Ix) 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


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