• Two views of God: 1) on top of the universe and with a stroke of the finger and effect change, or 2) inside the universe with a uncanny understand of all of it’s levers and because of this knows what’s possible and how to effect change.
    • Power comes from understanding of constraints, forces, vectors, and processes. If understood perfectly, you can harness those things.
  • When someone comes in the bottom of the market and moves up. “It’s not what to think, it’s how to think.”
  • Align with Amazon
  • Optimize supply chain around you Commerce
  • Hire a bunch of technology and data scientist become a technology company
  • Spend a bunch of money and stores and try to create some new special experience
  • Leverage the vast real-estate become a reit
  • Line with other retailers and become effectively a large-scale department store
  • Creative technology
  • 3 Types of innovation
    • Sustaining Innovation (incumbents usually always win)
      • Characteristics
        • Makes good products into better products
        • Target high-end of market, more profitable customers
        • Brings more profit margins
      • Definition
        • Offering ever better products, to sell at ever better margins, to your very best customers.
        • Incumbents fight new entrants
        • Innovation aligns with existing business model
    • Low-end disruptive
      • Causal mechanism is the pursuit of profit. coming in to the low-end, low margin, part of a business will typically lend itself to less competition as the incumbent is willing to let the lower-margin business go, this can continue up the “stack” until the incumbent is no more. leaving behind low-profit businesses can sometimes open the door to disruptors.  Low-end disruptive innovations take advantage of markets in which existing products offer more performance than many customers want or need. Technology advancements outpace customer need, this opens opportunity for “good enough” products
      • gain market share against old
      • low-end disruptive innovation takes advantage of the performance surplus, which occurs when product performance overshoots what customers can use.
      • Characteristics
        • Offers “good enough” but not much more
        • targets “over-served” customers
        • figured out a fundamental different business model
      • Definition
        • Incumbents flee from new entrants, moving up market in pursuit of more valuable customers.  these disruptive innovation can not be adopted by incumbents.
    • New-market disruptive
      • Make product more accessible. Mainframe – $2m, PC $2k, Mobile $200. What will be $20, what will be $2?
      • Hard for incumbents to move into new markets for the new-market disruption. Because there is no motivation from a profit formula standpoint, it’s not their business model.
      • creates new markets and will not find incumbents there. then sucks customers out.
      • Honda Cub entering market where there was not consumption.
        • High margin dealers did not want to  sell, but lawnmower companies did..
        • Attacking a sustaining market did not work, but New market innovation did.
        • This opened up a new market, where only HarleyDavidson still exists as the domestic player.
        • Need to have an application that would make money, vs going into a market to find money.
      • new-market disruptive innovation targets non-consumers because existing products are too expensive or complicated to use.
      • Characteristics
        • Targets “non-consumption.” people who did not have ability or access to incumbent product
        • Make profit for lower price-per-unit sold than incumbent tech. Think dollar vs percentages.
        • Product provides lower performance for the existing market but higher performance for non-consumers.
      • Definition
        • Incumbents flee from new entrants, these disruptive innovation can not be adopted by incumbents.
  • No technology is intrinsically sustaining or disruptive, that is given based on deployment/implementation.
  • Sustaining or disruptive is relative to existing business model or products
  • If an innovation can deploy into an existing structures (business model/products), it’s sustaining. If the innovation can not be deployed into existing structures, then it is disruptive.
  • Many innovations can be considered both low-end disruptions and new-market disruptions.
  • You can not disrupt yourself. Because the core company can not make money on the disruptive innovation.
    • They will take technology and implement it in the way that serves the company, making it a sustaining innovation.
    • In order to do it you need to set up a company with a different business model.
    • If you try to move into the old business you will ruin what you just built/acquired.
    • Set up a completely different business unit and let them disrupt the core business.
  • Retail: 1960 316 traditional department stores, 1962 discounters entered the market. Only 8 traditional department survived. Only one successfully transitioned into a discounter, it was Dayton-Hudson, that created the separate business unit “Target.”
  • Circle UP (consumer and retail funding)
    • investor
      • Dealflow
      • transparency
      • comparables for analysis
    • retailer
      • Capital raise 8-12 months to 61 days,
      • Charge less money, and
      • Partnerships (distribution, product placement) and services (advisor network)
  • Disruption is typically an opportunity well before it’s a threat. and if you go after low-end disruptive innovation, then you can take share. It’s only a threat when incumbents start to fight back.
  • You need to start innovating now, while the core is strong. The core will classically be strong, while the disruption grows. Do not wait until Core atrophies.
  • Sustaining innovation can be merged in to the core.
  • Here are some guidelines to use when trying to get disruption to work in your favor:
    • Disruption is typically an opportunity long before it’s a threat
    • You must begin to innovate while your core business is still strong
    • Allow disruptive businesses to run independently of the core business
    • Spot disruption by observing customers at the bottom of the market
    • Protect your business by focusing on and integrating around the job to be done (a topic introduced in another module)

Aligning with Innovation and Disruption.pdfWorks Cited Innovation and Disruption.pdf