early 2014)
- Starting in mid 2014, massive staff lay-offs as rationalised business, eg    
i) July 2014 - 18,000 out of around 130,000 staff    
ii) May 2015 - 1,850 staff    
iii) July 2015 - 7,800 staff (Wikipedia, 2016b)

Australia Post

It was a government-owned (Commonwealth of Australia) but self-funded corporation whose traditional role was delivery of letters and parcels.

It celebrated its 200th anniversary in 2009.

In 1901 the different colonial mail postal systems were merged into the Postmaster-General's Department (PMG). They were also responsible for telegram and domestic telephone operations.

In 1967 the first large-scale mechanical mail sorting system was introduced and coincided with the introduction of the current system of 4 digit postcodes

In 1975 the Australian Postal Commission (trading as Australia Post) was established and its core business was around providing postal services including telegrams; it also developed limited non-core activities such as selling stationery, handling payment of bills like utilities, council rates, telephone, etc, handling some banking facilities like money transfers, savings bank deposits and withdrawals, etc

Since the late 1990s, Australia Post has broadened its product and service range and invested in major technology-based infrastructure programs plus changed its business model to a more franchise-orientated organisation. It operates in 3 core areas, ie

i) letters and associated services

ii) retail merchandise and agency services

iii) parcels and logistics

It offers delivery services (normal mail delivery as well as express courier), retail products, financial services (including insurance, passports, etc), direct marketing and database management services.

It also has a number of subsidiaries and joint ventures including a joint-venture in China established in 2005.

It has community service obligations, ie to provide an accessible, affordable and reliable letter service to all Australians wherever they reside. The corporation reaches more than 10 m Australian addresses; operates 4,419 postal outlets; serves more than 1 m customers in postal outlets every day.

It has a monopoly on letters up to 250g as its competitors have to charge 4 times the basic postage rate. Otherwise all other goods and services sold by Australia Post are sold in a fully competitive market place.

In recent times, with the increase in buying on the Internet, its parcel delivery area, ie delivering items purchased on the Internet, is more profitable than its mail delivery activities. Its mail delivery services are losing hundreds of millions of dollars per year and it is delivering fewer letters, eg in 2012 it was delivering 1 billion fewer letters (30% less) than in 2007. On the other hand, over the same period its parcel and pick up delivery has grown by 24% but it faces fierce competition from the private sector.

It is proposed to separate the mail delivery into 2 categories: a premier 5-days-a-week service & a regular service that will be 1 to 2 days slower and cheaper. Also, the organisation aims to diversify its retail business by taking over the process of health payments for the government.

One of the challenges facing Australia Post is the competitive pressure from the private sector as most of its services are being, or can be, provided by the private sector, eg courier, office supplies, payment facilities, passport applications, gifts, etc

With its core business, ie letters, under threat, Australia Post has used digital commerce to re-invent itself.  Also, the Australian government, which owns Australia Post, has agreed to increase the price of stamps and to cut back delivery services.

Owing to e-commerce, its parcel business has significantly increased in size and profitability. On the other hand, Australia Post cannot relax

"...the pace of change and competition is so brutal, the moment you get to the top you look over your shoulder.  You've got to change and got to think rapidly...."
Ahmed Fahour as quoted by Joanna Gray 2016c

Thus Australia Post is developing a digital identity business, ie aiming to make its identity service an integral part of online transactions so that it can charge a fee every time identity verification is used

"...the new beta version of its service is gaining traction with banks and government agencies.  By speeding up identity verification, it can cut the cost of doing business and encourage more transactions. About half of all online transactions are started and not completed because of complication and delays in filling in identity information..."
Joanna Grey 2016c

It is also including block chain technology to store the identity data.

People are becoming more concerned about the data they give to online organisations.

