Technology / Innovator'S Dilemma

Innovator'S Dilemma

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Autor:  anton  24 November 2010
Tags:  Innovators,  Dilemma
Words: 1064   |   Pages: 5
Views: 253

In “What is Strategy,” Michael Porter writes that “strategy is creating fit among a company’s activities (75).” He delineates success of a strategy through a company’s ability to do many unique things well, and align them in a way that makes it very difficult for competitors to replicate. The core themes (such as high level of service, endless customization) that comprise company’s strategy are therefore so tightly integrated that one could not be separated from another. Competitive advantage emerges from the entire system of activities that is different from that of rivals. The three sources of strategy as identified in the article are customers’ needs, accessibility, and or the variety of a company’s products or services. Needs -based positioning targets a specific group of customers and caters to all of their needs. Ikea presents an excellent example of this as their strategy is to be a one-stop, convenient shop for all furniture needs of price-sensitive consumers who often work and have children and do not require high levels of customized service. Secondly, access-based positioning segments customers by access, which is anything that requires a different set of activities to reach customers in the best way. Carmike utilizes an access-based strategy as a function of geography by operating movie theaters only in underserved rural locations. Lastly, variety-based positioning is based on the choice of product or service varieties, such as Jiffy Lube, which specializes in speedy, low-cost oil changes only.

I agree with Porter’s statement that the “Competitive value of individual activities cannot be separated from the whole.” Individual activities are easily identified and copied by competitors. Porter illustrates how Continental, a full-service airline, attempted to copy individual activities of a highly successful rival, Southwest. Continental created Continental Lite, which directly replicated some of Southwest’s activities, such low-cost fares with no first-class seating or meal offerings. In so doing, they alienated travel agents, a large source of clientele for their core business with low commissions, and they mismanaged their existing business customers who valued service associated with the Continental name. By imitating only a few individual activities, without the whole system of Southwest’s low-cost, high convenience strategy, they lost a great deal of money and loyalty.

Porter argues that although operational effectiveness (OE) is essential, it will never differentiate a company and provide long-term profitability the way strategy does. Operational effectiveness can be boiled down to a set of management tools and best practices. The most general and effective diffuse quickly as imitation is rife. They can lead to competitive convergence as many companies adopt similar methods, emulating efficiency practices or new technologies for example. Porter states, “Operational effectiveness means performing similar activities better than rivals perform them… In contrast, strategic positioning means performing different activities from rivals’ or performing similar activities in different ways (72).”

Christensen believes most technologies fall into the “Sustaining technology” category—whether radical or incremental, they improve the performance of established products, along the dimensions of performance that customers in major markets already value. In order to be “disruptive,” a technology must bring to market a very different value proposition than available previously. According to Christensen, there are five principles to disruptive technologies. First, companies depend on investors and customers for resources. Their financial and human resources therefore are dictated by these parties who do not want to allocate to markets with lower margin technologies that they don’t yet know they want, that is until it is too late. Secondly, small markets don’t solve the growth needs of large companies. The larger the company, the more new sales needed in order to perform for investors. Emerging markets are generally small and cannot initially sustain the kind of revenue growth a large company demands. In the long-term however, these emerging markets will become the large markets. Thirdly, markets that don’t exist can’t be analyzed. Armed with an idea for a disruptive technology, a young manager standing before the board has a difficult time convincing leadership to invest in this potential market as classical management tools such as forecasting, market analysis, and SWOT, all which require data that does not exist. Principle #4 is an organization’s capabilities define its disabilities. An organization’s capabilities are embedded in the processes and values. A value helps managers decide to prioritize high margin projects, however this becomes a weakness when first mover advantages exist for the low margin emerging disruptive technologies. The fifth principle is technology supply may not equal market demand. Companies often overshoot the needs of their existing customers as they race up the competition toward higher-performance products, thereby creating a vacuum at lower price-points as customers change their purchasing factors from functionality to reliability to price.

The Innovator’s Dilemma is that a significant first-mover advantage exists in emerging markets; however, to lead into those markets with disruptive technology is risky as very little is known about the market. Listening to your customer can ultimately cause your company to fail as customers are often averse to new technologies that they don’t know how they would use it. By the time they realize they want it, it’s too late as a rival has already gained the first mover advantage.

The pharmaceutical industry is on the cusp of many disruptive technologies such as biogenetic markers, which would enable physicians to predict who would respond to which medicines, changing the whole prescribing algorithms of health care. Another emerging disruptive technology is nanotechnology for health care, which is extremely expensive as it requires very extensive long-term trials and it is not yet used and approved in the US, though it holds a great deal of promise. The pharmaceutical industry is very much monkey see, monkey do, as it is such a high risk industry and me-toos can be profitable, though formulary restrictions have now nearly mandated disruptive technologies to be developed for smaller, specific diseases using biotechnology, generating a lower profit margin and higher cost/risk to develop. Counterfeiting has also caused a need for sustaining technologies such as RFID, which could become disruptive if the burden to ensure purity or legitimacy rests on customers or pharmacies instead of the manufacturer who have used bar codes and other markers in the past.

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