TechnologyBusiness Innovation and Coevolution Daniel Lee Outline Innovator

Technology/Business Innovation and Coevolution Daniel Lee

Outline • Innovator DNA and Dilemma – – – Disruptive Innovation and Asymmetric Competition How to Chose Right Innovation at the Right Time Disruptive Business Model and Asymmetric Competition Conundrum of Innovator Dilemma How Steve Jobs solve the conundrum of Innovator Dilemma • The Medici Effect • Coevolution of Technology/Business Innovations – Technology and Innovation Trend – Coevolution of Science, Technology, and Application – Coevolution of Technology and Business

Innovator DNA

The DNA of Disruptive Innovators • What makes innovators different from the rest of us? - Is the ability to think creatively generic? - Are innovators right brained? - Roughly 25 percent to 40 percent of what we do innovatively stems from generic • “Think different” and “Act different”: Ones ability to generate innovative ideas is not merely a function of the mind, but also a function of behavior.

Innovator’s DNA: Five Discovery Skills 1. 2. 3. 4. 5. Associational thinking Questioning Observing Networking Experimenting

Part one: The DNA of Disruptive Innovators Courage to Innovate Behavioral Skills Cognitive skill to synthesize novel inputs Questioning Challenges to status quo Taking risks Observing Networking Experimenting Associational thinking Innovative Business Idea

Associating -Innovators connect the dots to make unexpected connections. They combine pieces of what may seem disparate pieces of information until "surprise you've got this innovative new idea. " “Creativity is connecting things. ” Steve Jobs, founder and CEO, Apple Inc. -Example: Steve Jobs, the CEO of Apple, and calligraphy classes and this eventually led to his company producing user-friendly, graphics-based Macs.

Questioning - Innovators are consummate questioners who show a passion for inquiry. Their queries frequently challenges the status quo. “Question the unquestionable” Ratan Tata, chairman, Tata Group - Questions focus on two areas: 1. Describing the Territory 2. Disrupting the Territory -Example: Steve Jobs and Computer fan; why does a computer need a fan? Which resulted in manufacturing of quietest and smallest personal computer ever made. Apple II.

Observing -Innovators are intense observers. They fully watch the world around them- including customers, products, services, technologies and companies- and their observation help them gain insight into an ideas for new way of doing things. -Vuia de: sense of seeing something for the first time, even if you have actually seen it many times before. “Observation is the big game changer in our company” Scott Cook, founder, Intuit -Example: Ratan Tata, chairman of India Tata Group, observed families riding scooters in India and gained a powerful insight that inspired the world’s cheapest car, the Tata Nano.

Networking Rather than simply doing social networking, innovators spend a lot of time and energy finding and testing ideas through a diverse network of individuals who vary widely in their background and perspectives. Discovery driven executives • - Why they network: Idea Learn new, surprising things Gain new perspectives Test Ideas “in process” • Whom they target - People who are not like them - Experts and nonexperts with very different backgrounds and perspectives Delivery-driven executives • - Why they network? Resources Access resources Sell themselves or their company Future careers • Whom they target? - People who are like them - People with substantial resources, power, position, influence, etc.

Experimenting - Good experimenters understand that although questioning, observing , and networking provides data about past ( what was ) and the present (what is), experimenting is best suited for generating data on what might work in the future. “I haven’t failed…I’ve just found 10, 000 ways that do not work. ” Thomas Edison -Three ways that innovators experiments 1. Try out new experiences 2. Take apart products, processes, and Ideas 3. Test ideas through pilots and prototypes - Example: Michael Dell taking his new computer apart in his sixteenth birthday.

The DNA of Disruptive organizations • Business week ranking from 2005 to 2009, based on a Boston Consulting Group survey of executives who voted on the companies. • Rank the companies based on future innovation rather than past performance: • Growth and innovation premium: the proportion of a company’s market value that cannot be accounted for from cash flows of its current products or businesses in its current markets. It is the premium market gives these companies because investors expect the companies to be able to generate high profit from them.