Some of the lessons learnt by Australia Post include

i) Post People First (investing, supporting, motivating the workforce to do the best and to reach their potential to help customers interact with the company)

"...happy staff leads to happy customers which leads to happy community and shareholders..."
Joanna Gray 2016d

You don't need to start with the customer

"...don't start with the customer.  The customer clearly is really important, but what you do as a leadership team, you start to build a culture and a trust and a level of relationship with the workforce who are delivering the service and the product..."
Ahmed Fahour as quoted by Joanna Grey 2016d

NB the workforce were very unionised and 45% of the staff are over 50, ie in the twilight years of their careers

"...people are paramount in any organisation. How they treat customers and each other creates a culture that is crucial to the successful implementation of strategy...... dedication to service is deep in our workforce base. Who is the person innovating here?  It's your employee in a way that they interact with their customer, in the way they interact with the eco-system, the way they interact with their suppliers.  The way they interact with each other..."
Ahmed Fahour as quoted by Joanna Gray 2016d

Currently the is dominated by white Anglo-Saxon middle-aged men; there is a need for greater diversity.  Until several years ago there were no women in senior management, and only 19% of management positions were held by women. In mid 2016

"...33% of managers are women and 37% of senior management are women......20% of managers are from non-Anglo backgrounds..."
Ahmed Fahour as quoted by Joanna Gray 2016d

  ii) identify early the threats and opportunities like the Internet

As the parcel business is growing at around 8% annually, Australia Post is looking at using drones as delivery mechanisms. Other new businesses include digital identity and block chain (see above for more detail).  The aim is to

"...empower customers and citizens to own and control what they do with their data and their identity, and build another new steady income stream..."
Joanna Gray 2016d

News Corporation

Over the years, Rupert Murdoch (who started in newspapers and now, in his 80s, controls a global media empire worth around US$ 80 million) has continually tried to re-invent his media empire (News Ltd) since first taking over the News newspaper in Adelaide, South Australia in 1953. For example,

- in 1964 launches the Australian-wide newspaper (The Australian)

- in 1969 goes international by buying newspapers (The News of the World and The Sun) in the United Kingdom; later on in 1981 he buys The Times

- in 1976 ventures into America by buying the New York Post

- in 1985 buys 20th Century Fox

- in 1988 launches Sky (now BSkyB)

- in 1990 News Corporation almost sinks under debt

- in 1996 launches Fox News Channel

- in 2000 invests in realestatecom.au (now REA Group)

- in 2005 his eldest son Lachlan quits News Corp

- in 2007 buys Dow Jones and the Wall Street Journal

- in 2008 in the Boyer lectures in Australia he talks about the threat to his media empire of the digital revolution, especially the rise of e-media

- in 2009 Chase Carey returns to News Corp as COO and since then share prices have increased around 2.5 times. He focused on the expansion of the cable TV business (generates around a 1/3 of the group's earnings before interest and tax) and started a US$ 10 billion share buyback. He replaced Peter Chernin who was concerned about the future of the newspaper business, especially the Dow Jones acquisition. The print newspapers have declined in financial importance in the global media and entertainment conglomerate. This is despite transforming the newspapers from relying on advertising revenue to more reliance on subscription revenues; the latter are comparatively more stable and not as susceptible to the business/financial/economic cycle.

"... News Corporation has essentially become a cable TV powerhouse with legacy newspaper, book, film and broadcast TV assets. Newspaper and book publishing...... information services account for only 9% of the group's earnings..."

Ben Holgate, 2013

- in 2011 News Corp buys Rupert's daughter's (Elizabeth) Shine organisation for $US 480 million; closes News of the World amid phone hacking scandal

- in 2013 News Corporation splits into 2 separate companies. This de-merger is to unlock value of the high-growth businesses around 21st century Fox and spin off the low growth assets into the new News Corporation with the aim of transferring printed newspapers into profitable digital products

- the impact of the phone hacking scandal (UK) is still working its way though the corporation

Amazon

· After being a major disruptor of many businesses, like traditional bookstores via on-line sales and e-books, Amazon is trying to reinvent itself. As founder Jeff Bezos states he wants to maintain the start-up mentality of continually developing new products, irrespective of margins. Some examples include

- using a shop (bricks and mortar) in Manhattan (USA) to showcase its products like Kindle e-readers, Fire smart phone & Fire TV Set-Top Box, Etc

- spending US $5b. on capital expenditure in the first 9 months 2014 (in 2013 only spent US$ 2b.)

