Disruptive Innovation

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PIONEERS

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 Creative Destruction
Joseph Schumpeter
In capitalism,

innovative entry by
entrepreneurs was the
force that sustained
long-term economic
growth,
even as it destroyed

the value of established 8 Fe b ru a ry 1 8 8 3 – 8 Ja n u a ry

1950
companies that enjoyed
some degree of 3
 Creative Destruction
Successful innovation is
normally a source of
temporary market
power, eroding the
profits and position of
old firms,
yet ultimately

succumbing to the
pressure of new
inventions
commercialised by
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competing entrants.
 The Use of Knowledge in
Society
Friedrich von Hayek
Two types of

knowledge: scientific
knowledge,
“knowledge of the


particular
circumstances of
time and place”

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 The Use of Knowledge in
Society
Practically every
individual has some
advantage over all
others in that he
possesses unique
information of which
beneficial use might
be made”

8 M a y 1 8 9 9  – 2 3 M a rch
1992
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 The Use of Knowledge in
Society
because every
individual only
processes a small
piece of the
puzzle, no central
planner can ever
run the economy
efficiently.

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 The Use of Knowledge in
Society
Market mechanisms
serve "to share and
synchronize local and
personal knowledge,
allowing society's

members to achieve
diverse, complicated
ends through a
principle of
spontaneous self-
8 M a y 1 8 9 9  – 2 3 M a rch
organization." 1992
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 Hayek and Taiwan (and
China)
The greatest danger
to liberty today comes
from the men who are
most needed and
most powerful in
modern government,
namely,
in e fficie n t
the efficient expert

administrators
exclusively concerned
with what they regard
as the public good. 9
• 海耶克先生說，「考試，不應該！」
•

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 Paradigm Shift
• Thomas Kuhn (July 18, 1922 – June 17,
1996)
• A scientific revolution occurs when
scientists encounter anomalies which
cannot be explained by the universally
accepted paradigm.

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 Paradigm Shift
• When enough
significant
anomalies have
accrued against
a current
paradigm, the
scientific
discipline is
thrown into a
state of crisis,
according to
Kuhn. 12
 Paradigm Shift
• for early 20th century
physics, the
transition between
the Maxwellian
electromagnetic
worldview and the
Einsteinian
Relativistic
worldview was
neither
instantaneous nor
calm. 13
 Paradigm Shift
"a new scientific truth


does not triumph by

convincing its
opponents and making
them see the light, but
rather because its
opponents eventually
die, and a new
generation grows up
that is familiar with it.“
 Thomas Kuhn quoting Max Planck

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15
 Wikipedia
One can't
understand my ideas
about Wikipedia
without
understanding
Hayek.
When information is

dispersed (as it
always is), decisions
are best left to those
with the most local
knowledge 16
 Jimbo Wales
• Altruism is evil.

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 Age of Discontinuity
In an “age of


discontinuity,” as
Drucker called the
current era,
entrepreneurs could find
significant opportunities
to create or transform
organizations if they
were willing to get ahead
of societal changes.

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 Age of Discontinuity
Drucker said that the best way to predict
the future is to invent it.
Discontinuities provided gaps in society that

could be filled with creativity.

Innovators
should be
attuned to unmet
needs that did
not yet show up
in market
research.
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 Михаил Александрович
Бакунин
• Mikhail Alexandrovich Bakunin
• The passion for destruction is
also a creative passion.

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 Karl Marx
Infrastructure


determines
superstructure


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Infra/super-structure

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 Karl Marx
Quantitative shifts lead


to qualitative shifts

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 H a g e l’s D ia le ct

STyn
h eth
siessis

STyn
h eth
sise sis A n tith e sis

T h e sis A n tith e sis

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易經的正反合 Dialectics of
I-Ching (Yijing)

乾 Qian 坤 Kun

未濟 …

既濟
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 Chuang-tze (Zhuangzi)
 道術將為天下裂
The system of Dao
was about to be torn
in fragments all
under a the sky.

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 Chairman Mao???
革命無罪
造反有理

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 Alexander Graham Bell’s Telephone in 1875

EXAMPLES

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 Click Me!
Shanzhai in China

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Camera Industry Click Me!

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A SIMPLE VIEW OF DISRUPTIV

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DISRUPTIVE
INNOVATION
MODELS

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Basic DI Model

B
A

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Dynamic DI Model

Incumbent

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 New Market DI Model
Sustaining strategy

Performance
Low-end disruption
Performance

Time
New market disruption
rs

Time
u me
ns
co
n-

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No
SHAPING IDEAS
TO BECOME
DISRUPTIVE (HOW
TO BEAT OUR
MOST POWERFUL
COMPETITORS) 36
 Explore whether the idea can
become a new market
disruption
 Is there a large population of
people who historically have not
had the money, equipment, or
skill to do this thing for
themselves, and
 as a result have gone without it
altogether or have needed to
pay someone with more
expertise to do it for them?
• 37
Explores the potential for a
low-end disruption
 Are there customers at the low end
of the market who would be
happy to purchase a product with
less (but good enough)
performance if they could get it
at a lower price?
 Can we create a business model
that enables us to earn attractive
profits at the discount prices
required to win the business of
these over-served customers at
the low end?
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Is the innovation disruptive to
all of the significant incumbent
firms in the industry?
• If it (the innovation) appears to be
sustaining to one or more
significant players in the industry,
then the odds will be stacked in
that firm’s favor, and the entrant is
unlikely to win.

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COMPETING
AGAINST
NON-
CONSUMERS
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 Competing Against Non-
consumption
• The logic of competing against non-
consumption as the means for
creating new-growth markets
seems obvious.
• Despite this, established companies
repeatedly do just the opposite.
•

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 What Makes Competing
Against Non-consumption So
Hard?
• Not see disruption coming in. Even
if,
• Threat rigidity - Threat elicits more
intense and energetic response
than opportunity, and then focus on
countering the threat to survive.

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 How to Avoid Hard Non-
Consumption Competition
• First, get top-level commitment by
framing a threat as an innovation
during the resource allocation
process.
 ex. Newspapers embraced online
editions to give existing customers
additional choice
•

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 How to Avoid Hard Non-
Consumption Competition
• Later, shift responsibility for the
project to an autonomous
organization that can frame it as an
opportunity.
 ex. Place the responsibility to
commercialize the disruption in an
independent unit for which the
innovation represents pure
opportunity – newspaper’s online
group 44
 Immelt’s approach
• Shift power to where the growth is.
• Build new offerings from the ground
up.
• Customize objectives, targets, and
metrics.
• Build the DI unit from the ground up,
like new companies.
• Have the DI unit report to someone
high in the organization.
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WHY DI IS EVEN MORE
IMPORTANT TODAY?

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 Two Articles from HBR
• The world is in constant disruption –
new technologies create new
platforms
– John Hagel III, John Seely Brown, and Lang Davison,
“Shaping Strategy in a World of Constant Disruption,”
Harvard Business Review, October 2008.

• The big emerging markets provide good

– Jeffrey R. Immelt, Vijay Govindarajan, and Chris Trimble,
“How GE Is Disrupting Itself?” Harvard Busness Review,
October 2009.

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