Prof. Clark Gilbert, Harvard Business School

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Response to Disruptive Technology
An Opportunity for New Net Growth
Prof. Clark Gilbert, Harvard Business School
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Sustaining versus Disruptive Innovation
Source The Innovators Dilemma
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• Innovation is not just about generating ideas.
  Nor is it merely about interesting inventions. It
  is about bringing ideas to fruition - be it a new
  product, service, or organizational process - to
  meet market demand.
• We will therefore find it increasingly difficult
  to rely simply on increased efficiency and higher
  quality of our products to raise our productivity
  and competitiveness.
• --President S.R. Nathan

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Impact of Disruptive Innovation on Economic Growth
 
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Disconnect with Resource Allocation

• Under Valued by Leading Customers
• Lowers Performance along Traditional Trajectory
• Lowers Gross Margins

• Targets Different Customers in New Ways
• Introduces Different Performance Criteria

Budgeting Committee
Disruptive Proposal
Production
Marketing Manager
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Established players tend to try to force the new
technology immediately into the old market
Applications for Silver Halide Film Technology
(1B in RD)
Kodaks Response
Performance
Home-use Applications
E-mail applications
Childrens Game Toys
Disruptive technology digital film
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Definition of a Fanatic Someone who doubles his
speed when he has lost his direction --George
Santayana
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The Benefit of Staged Learning
Discovery of New Market and Business Model
Replication of Old Market and Business Model
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The Irony of Disruptive InnovationGrowth Starts
in New, Not Competitive Markets
New Net Growth
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Why cant managers see the opportunities
associated with disruption?
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Disruption in Print Media
All the News that Fit to Pixel
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Disconnect with Resource Allocation

• Under Valued by Leading Customers
• Lowers Performance along Traditional Trajectory
• Lowers Gross Margins

• Targets Different Customers in New Ways
• Introduces Different Performance Criteria

Budgeting Committee
Disruptive Proposal
Production
Marketing Manager
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The Newspaper Industry Anticipated the Threat to
their Core Business
Disruption to Print Classified Listings
Goodbye to Print Classifieds
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But, Despite Aggressive Commitment, Revenues
Couldnt Catch Expenses
Revenues
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The Growth is there, but theyre missing it
2000 Share of Internet Ad Market
Internet Advertising Growth
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8 Billion
91 Rest of Industry
5.4 Billion
Newspaper Sites (NAA 2000)
Other Sites (IAB 2000)

• New Companies Capturing Market
• Yahoo 2000 Advertising Revenues 1,100M
• Monster 2000 Revenues 364M
• Entire Newspaper Industry Revenues 700M

Internet Advertising Bureau Actual (2000)
Forrester Research Forecasts (1999)
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Old Business Models Make It Very Difficult to
Realize
Missing Revenue Online Advertising Market
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45
20
10
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Old Business Models Make It Very Difficult to
Realize
Missing Revenue Online Advertising Market
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45 Missing!
20
10
Yahoo
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Why cant managers see the opportunities
associated with disruption?
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Finding New Opportunities
"Overall, the newspaper industry's involvement
with the Internet has been one where it had a lot
to lose and it's been trying not to lose it, as
opposed to starting from scratch and having a lot
to win." --Steve Yelvington, Morris
Communications
Area of Displacement
Area of Net Growth
Established
Disruptive Business
Business
Origin of Disruptive
Business Outside of
Established Market
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In Fact, Established Markets Continue to Grow
even as the Disruptive Markets Take Root
Minicomputers Disrupt Mainframes
Sustained Revenue Lead
First Revenue Lead
Minicomputer
Market
Dollars (000)
Mainframe Computer
Market
Phase III
Phase I
Phase II
Source ITI, Industry Statistics Programs U.S.
Microcomputer
Statistics Committee Forecast, Data Analysis Group
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The Established Markets Continue to Grow as the
Disruptive Markets Take Root
Phase I
Phase II
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Despite starting similar in size, JJs Medical
Device Divisions has grown much faster than its
Consumer Division
Source Innosight
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New Disruptive Business Accounts for Nearly All
of the Growth
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Strategy for Creating High Potential, Disruptive
Growth Businesses
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Question 1 Is the Product or Service Inferior
along Traditional Dimensions?
Question 2 Does it Compete Against
Non-Consumption?
When angioplasty was introduced it captured the
imagination of cardiologists and surgeons
differently. Surgeons were skeptical about this
new procedure. They were used to seeing small
arteries in the operating room and questioned how
one would be able to introduce a small catheter
into the femoral artery, negotiate it via the
left main coronary artery into a distal vessel
and dilate it. Cardiologists saw this as an
incredible opportunity to treat patients with
specific types of heart disease. - Chief,
Division of Cardiothoracic Surgery, Miami, Florida
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Question 3 Does the Product or Service help
Customers Achieve their Key Outcomes?
Cordis gained 20 market share, making them the
leader in the angioplasty balloon market. They
also created the stent - which became a 1
billion market in one year the fastest growing
medical device in history. Cordis was acquired
by JohnsonJohnson.
 