- paid US $1b. for video gaming Twitch (2014)

- purchased the "Washingon Post" to push the newspaper industry into the digital age

Westfield Group

Westfield

"...subscribe to the school of thought that everything is vulnerable. Even something that has had a long term success, it's only a knife edge away from failure. If you look at it like that you will work really hard to manage each facet of your life, because any one of them could crumble at any moment..."

Steven Lowy as quoted by Jemima Whyte, 2014

"...I know a tonne of kids who have done great at school and have replicated that in life, and I know lots of kids who did poorly at school who have had outstanding lives..."

Steven Lowy as quoted by Jemima Whyte, 2014

"...I find you deal with things in a disciplined manner, one at a time, you can deal with issues that seem insurmountable. They become surmountable. When they break down into compartmental bits..."

Steven Lowy as quoted by Jemima Whyte, 2014

· This firm was started around 60 years ago in a single smallgoods store in Blacktown, New South Wales (Australia) by Frank Lowy. Westfield has used very ambitious, costly restructuring and bold moves as ways to continually re-invent itself and is a global shopping centre empire. Some examples:

- in 1979 Westfield Trust was spun off as a separate property trust investment vehicle from the development arm, Westfield Holdings

- in 2001 the group secured the management rights to Rodamco North America after a hard-fought corporate restructure battle

- in 2004 it rolled together 3 shopping centres and developer entities (Westfield Holdings) and Westfield America to create a $22 billion Westfield group

- in 2006, they took on British developers, Simon and David Ruebens, to secure control of the Stratford City shopping centre near the Olympic Village

- in 2010 they hived off the property assets from the management rights to create Westfield Retail Trust and shopping centre management business, Westfield Group

· Westfield is worth around US$ 70 billion (2014)

· If you had invested $1,000 in Westfield Development in 1960 at its listing and re-invested all dividends, etc, this investment would have been worth around $170 million in 2010. A similar investment in the All Ordinaries Index, in contrast, would be worth $165,000.

 · Frank Lowy is the richest man in Australia with an estimated of around $7 billion (2013).

. The restructuring of Westfield's property empire in June 2014 has increased the combined market capitalisation (Westfield Corporation & Scentre) by around A $12 b. (October 2015)

- The international strategy is to moves out of mid-market centres and focus on enormous, top-end centres full of luxury retailers in the kind of fit out, restaurants, bars and other offerings that luxury goods consumers might like online shopping is one of the biggest challenges for "bricks and mortar" retailers. To help handle this, retailers use apps and big data to look at factors like how the traffic is, where the available car parks are and helping customers to get free parking at their stores Ford, the automotive giant attempting to transform itself into an "auto and mobility" firm, by opening FordHub in the Westfield World Trade Centre (2016). "...it is a storefront, not a dealership, where consumers can see Ford's latest innovations, talk to "FordGuides" about mobility services and enjoy events..." Robert Harley, 2016 These are not about selling products, they are about capturing people's thoughts to help solve transportation issues of today and tomorrow. Westfield is aiming to connect the physical and digital worlds; not about a choice between them, ie the best centres in great locations combined with a vibrant and totally integrated digital experience. It has launched digital express parking, indoor mapping, advance food ordering, online product search plus a data and analytics unit to work with retailers to better understand and use the data generated from millions of visitors, ie customers will have digital access to premium services and amenities, and interactive directories. Westfield's initial mantra was "growth, growth, growth" with the US portfolio of malls around 61 in 2001. But given the GFC, digital revolution and changes in retailing, Westfield is now focusing on iconic centres in the biggest markets and selling their secondary malls.  Five decades ago Westfield was in the forefront of developing shopping malls linked with cars to the suburbs.  Now its business is moving with its customers to the mass transit and urban core, opening in the best, high traffic locations in cities like London, New York and Los Angeles.