The DNA of Disruptive organizations Business Company name week rank (2005 -2009) Innovation premium rank Company name 5 -year innovation premium 1 Apple 1 Salesforce. com 73% 2 Google 2 Intuitive Surgical 64% 3 Microsoft 3 Amazon. com 57% 4 Toyota 4 Celgena Corp 55% 5 General Electric 5 Apple 52% 6 Procter & Gamble 6 Google 49% 7 IBM 7 Hinduson Lever 47% 8 Nokia 8 Reckitt Benckiser Gr 44% 9 Sony 9 Monsanta Co. 44% 10 3 M 10 Bharat Heavy Electricals 44% 11 Amazon 11 Vestas Wind Sustems 43%

The DNA of Innovative Companies People • • Companies are often lead by innovative executives who excelled at discovery Monitor and maintain an adequate proportion of high discovery. Quotient people in every management level, functional area, and decision making stage of the innovation process Philosophies Processes • • Processes explicitly encourage employees to associate, question, observe, network, and experiment Processes are designed to hire, train, reward, and promote discovery driven people • • Philosophy 1: Innovative is everyone’s job-not just R&D Philosophy 2: Disruption is part of our innovation portfolio Philosophy 3: Deploy small, properly organized innovation project teams. Philosophy 4: Take smart risk in pursuit of innovation.

The World’s 25 Most Innovative Companies

#1 Salesforce. com Founder – CEO: Marc Benioff Saleforce. com proudly touts its “No Software” mascot after essentially creating the enterprise SAAS segment. After average growth of 29% per year since 2005 its customer base is above 90, 000 enterprise businesses. Its Force. com site offered the first “apps for business” development space, which has more than 300, 000 developers after only 3 years. Salesforce. com also created Chatter, the first social network for businesses and the App Exchange, the first business app marketplace. Fast Facts Innovation Premium: 75% Industry: Enterprise SAAS CRM 5 Year Increase In Revenue: 233% Significant Awards • 2010 Intelligent Enterprise: Editors’ Choice Award (5 th consecutive year) • 2010 Stevie Awards: Most Innovative Company of the Year; Corporate Social Responsibility Program of the Year

#2 Amazon. com Founder & CEO: Jeff Bezos Starting with an innovative online bookstore, Amazon has grown to the largest online retailer in the world. Amazon’s founder and CEO, Jeff Bezos, encourages experimentation in his employees, and doing so led to innovations like the patented “ 1 -Click” ordering system and the category-creating Kindle e-reader. With 2 months of battery life and the ability to download books from anywhere, the Kindle’s success is such that there are now more e-books sold on Amazon than print books. Fast Facts Innovation Premium: 59% Industry: e-Commerce & Web Services 5 Year Increase In Revenue: 219% Significant Awards • Kindle e-Reader voted 2010 CNET Editor’s Choice • Amazon. com one of PC Mag’s 2010 “Top 100 Websites”

#3 Intuitive Surgical CEO: Gary S. Guthart Ph. D The fast-growing field of minimallyinvasive surgery stalled in the 1980’s due limitations on human dexterity, and robotics was the answer. Combining military telepresence technology, 3 D High. Def imaging, and ultra-high precision robotic tools, Intuitive Surgical created the da Vinci ® Surgical System, which promoted increasingly complex minimallyinvasive surgery by filtering out human “hand shakes” and giving a surgeon dexterity, freedom of motion, and precision impossible for a human hand. Fast Facts Innovation Premium: 58% Industry: Surgical Robotics 5 Year Increase In Revenue: 279% Significant Awards • 2008 -2010 Fortune’s 100 Fastest Growing Companies • Motley Fool Best Stock for 2011

#4 Tencent Holdings CEO: MA, Huateng (Pony Ma) Tencent’s QQ instant messaging service now has more than 650 million active users and is the one of the largest online communities in the world. The internet pioneer is leading the development of micropayments in its services. While Tencent’s basic services are often free, users will regularly make small payments, often less than one dollar, for small upgrades to avatars and messaging environments as well as for music and games, and the results have been one of China’s fastestgrowing and most profitable Fast Facts Innovation Premium: 52% Industry: Internet & Mobile Phone Services 5 Year Increase In Revenue: 602% Significant Awards • 2011 Achievement Award of The Most Respected Companies of China • Tencent’s QQ Free Fantasy Game won the “Best Q-edition online game in 2008” by China. Joy Golden Ling Awards