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Implications

• Disruptive technologies attack an established
  business, but provide enormous opportunities for
  new net growth
• Focusing on your core market can lead to
  organizational rigidity Trying Harder Can Be
  Part of the Problem!
• Capitalizing on disruptive growth requires
  looking at markets in a new way
• Reconsidering technologies viewed as inferior
  in your core market
• Targeting new markets where the primary
  alternative is non-consumption
• Creating product specifications that align
  closely with existing customer priorities and
  desired in the new market
• Careful implementation of the Disruption
  Methodology transforms the search for growth into
  a predictable discipline, much like statistical
  process control reinvented the manufacturing
  process 20 years ago

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Innosights Disruptive Product Discover From
Concept to Launch
Step 1
Step 2
Step 3
Step 4
1. Complete Project Pre-Reading Packet 2. Attend
Two-Day Workshop for Top Management (Executive
team, business development, strategy planning)
1. Screen current markets, new venture portfolio,
and acquisition portfolio for disruptive
opportunities 2. Create prioritized list of most
attractive opportunities 3. Identify lead
customers
1. Capture outcomes for target lead
customers 2. Prioritize outcomes 3. Ideation 4.
Set price and product specifications 5. Test with
target lead customers
1. Make design trade-offs 2. Generate IP 3.
Position solution 4. Define brand 5. Staged
investment and reverse income statement planning
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Innosights Management Training
gtTwo day workshops for top 20-30 managers
(Executive Team, Business Development, New
Venture Group, etc.) gtLed by Innosight Partners
and Harvard Business School Faculty
Interactive Presentations Disruption Innovation
Overview, Aggregate Project Planning, Outcomes
Based Segmentation
Disruptive Innovation Literature The
Innovators Dilemma, Harvard Business Review,
Sloan Management
Case Based Discussion Disk Drives, ERP Software,
Bio-technology, Semiconductors
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Innosights Portfolio Screening Methodology
Venture Portfolio
Acquisition Portfolio
Current Markets
Innovation Idea Collection
Categorization Specification
Innovation Ideas
Stage 1 Assess Type of Innovation and Prioritize
High Scoring Ideas
Disruptive Innovation
Sustaining Innovation
Stage 2 Assess Type of Disruption and Prioritize
High Scoring Ideas
New-market disruption
Low-end business model disruption
Current Assessment Process
Stage 3 Rank Order Methodology

• Lead Customer Identification

• Lead Customer Identification

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Innosights Outcomes Based Segmentation
Cordis gained 20 market share, making them the
leader in the angioplasty balloon market. They
also created the stent - which became a 1
billion market in one year the fastest growing
medical device in history. Cordis was acquired
by JohnsonJohnson.
 
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BACK-UP
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How can I know what my organization is capable
and incapable of accomplishing?
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Capabilities in One Context Become Disabilities
in Another
Processes How?
Values Why?
Organizational DNA
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It is Very Difficult to Change an Organizations
DNA
Performance
Time
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Structure, Market Success Linked
Separated sites had nearly 4 million more page
views
Penetration
12
10
10.4
Millions of Page Views / Month
8
6
6.5
4
2
0
Integrated Sites
Separated Sites
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Structure and Framing are Correlated
4.7812





















-3.28441
-------------------------------------------------
--------------- -3.81241
2.84216
Threat
Opportunity
Integrated
Separate
38
Separation Not Sufficient Condition
10.0
5.4
High Threat
High Opportunity
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Old Business Models Make It Very Difficult to
Realize
Missing Revenue Career Sites
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Other
Job Listings
Resume Access
92
Newspaper Site
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Old Business Models Make It Very Difficult to
Realize
Missing Revenue Career Sites
Other
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E-Resource
Other
Ads
Job LIstings
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Job Listings
Resume Access
Client Services
Other
65
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Resume Access
Newspaper Site
TMPW Monster