Telstra (Australia)

 . Started as a sate-owned monopoly in ICT industry in Australia but in 1990s when it was privatised and faced competition from mobile phone players like Optus, Vodaphone, etc and more recently NBN.
. It is a telecommunication firm that is trying to avoid becoming a "dumb-pipe" Internet provider by developing a growth strategy around 4 criteria

i) grow network application services (NAS)
ii) invest in Asia
iii) build a successful media and IPTV business
iv) build new revenue streams like software, e-health, etc
plus earnings to be accretive & return on invested capital within 3 years

. 40% of Telstra's revenue comes from mobile phones, mostly data; previously, revenue was dominated by voice calls

 . Under threat from global tech giants and new industry players like Google, Apple, etc with smart phones, etc

 . Started investing in Australian and USA start-up companies & Chinese Internet services (like car sales website, eg Autohome) but low margins businesses

. Philippines ICT industry with San Miguel (large beverage/food conglomerate based in Philippines)

. Moving into health care, ie partnering with Medgate, a major Swiss provider of on-line healthcare services & virtual doctor consultation

. Negotiating to buy Pacnet for $ 1b. (enterprise services and submarine cable company)

. Telstra had 6 main challenges (2015)
- customer control
- connectivity
- integration
- admissions
- ehealth
- efficiency

NB As increasing demand for mobile services via the Internet of things oocur, with content being important, Telstra's core business is now connectivity with increasing focus on developments in media (HFC network, Foxtel, etc), Asia, software development, e-health (its ReadyCare program where GPs are available over the phone for consultations), connecting cars, etc.

David Thodey (when CEO), Telstra pulled out of Sensis, SouFun & CSL.

In 2016 Telstra appears to be performing well with record revenues and is dominating the Australian mobile and broadband markets. On the other hand, there are challenges for the A$ 66 b.  telecom, eg
- Telstra's phone and Internet infrastructure vs. A$ 56 b.National Broadband Network
- web based services such as WhatsApp, Skype, etc
- major overseas investments (see below)
These have made the copper-line call revenue fall by 41% in the past 7 years
Telstra needs to invest in
i) being agile to speed up its processes
ii) innovation, eg  digitalisation of business, government and health sectors with high-speed broadband, Internet video services, cloud computing, etc.. This includes
- Gurrowa Innovation Lab (access to a global innovation network of universities, start-ups and strategic partners that concentrates on solving customers' problems , ie creating value for customers; employs staff who are adaptable and curious; uses multidisciplinary teams with engineering expertise, focusing on customer orientation, with an understanding of the end users' experience, etc. Some of the opportunities identified include cloud capabilities, health business, etc)
- other examples include muru-D (an incubator that works with the start-up community), Telstra Ventures (made 26 investments including Telstra Health & Ooyala - software group),  Telstra Home, (built organically to deliver the Internet of Things to people's homes). Health is a major opportunity with A $105 b. spent on health care in Australia (2003/14); over 2 years Telstra spent around A$ 240 m. in buying digital health business. Also, it is expanding into quantum computing plus collaborative relationships with Ericsson and Cisco
iii) expansion, eg network applications (including buying Pacnet which has significant connectivity infrastructure and services such as managed networks, cloud and network security) and e-health (see above) plus venturing into riskier markets like Indonesia, Philippines, etc.. In the Philippines, Telstra plans to partner San Miguel (local beer and food giant) to build the country's third national mobile network (estimated to cost around $US 3.5 b.); Telstra plans a 40% stake in the venture.  As the Philippines lacks fixed-line infrastructure, most people will experience broadband from smart phone, not a computer.
Telstra's is previous overseas investments in Hong Kong, China, Indonesia and Vietnam have given varied results, eg it wrote off around A300 m. in China on Octave Investments; it lost A$ 2 b.  on its investment in Hong Kong Telecom. On the other hand, during Sol Trujillo's tenure, Telstra made good money in China from the real estate portal (SouFun) and a car sale website (Autohome)
Telstra is repositioning itself as a technology company (rather than a telco) with its cloud and network applications. It is focusing on taking mid-term risks for long-term gain
Telstra has also increased its investment in core mobile business with A$5 b. spent to improve the service while preparing for the launch of 5G services with Ericsson