#5 Apple Founder & CEO: Steve Jobs’ return to Apple in 1997 led to the creation of the i. Pod and i. Tunes, which revolutionized the way music is consumed and made Apple the largest music distributor in the world. Apple has gone on to create the i. Phone, which isn’t just a phone but also holds a Guiness World Record for being the world’s “Fastest-Selling Portable Gaming System”. Apple’s enormously successful i. Pad created the tablet market as it is now known and has helped to further grow the revolutionary and oft-imitated App store. Fast Facts Innovation Premium: 48% Industry: Computers, Software, Electronics 5 Year Increase In Revenue: 238% Significant Awards • i. Pod touch, Mac. Book Pro, i. Pad 2, i. Phone all given Editor’s Choice awards • i. Phone was Times Magazine’s 2007 “Invention of the Year”

#6 Hindustan Unilever Limited CEO: Nitin Paranjpe The Asian arm of consumerproducts giant Unilever sits at the forefront of multiple emerging markets, and is creating products that meet both the unique needs of emerging and developed market consumers. HUL’s award-winning Pureit Water Filter gives developing-country consumers toplevel water filtration quality without the need for electricity, heat, or pressurized water. HUL also combined soap texturizing technology with ice-cream to create an ultra-creamy texture with considerably less fat. Fast Facts Innovation Premium: 48% Industry: Consumer Products 5 Year Increase In Revenue: 52% Significant Awards • 2010 -2011 Best Water R&D Technological Breakthrough by The Water Digest for Pureit Water Purifier • CNBC 2010 Most Preferred Personal Care Company (3 rd consecutive year)

#7 Google Founder & CEO: Larry Page Google holds almost 65% of the web-search market share and has created a large portfolio of awardwinning products such as Google Docs, Gmail, Blogger, Google Earth, Google Maps, and the fastgrowing Android smartphone OS. Innovating not just in products but in business model, Google’s Ad. Words search advertising system sets the company apart by allowing it to earn billions in revenues even after giving its products away, while competing companies still license or sell their products for a fee. Fast Facts Innovation Premium: 45% Industry: Internet Software & Services 5 Year Increase In Revenue: 176% Significant Awards • PC Mag’s “Top 100 Websites of 2010” for Google Docs • 2010 “Best Mobile Platform” at Mashable Awards for Android mobile OS

#8 Natura CEO: Alessandro Giuseppe Carlucci Using environmentally friendly messages and packaging and developing top quality products that meet the unique needs of its ethnically diverse client base, Natura is now the largest directsales based cosmetics company in Brazil. Natura’s ability to respond to its consumer diversity comes from its “lean innovation” system, which uses Natura’s 1. 2 million sales agents to directly observe and network with consumers and developers to create an inexpensive, consistent, and quickresponding innovation pipeline. Fast Facts Innovation Premium: 45% Industry: Cosmetics, Fragrances & Toiletries 5 Year Increase In Revenue: 73% Significant Awards • 1 st Place for Advertising Age’s World’s Hottest Brands in Brazil South America Segment • Best packaging for Cosmetics and Personal Care from Brazilian Packaging Association

#9 Bharat Heavy Electricals Limited Chairman: B. Prasada Rao BHEL is one of the largest engineering and manufacturing companies in the world and its equipment is involved in nearly 75% of the power generation in India. Experimenting is at the core of BHEL; the company recorded nearly one patent per working day in 2010. BHEL is currently leading innovation in some of the largest equipment in the world, and is also researching future technology like fuel cells, superconductivity and Thin-Film Solar Cells. Fast Facts Innovation Premium: 44% Industry: Engineering & Manufacturing 5 Year Increase In Revenue: 135% Significant Awards • 2009 -2010 SCOPE Meritorious Award for R&D, Technology Development and Innovation • 2010 CII-Thompson Reuters Innovation Award in “Hi-tech Corporate” category

#10 Monsanto CEO: Hugh Grant Working to create solutions for feeding a rapidly growing global population, Monsanto is finding new solutions for growing and protecting crops. Not only is it the developer of protection products like Roundup, but Monsanto uses a “molecular breeding platform” to conduct highly accurate virtual experiments by tracking terabytes of plant and seed data. Using this platform Monsanto has reduced the time to develop innovative diseaseresistant seeds with higher nutrition levels to a fraction of the time it normally would take. Fast Facts Innovation Premium: 43% Industry: Seeds & Crop Protection 5 Year Increase In Revenue: 49% Significant Awards • Hugh Grant named 2010 CEO of the Year by Chief Executive magazine • 2009 Company of the Year by Forbes Magazine for economic success and product innovation

