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Strategy as Revolution. James Oldroyd Kellogg Graduate School of Management Northwestern University j-oldroyd@northwestern.edu 801-422-7888 650 TNRB. Stock Performance. Radically Improving the Value Equation. Reconfigure the Value Chain and employ a completely new/different value chain.
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Strategy as Revolution James Oldroyd Kellogg Graduate School of Management Northwestern University j-oldroyd@northwestern.edu 801-422-7888 650 TNRB
Radically Improving the Value Equation • Reconfigure the Value Chain and employ a completely new/different value chain Value for Whom?
Separate Form and Function • Finding new uses for existing technologies • Credit Cards turned to hotel keys
Achieving Joy of Use • Products – services should be fun to use
Pushing the Bounds of Universality • Focus not only on the served market but on the entire imaginable market http://www.polaroid.com/promotions/promo.jsp?FOLDER%3C%3Efolder_id=385651&FOLDER%3C%3EbrowsePath=385651&PRODUCT%3C%3Eprd_id=31111&PRDREG=POL&bmLocale=en_US&bmUID=1017153506454
Striving for Individuality Mass Customization/Striving for Individuality http://www.us.levi.com/fal02a/levi/ospin/l_ospin_frame.jsp?FOLDER%3C%3Efolder_id=2357089&bmUID=1026829418909
Increase Accessibility 24/7 365 Banking, Retail
Rescaling the Industry • Re-scale the Industry • Increasing scale, from local to national or national to global (e.g., IKEA, Service Corporation [funerals] International) • Downscaling to serve narrow or local customer segments (e.g., microbreweries, local bakeries, bed-breakfast inns). PFIZER TO ACQUIRE PHARMACIA CORPORATION FOR $60 BILLION IN STOCK, STRATEGICALLY POSITIONING COMPANY FOR LONG-TERM LEADERSHIP IN RAPIDLY CHANGING PHARMACEUTICAL INDUSTRY
Structure of Microprocessor Market Before and After the 386 PC Mfr Licensee PC Mfr Licensee IBM PC Mfr Intel PC Mfr Licensee Licensee PC Mfr
Compressing the Supply Chain • Disintermediation Supplier Wholesaler Wal-mart Supplier
Examples Barrier 3 million independent sales representatives The Market J.C. Penney and other retail outlets
Examples Direct Approach via Ford.com and other online sites Barrier The Channel The Market The Corporation Ford Corporation Purchased Dealerships to give it direct customer access Source: 2001 Annual Report In 2002 “Ford is selling its Company-owned dealerships”
Examples The Market Brokers • Online access to account information • Account activity & balances • Portfolio holdings • Online access to Merrill Lynch research • Ability to e-mail with financial consultant • Online bill payment capabilities • Access to Merrill Lynch analytical tools • Ability to execute trades ml.com Merrill Lynch sought to involve brokers in the online process to minimize dissatisfaction Source: ml.com
Examples The Market The Travel Agent The Airlines The Solution Frequent Flier Programs
Driving Convergence • Product/Service Bundling • Offer broader mix of related products along the value chain beyond “core” product (e.g., software office suites, GM car loans/leasing) • Swimming in other industry pools
Providing a solution 63% of Fortune 100 Firms claim to offer solutions. Finally • Co-created value add • Integrated Offering • Creates some risk • Requires intimate customer knowledge • Is completely customized First Steps • Product Extension • Service Extension • Philosophical Extension Purchase Experience Product Needs Customer Guest Solution helps customers succeed in the marketplace by enhancing revenues, reducing current or future costs. Source: Adapted from “From Solutions to Symbiosis” Sharma, Lucier, and Molloy. Strategy and Business, 2002
Willingness to Pay Value Captured by Customer Price Value Captured by Firm Cost Value Captured by Supplier Supplier opportunity cost Value Division Customer Firm Supplier Added Value is the total value created with the firm in the game – total value created without the firm in the game or the value that would be lost to the world if the firm disappeared. A firm cannot capture more than its added value.