Facebook

It started in 2004. Despite having 1.3+b. users, younger Americans are deserting it to frustrate adult scrutiny.

It is trying to re-invent itself by buying

- Instragram (online photos & video-sharing social network service) ($US 1b.)

- WhatsApp (mobile, text-messaging service) ($US 19b.)

- Pryte (mobile data payments; with focus on developing world)

- Oculus (maker of virtual reality headsets) ($US 2b.)

- LiveRail (digital videos ads that matches right ad with right consumer) ($ US 0.5 b.)

Working on other products like image ads on Instragram, mobile payments, etc

Cotton T-shirt

. The white cotton T-shirt has had many incarnations on its journey from humble long-johns in the 19th century to actors' shirt of choice in the 1950s and since then án ubiquitous item for both men and women.
. The type of T-shirt worn indicates the wearer's personality and their social tribe. Rappers and skaters wear them long and baggy; some men prefer them tight across the pecs and biceps; surfies sport them as out-wear, often with a simple slogan printed across the front; professionals wear them as undershirts to stop their work shirts yellowing under the armpits (one of the original aims of the garment). Today, hundreds of labels compete for customer loyalty, offering various cuts and fabrics and a range of prices, ie from $570 (Gucci) to around US 5 (Target) The sequence of incarnations is
- Coopers Underwear Company advertises a new undershirt, without buttons, for bachelors (1904)
- US Navy instructs sailors to wear undershirts when in uniform (1905) and this is followed by men in the US, favouring new "crew neck cotton pullovers"
- F. Scott Fitzgerald coins the term T-shirt" in his first novel, ie"This Side of Paradise (1920)
- T-shirt popularity increases after actor Marlon Brando wears one in a play/movie named "Streetcar Named Desire" (1951)
- Rebellious middle-class teenagers wear white T-shirts after James Dean's iconic role in "Rebel Without a Cause" (1955)
- Cultural crossover is achieved when little-known US punk band "Plain White T's" have a Platinum hit with "Hey there Delilah" (2007).
. An estimated US$ 20b. spent on T-shirts in 2014.

Levi
- 150+ years old company that invented blue jeans (501) and has 2,700 stores around the globe but needs to act like a start-up, ie agility, different points of view, energy, excitement, etc
- need to combine an element of the unexpected with the expected, eg customers know they will find Levi's products in the store but they would not expect to find Levi's hosting a free music concert with the entrance ticket being the wearing of a pair of Levi jeans, ie

"...It was unexpected social media meets product meets music. We got literally millions and millions of hits through social media, through all sorts of PR..."

James Curleigh as quoted by Hannah Tattersall, 2015

- focus on reinventing the 501. Research has shown that tapering is second only to hemming as the most requested denim alteration. As a result they have launched 501CT (custom tapered), ie jeans with a narrower leg than the original, designed to be worn slim. Using multichannel advertising by targeting customers in-store, online, via telephone sales, print and television, billboard, digital campaign and social media; invited magazine editors, musicians, actors and other celebrity influencers to have their jeans custom-fitted.
- aims to position Levi's as a lifestyle brand. As only 5 to 8% of anyone's total spend on clothes is made up of denim products, there is a potential to increase this spend on other Levi products like belt, underwear, jacket, white T-shirts, leather goods, etc