#11 Reckitt Benckiser CEO: Bart Becht Reckitt Benckiser is the world’s fastest growing company in household cleaning, health, and consumer care. The company systematized innovation with its RB -Idea. Link innovation network, and is so productive that a new product formula is developed every eight hours. Reckitt Benckiser has taken innovation outside of its walls by entering consumers’ homes to observe them using products, and encourages entrepreneurs to network with the company by giving decisions on licensing in less than three months. Fast Facts Innovation Premium: 41% Industry: Consumer Products 5 Year Increase In Revenue: 72% Significant Awards • 2011 Best Product of the Year in Consumer Survey of Product Innovation for Finish Quantum • 2011 Which? Best Buy Award for Finish Quantu. Matic

#12 Celgene CEO: Robert J. Hugin Celgene came into its own when it successfully applied Thalidomide, previously scorned for causing birth defects, in cancer treatment. Celgene develops cutting-edge treatments for cancer and inflammatory disease by systemizing pharmaceutical innovation in cancer and disease targeting platforms as well as drugdiscovery technology. These platforms drive pharmaceutical innovations such as THALOMID and REVLIMID from discovery, through R&D and on to production faster than Celgene’s competitors. Fast Facts Innovation Premium: 40% Industry: Biopharmaceuticals 5 Year Increase In Revenue: 303% Significant Awards • Stock was The Street “Top Pick” for 2 nd half of 2010

#13 Nidec Corp. CEO: Shigenobu Nagamori Nidec Corporation is an electronics manufacturer that created the brushless DC motor, and its precision drive technology facilitated the miniaturization of computer hard drives. Innovations in the drive technology have lowered weight, reduced power use, increased capability and resultantly expanded the uses for the technology far beyond its original hard drive implementation to that of small fans, consumer electronics and now even systems in automobiles. Fast Facts Innovation Premium: 40% Industry: Drives & Motors 5 Year Increase In Revenue: 13% Significant Awards • 2006 [Michael] Porter Prize for innovation from Hitotsubashi Graduate School ICS

#14 Terumo Corp. President: Yutaro Shintaku Terumo corporation began 90 years ago producing thermometers and is now the leading Japanese medical device and equipment manufacturer. Terumo has many innovation success stories including mass-produced prefilled syringes and a disposable endoscopic guidewire. Terumo’s Chisato Nojiri also spearheaded the development of the Dura. Heart LVAS, which, when transplants are impossible, has replaced failing hearts so successfully that some patients have lived with the Dura. Heart for more than four years. Fast Facts Innovation Premium: 38% Industry: Medical Products & Equipment 5 Year Increase In Revenue: 28% Significant Awards • 2010 Spotlight on Service Management Innovation Award by Single Source Systems at Chief Service Officers Summit • Chief Medical Officer, Chisato Nojiri, awarded Nikkei Innovator Award and Technology Award for Dura. Heart

#15 Infosys Tech. Ltd. CEO: Senapathy Gopalakrishnan Infosys is at the forefront of innovation in cloud computing and IT services consulting and outsourcing. Infosys has created innovative products of its own, and it is driving global innovation by enabling co-creation in teamsourced innovation amongst its global client base. Infosys is innovating how businesses innovate. Not only is the company facilitating client innovation, but it created Infosys Labs, a dedicated research and innovation facility to further create new solutions for fostering client innovation. Fast Facts Innovation Premium: 37% Industry: IT Services & Consulting 5 Year Increase In Revenue: 98% Significant Awards • 2010 Most Admired Knowledge Enterprise (MAKE) award • 2010 “Best IT Service Management (ITSM) Project of the Year” by it. SMF Australia