The Opportunity and Threat of Disruptive Technologies Clayton M. Christensen Harvard Business School
Disruptive Technologies: A driver of leadership failure Performance trajectory of present technology driven by sustaining technological improvements Performance Performance that customers can absorb or utilize New Performance trajectory Disruptive Technology Time
Invasion of Disruptive Steel Minimill Technology Sheet steel Steel Quality Structural Steel Quality of minimill-produced steel Other bars & rods Rebar 1990 1975 1980 1985
A sequence of disruptive technologies in the “last mile” of the telecommunications infrastructure Bandwidth needed in various application tiers of the market Cable Modem Full-motion video XDSL Bit Rate Fixed wireless E-mail Mobile wireless Time
Disruptive innovations typically have enabled a larger population of less-skilled or less-wealthy people to do things in a more convenient, lower-cost setting, which historically could only be done by specialists in less convenient, centralized settings. Disruption has been one of the fundamental causal mechanisms through which our lives have improved. • Computers • Xerography • Angioplasty • Equity Investing • Personal, portable blood glucose meters Almost always, disruptive innovations such as these have been ignored or opposed by the leading institutions in their industries for perfectly rational reasons.
Intel Sun Microsystems Compaq Dell EMC Microsoft Nucor Merrill Lynch Charles Schwab Bloomberg AT&T Cisco Sprint PCS Nokia Toyota Honda Sony Barnes & Noble Amazon Sears Wal-Mart Many of our Economy’s Greatest Companies Began as Disruptive Innovators
Established firms seem instinctively to force disruptive technologies into existing markets and business models. Major Established Electronics Markets: Tabletop radios, floor- standing televisions, computers, telecomm. equipment, etc. Path taken by entrant firms Portable Radios & Televisions, etc. Path taken by established vacuum tube manufacturers Hearing Aids Disruptive Technology: Transistors vs. Vacuum Tubes
What Is Digital Photography? Professional / Archival Present Applications for Silver Halide Film Technology A Disruptive Technology? Recreational A Major Growth Opportunity? A Sustaining Technology? Children’s Games Enabling Technologies: CCDs, Ink Jet Printing, CMOS Sensors
Disruptions amongst health care professionals Specialist & sub-specialist physicians Performance that the marketplace needs or utilizes Family / personal care physicians Complexity of diagnosis & treatment Nurse practitioners Self-care Time
Waves of Disruption Among Healthcare Institutions Complex General Hospitals Stand-alone sub-system centers Complexity of diagnosis and treatment Out-patient, in-office care In-home care Simple
What Would Have to Happen for the Electric Vehicle to Be a Disruptive Technology?
Identifying Which Surface-to-Air Missiles to Worry About • 1. Need a different process with different people to identify possible disruptions. • Customers won’t lead you to them. • Marketing, sales and financial people will oppose or be unenthusiastic. • Senior management will often be unaware or attach little importance to technology • 2. Watch for a market to emerge where the technology is valued and incubated • This will be a trivial or commercially unimportant market. Don’t look where you are: look for other applications. • 3. When it has “gone commercial,” draw a trajectories map. • Watch at the low end of your market: who isn’t using your product any more?. • Markets that are over-served in terms of functionality, and populated by large, complex, centralized or inconvenient products and services, are vulnerable to attack . • 4. Litmus test for high-potential disruptive innovations: • Technologically simple • Starts at a low price point • Minimizes infrastructural & regulatory barriers -- follows the path of least resistance • Success isn’t predicated upon customers’ behavioral change • Enables a larger population of less-skilled people to conveniently do something that only expensive specialists historically could do.
The interaction of technological progress with customers’ abilities to use it drives changes in the basis of competition and industry structure Sustaining Technology Beat competitors with functionality Performance Region B: Modular Architectures Region A: Integral Architectures Beat competitors with speed and customization Disruptive Technology Time
The Disruption of Traditional Campus-Based Management Education Programs Traditional MBA Programs Strategy consulting firms Quality of management education Corporate Universities with live instructors Large corporations Corporate Universities with on-line instruction Small businesses Self-administered distance education Time
Historical Disruptions in Retailing: Three Recurrent Patterns More complex 40%, 3x turns Soft goods 30%, 4x turns Mall-based category retailers 23%, 5x turns Category / lifestyle-focused catalogs Category Discounters Downtown Department Stores Sears stores On-line Category Stores On-line department stores Hard goods Sears, Wards Catalogs Discount Department Stores Sell themselves