Virgin Airlines Australia
- It started as a low-cost, no-frills, single class, leisure-focused airline called Virgin Blue Airlines (2000) with 2 leased aircraft; bus companies regarded as the main competitors as Virgin was trying to attract new customers to flying
- It uses the concept developed by Southwest Airlines and Ryanair of eliminating costs like in-flight services including meals, entertainment, etc and printed tickets in favour of selling services on board and using telephone/Internet booking systems plus using one type of aircraft to minimise operating/maintenance costs.
- In September 2001 it was catapulted into the position of Australia's 2nd airline after the collapse of Ansett Australia. This meant that it was no longer just a cut-price alternative to the traditional players, ie access to terminal space which helped its growth.
- By 2016 it has grown into serving around 30 destinations in Australia
Over the years Virgin has continually endeavoured to re-invent itself by
- improving services by offering guests a choice of purchasing tickets with no frills through to paying extra for different services like meals, refreshment, choice of seats, excess luggage, etc
- introduced multi-class travel, eg business class (2012) and premier economy (2008) that allowed priority check-in, baggage allowance, lounge access, priority boarding, increased legroom and all-inclusive flight entertainment, meals and beverages on board.  This was aimed at business and corporate customers and to attract clientele from their main competitor, Qantas.
- introduced flight lounges for travellers on initially a "pay-as-you-use" and more recently a fee basis at some airports with food and other amenities like Internet access, meeting rooms, showers, etc
- established  reward/loyalty/frequent-flier program, eg initially Velocity Rewards and then changed to the Velocity Frequent Flyer (2013); this program has partners like National bank of Australia, Westpac, ANZ, American Express, Diners Club, etc; it has different status levels like red, silver, gold and more recently platinum; with points earned relative to the cost of the flight rather than distance traveled; Global Wallet Function (2013) which is a prepaid travel card
- regularly changed uniforms and cabin design; with aircraft repainted from bright red to sophisticated white with silver detail
- introduced new equipment like wider body, more fuel-efficient aircraft, etc
- re-branded as Virgin Australia (2011), ie Virgin Blue, Pacific Blue, Polynesian Blue and V Australia became one brand
- changing ownership, ie Virgin ceded its ownership fellow shareholder Patrick Corp, then Toll Holdings, followed by Air New Zealand, Etihad and more recently Singapore Airlines, etc
- formed alliances with other airlines like code-sharing initially with United Airlines and followed by Emirates, Hawaiian and Malaysia, then Garuda and Vietnam. In 2010, formed alliances with Etihad and Air New Zealand, ie full code-sharing, reciprocal lounge and frequent-flier access.  In 2011 with Delta Air Lines, it joined Sky Team (one of the top three alliances in the world) and formed an alliance with Singapore Airlines, etc
- started Virgin Australia Regional Airlines in Western Australia; formed a 10 year deal at Perth-based regional airline Skywest so that able to better compete with QantasLink and Regional Express Airlines; later purchased Skywest and Tiger (2012)
- change in CEO in 2010 from Brett Godfrey (original CEO) to John Borghetti (former Qantas executive general manager who employed several key Qantas staff at Virgin)
- changed head office site from Fortitude Valley to Bowen Hills, Queensland (2008)
- introduced international flights to America (2009), ie San Francisco and Los Angeles
- sponsoring sporting teams like NRL team (South Sydney Rabbitohs in 2007), NBL (Brisbane Bullets), AFL, etc
- introduced flying billboards, eg promoting men's razors, Queensland government's campaign to attract businesses to the State, etc
- advertising campaigns, eg slogans like "get what you want" (2007), "now there's an idea" (2009) and "now you're flying" (2011) plus new billboard advertising showcasing Virgin's variety of products and on-time performance record