#16 Pernod Ricard CEO: Pierre Pringuet Amongst producers of wines, spirits and liqueurs, Pernod Ricard is setting the bar for innovation in branding. Pernod Ricard’s emphasis is on the “premiumisation” of its brands by marketing its products as art. It is networking with external designers such as Jean Nouvel and Christian Lacroix, and the release of the redesigned Ricard bottle was turned into an art exhibition at the La Maison Rouge art gallery in Paris. To increase responsiveness, Pernod Ricard pushed observation and experimentation to the Fast Facts Innovation Premium: 37% Industry: Distilled Beverages 5 Year Increase In Revenue: 17% Significant Awards • Received four “Double Gold” and another Gold medal at 2011 San Fransisco World Spirit Competition. • 2010 Oracle Business Intelligence and Enterprise Performance Management Innovation Award

#17 Keyence Corp. President: Michio Sasaki Keyence is the leading supplier of sensors and measuring instruments for factory automation. Keyence is a direct sales driven organization. It requires that 25% of annual sales come from new products. Keyence encourages its sales personnel to not only drive product sales with on-site demonstrations, but to simultaneously spend considerable time observing the customer’s systems and equipment for innovation opportunities that solves customer problems. Fast Facts Innovation Premium: 36% Industry: Automation Sensors 5 Year Increase In Revenue: 1. 1% Significant Awards • 2010 R&D 100 Award from R&D Magazine for VHX-1000 Digital Microscope • 2010 Laboratory Equipment Reader’s Choice Award for VHX-1000 Digital Microscope

#18 FMC Technologies CEO: John T. Gremp FMC Technologies is leading the development of technology for the global energy industry. FMC’s subsea gas-liquid separation technology allows far more efficient subsea collection and led the company to record-breaking deepwater projects and the largest contracts in the industry. In 2010 FMC’s Through Tubing Rotary Drilling (TTRD) technology made it possible for subsea well operators to drastically reduce time and cost of drilling by sidetracking to new reservoirs through an existing production well. Fast Facts Innovation Premium: 36% Industry: Oil & Gas 5 Year Increase In Revenue: 42% Significant Awards • ONS 2010 Innovation Award at the ONS global oil & energy conference • 2010 Spotlight on New Technology Award by the Offshore Technology Conference (OTC)

#19 Starbucks CEO: Howard Schultz Starbucks has made gourmet coffee available on nearly every street corner, and the company continues to reinvent the way that coffee is produced for the masses. Starbuck’s VIA Ready Brew is the only instant coffee in the world to use “microgrinding”, which is a process that preserves essential oils and flavor. The coffee maker inspired the “Karma Cup”, a rewards-for-use reusable coffee cup. Starbuck’s also used social networking to promote a rewards card that friends could share and will soon allow them to reload as Fast Facts Innovation Premium: 36% Industry: Gourmet Coffee 5 Year Increase In Revenue: 52% Significant Awards • Fortune “Most Admired Companies in America” 7 years in a row • Business. Week “ 100 Best Global Brands” 8 years in a row

#20 Nintendo CEO: Satoru Iwata The release of Nintendo’s NES system in 1985 is widely credited for saving the video game industry. Since then Nintendo’s systems and games have consistently been industry-defining. Nintendo invented the “side-scroller” game with Super Mario Bros. , brought 3 D to portable games with the 3 DS, and redefined how users interact with video games with Wii motion controller system. In 2011 Nintendo introduced the ground-breaking Wii U, which allows users to see integrated content on their TV and controller at the same time. Fast Facts Innovation Premium: 35% Industry: Video Games Equipment & Software 5 Year Increase In Revenue: 182% Significant Awards • Game Controller Innovation Emmy from Academy of Television Arts & Sciences • 2010 Best of Show award at Electronics Entertainment Expo (E 3)

#21 Alcon Division Head: Kevin Buehler Alcon is one of the largest vision care companies in the world. Alcon’s research focuses on everything from dry eyes to eye disease to finding a cure for blindness. Alcon networks with 35 academic institutions and many pharmaceutical companies and also looks to a global R&D team of 2, 000 researchers to generate innovations such as Acry. Sof® the first multifocal intraocular lens for cataract patients. Since 1984 Alcon has offered it’s Technical Excellence Award for employee R&D advancement. Fast Facts Innovation Premium: 35% Industry: Surgical & Pharmaceutical Vision Care 5 Year Increase In Revenue: 47% Significant Awards • Fortune 100 Best Companies to Work For 11 years in a row • Great Place to Work® Institute's Innovation Award