(sources: AFRBoss, 2000; Gary Hamel, 2000a; Jerry Useem 2001; Jack Welch et al, 2001; Gerry van Wyngen, 2003; Charles Handy, 2002; Sean Aylmer, 2004; Betsy Morris, 2004; Janet Guyon, 2004; David Kirkpatrick, 2004; David Kirkpatrick, 2005; Costas Markides, 2003; Marc Gunther, 2004; Sean Aylmer, 2004a; Matthew Boyle, 2004; W. Chan et al, 2005; Spencer Ante, 2004; Geoffrey Colvin, 2005; Carol J Loomis, 2005; Mara Der Hovanesian, 2005; Emily Ross et al, 2004; Anita M McGahan, 2004; Geoffrey Colvin, 2005; Rose-Anne Manns, 2006a; Geoff Colvin, 2006c; Chris Zook, 2007; Brad Hatch, 2007b; Betsy Morris, 2008; Clayton Christensen et al, 2003; Jim Collins, 2008; Richard Branson, 2008; David Rhodes et al, 2009; Catherine Fox, 2008g; Seth Godin, 2007; Brook Turner, 2009; Linda Schmidt, 2010; Peter Roberts, 2010; James Eyers, 2010; Emma Connors, 2010; Brian Corrigan, 2011; Sean Aymer, 2005a; Charles Arthur, 2011; The Guardian, 2012; Dominic White, 2012a; Jason Murphy, 2012; Dominic Rushe, 2012 ; James Chessell et al, 2012 ; Peter Roberts, 2013; AFR, 2013; AFR, 2013; Paul Smith, 2013; Wikipedia, 2013f; John Gapper, 2013; Daniel Thomas, 2013; Ben Holgate, 2013a; AFR, 2013 & a; Tom Mitchell et al, 2013; AFR, 2013b; Patrick Durkin, 2014; Andrew Cornell, 2014; Philip Baker, 2014; Max Mason, 2014; The Lex Column, 2014a; Sue Mitchell, 2014a; The Lex Column, 2014b; Hannah Tattersall, 2014; Max Mason et aL, 2014; Chanticleer, 2014; Tim Higgins, 2015; Hannah Tattersall, 2015; Bangkok Post, 2015a)

Even countries can follow a version of the s-curve, eg China. After the instability of the cultural Revolution (1960 -70s), China worked on political stability, eg at change its focus from class struggle to economic organisation. This was shown by a focus on market incentives and education; followed by agriculture, then infrastructure and heavy industry; then manufacturing and exporting. More recently it has focused on service and customer-based economy like finance, logistics, health care, tourism, etc; a knowledge-based economy with a cleaner environment; more equitable income distribution; less energy intensive industry. The last few decades China has had a growth rate around 10% but in 2014 it has started to slow. Despite this it is now the world's second largest economy.

Future growth industries of China are expected to be knowledge-based around service and customers with focus on less energy-intense industries like finance, logistics, healthcare, tourism, technology and environmental science (cleaner environment). For example,
- finance (over the past decade the number of proper institutional venture capital funds in China has grown from 32 to several hundred)
- health care (accounts for around 7% (US$ 700 b.) of China's GDP; this is expected to double over the next decade)
- environmental science (it is estimated to cost China US$1 trillions to fix its land, water and air pollution problems)

There will be less growth in areas around steel, cement, glass and other construction-related sectors (building infrastructure like railways, bridges, roads, factories, apartments, etc) which have provided the basis for the growth in the last 3 decades.
Even with a growth rate of 6%, China will create the equivalent of a Californian economy every 3 years and an Indonesian economy every 2 years.

On the other hand, the Chinese economy is facing some problems related
- to high debt levels
- a sluggish property market
- lack of transparency, eg the government's control of Internet
- persecution of opposition to the government like crackdown on human rights lawyers and their families

"....China is like a huge teenager. Physically, the country is relatively mature, strong and powerful, but it is a little too self-centred and in a way too insecure..."

Gary Rieschel as quoted by Les Murray, 2015

Some examples of this include the Chinese intervention in their sharemarkets in mid-2015 and early 2016 plus the currency depreciation without warning in 2015.

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