#22 Activision Blizzard CEO: Robert Kotick Activision and Vivendi games merged in late 2007 to create one of the largest video game publishers in the world. Activision Blizzard’s Call of Duty: Modern Warfare, which combined RPG game features with a “shooter”, and World of Warcraft, which reinvented the MMORPG genre were both listed in Gamer. Pro’s Top 20 Most Innovative Games of All Time. Consumer’s excitement for the unique gameplay features in the 2010 release of Starcraft II made it the fastest-selling strategy video game of all time. Fast Facts Innovation Premium: 35% Industry: Video Games Software 5 Year Increase In Revenue: 70% Significant Awards • 2011 Lumiere Award from International 3 D Society to Call of Duty Black Ops for “Outstanding Achievement in 3 D” • 2010 Best Massively Multiplayer Online (MMO) game from IGN to World of Warcraft

#23 Beiersdorf CEO: Thomas-Bernd Quaas Beiersdorf is a global leader in skincare products with familiar brands like Nivea and Eucerin. It’s R&D center, which is one of the largest in the world, is uniquely modeled after a skin cell, and Beiersdorf brings more than 6, 000 volunteers yearly into the center for experimentation and observation activities. Among the 200 -250 products Beiersdorf releases every year are its Hansiplast transparent invisible-film bandages and the world’s first 48 -hour rated antiperspirant & deodorant combo by Nivea. Fast Facts Innovation Premium: 35% Industry: Consumer Skincare Products 5 Year Increase In Revenue: 21% Significant Awards • 2010 “Best Body Breakthroughs” Fitness Beauty Award for Eucerin Skin Balance Hand Crème • 2008 Technology Management Award by Frauhofer Institute for Production Technology (IPT)

#24 P&G CEO: Bob Mc. Donald In order to keep its portfolio of brands fresh, P&G is constantly releasing innovative products. P&G’s Connect & Develop program for networking with external partners is responsible for 50% of the product initiatives at P&G and more than 35% of the new products released. Not only that but the Connect & Develop program double the rate of success for new products, which include Crest Whitestrips, Swiffer Dusters, and the world’s top-selling skin cream Olay Regenerist. Fast Facts Innovation Premium: 33% Industry: Consumer Products 5 Year Increase In Revenue: 23% Significant Awards • 2010 Gold & Silver Best New Product Edison Award for “Consumer Packaged Goods Personal Care Segment” innovation • 3 rd on Barron’s “ 2010 World’s Most Respected Companies”

#25 Essilor President: Hubert Sagnières Manufacturing 240 million optical lenses in 2010, Essilor leads the world in lens development and innovation for multiple eye disorders. In the last few years Essilor has pushed its three R&D centers located across the globe to increase product innovation and development, which resulted in an increase in new products of 300%. The innovation drive led to breakthrough products like the Verilux Ipseo New Edition lenses, which include a patented image stabilization system to improve image clarity during movement. Fast Facts Innovation Premium: 33% Industry: Eyeglass Lenses 5 Year Increase In Revenue: 45% Significant Awards • Two Silmo d’Or awards for Varilux Ipseo New Edition and Essibox at Silmo Paris trade show

Innovator Dilemma The following slides are derived from Clayton M. Christensen’s

The Innovator’s Solution • Historically, less than 10% of companies have been able to sustain for more than a few years the growth that creates above-average shareholder returns. • Historically, it has seemed impossible to predict which innovations will successfully create new waves of growth, and which will fail. – Only 20% of venture capital–funded start-ups succeed – Only 25% of new products launched by established companies succeed. This need not be the case. Managers can use sound theories to guide the key decisions required to build successful growth businesses.

Ten questions in building new growth businesses • • • 1. How can we beat the competition? 2. Which customers should we target? 3. What products will our customers want to buy? 4. How should we distribute to and communicate with our customers? 5. Which things should our company do, and which should our can partners and suppliers do? 6. How can we avoid commoditization? 7. Who should be on our management team? 8. What is the best organizational structure for this business? 9. How can we know when to change course? 10. Whose investment capital will help, and whose might hurt?

Disruptive Technologies: A driver of leadership failure and the source of new growth opportunities

The Innovator’s Dilemma

Most value-creating growth businesses originated in disruption (2003)

Integrated firms have the advantage when products aren’t good enough. Focused firms overtake over-served markets.

Changes in integrality/modularity have profoundly changed the structure of the computer industry

The right product architecture depends upon the basis of competition

Beat competitors with asymmetry of motivation

Three Enablers of Disruption 3.

Attractive profits typically are earned in the stages of value added in which non-standard integration of components occurs.

Semiconductors: Might the unthinkable be thinkable?

Key Markets Seek Improvement Along New Attributes

Implications of the Law of Conservation of Modularity on where the money will be

Two strategies for asymmetric competition

Non-consumers are the ideal initial target

Non-consumers are the ideal initial target

Structuring the market in terms defined by data that are easily collected obfuscates the right targets for innovation Competition: News, boredom

Powerful forces cause companies to target market segments that are irrelevant to the reasons why customers buy products

Three traps that can catch and kill high-potential disruptive ideas • Use the wrong process for developing and refining strategy • Assign people with the wrong skills – who don’t know what they don’t know – to lead the effort • Fund it with bad money

Launching a sequence of successful new growth businesses requires the parallel operation of two different processes

How can I know what my organization is capable and incapable of accomplishing?

Whose money will help the business, and whose money could kill it? • When the right strategy is still emerging: – Good money is impatient for profit, but patient for growth. – Bad money is patient for profit, but demands that the business grow big, fast • When a viable strategy has become clear: – Good money can now demand rapid growth

Principles of Disruptive Technology • • Companies Depend on Customers and Investors for Resources: The highest performing companies, therefore, have well-developed systems for killing ideas that their customers don't want. As a result, these companies find it very difficult to invest adequate resources in disruptive technologies—lower-margin opportunities that their customers don't want—until their customers want them. And by then, it is too late. Small Markets Don't Solve the Growth Needs of Large Companies: Large companies tend to focus on large markets to maintain growth rate; it becomes progressively more difficult for them to enter the newer, smaller markets that are destined to become the large markets of the future. Markets That Don't Exist Can't Be Analyzed: Companies whose investment processes demand quantification of market size and financial returns before they can enter a market get paralyzed when faced with disruptive technologies because they demand data on markets that don't yet exist. Technology Supply May Not Equal Market Demand: Although disruptive technologies can initially be used only in small markets, they eventually become competitive in mainstream markets. The critical criteria tend to move toward reliability, convenience, and price, all of which areas in which the newer technologies often have advantages.

Characteristics of Disruptive Technology • They are simpler and cheaper and lower performing. • They generally promise lower margins, not higher profits. • Leading firms' most profitable customers generally can't use and don't want them. • They are first commercialized in emerging or insignificant markets.

How Can We Know If a Technology Is Disruptive?

Management of Disruptive Technology • Give responsibility for disruptive technologies to organizations whose customers need them so that resources will flow to them. • Set up a separate organization small enough to get excited by small gains. • Plan for failure. Don't bet all your resources on being right the first time. Think of your initial efforts at commercializing a disruptive technology as learning opportunities. Make revisions as you gather data. • Don't count on breakthroughs. Move ahead early and find the market for the current attributes of the technology. You will find it outside the current mainstream market. You will also find that the attributes that make disruptive technologies unattractive to mainstream markets are the attributes on which the new markets will be built.

Over-shooting precipitates reciprocal processes of commoditization and de-commoditization.

Disruption enables less-skilled people to do more sophisticated things

Disruption is facilitated by sophisticated technology that makes things foolproof

How can I know what my organization is capable and incapable of accomplishing?

The strategy-making processes that are good at planning sustaining innovations, are bad at guiding disruptive ones.

J&J’s Professional Division has grown much faster than its Consumer Division over the last decade

New disruptive growth businesses account for nearly all of this growth

Disruption amongst healthcare institutions is well underway

Disruptions amongst healthcare professionals

Molecular diagnostics, imaging technologies, and high-bandwidth telecommunications are important technological enablers for disruptive business models in health care

Hospitals are expensive conflations of three types of business models

Sustaining Innovation vs Disruptive Innovation • Comparison (pursuit of profit) • Case study • Why business with either sustaining innovation or disruptive innovation always fall!