• By the end of this module, you will be able to:

    1. Build a stronger intuition for where the profitability will be in your industry

    2. Determine which operations are critical to be done in-house and which operations can be out-sourced

    3. Better predict the direction of your industry and company

  • Things managers get wrong:

    • do core competence inside

    • let other stuff happen outside

  • “skate to where the puck is going, not to where it is.” gretsky

    • Skate to where the money will be

  • Interdependence and Modularity

    • Interdependence: Design of one piece, depends on the design of the other pieces (unpredictable interdependencies)

    • Modularity: How pieces fit together a re well defined, and theoretically easier to modify. (no unpredictable interdependencies)

    • Modular architectures, lend to disintegration

    • In the early stages of any industry, products and services tend to be very interdependent. Over time, as products and services become more defined, these same products and services become modular.

    • as you mature you have to become more modular to become faster, flexible, and responsive.

What is the right level of integration

  • If you have a superior product, that is not modular to just “plug and play,” then you must integrate backward/forward into the product until you reach modularity. this can be costly.

  • DuPont found that the interface between kevlar and tires was unpredictable and not-good-enough. To be successful in the tire industry, DuPont would have had to integrate forward to become a tire designer. Only then could DuPont manage all of the interdependencies between kevlar and tires. DuPont’s only other option was to wait and hope that an external tire designer would figure out the interdependency.

    • they found applications where they could simply pull out the old, and plug in the new.

  • RCA had color TV, but no color content.. RCA and NBC merged

  • Three types of interdependence:

    1. Functional or Technological Interdependence

      • The interdependence between two components of a product or service.

      • Example: The way kevlar interacts with a tire is unknown and thus, interdependent.

    2. Profit Formula Interdependence

      • The interdependence between a product or service and the way a company makes its money.

      • Example: Organizations that make fighter pilot jets are forced to serve the high-end of the market where they can earn larger margins to cover their high fixed costs. Because of this interdependency, high-end jet organizations can’t target low-end drones because their high-fixed costs don’t allow it.

    3. Marketing or Brand Interdependence

      • The interdependence between a product or service and how it is marketed.

      • Example: Consumers didn’t connect with “kevlar belted radials” because the word “kevlar” didn’t mean anything to them. However, consumers embraced “steel belted radials” because the word “steel” connotes strength and durability. (Note: The interface between kevlar and tires is an example of both functional and brand interdependence.)

Knowing when to disintegrate/become more specialized

  • IBM: heads&disks>drives>computers>software>services (decoupling point)

    • > data > cognitive?

  • If you do not integrate forward to the decoupling point, then you have to sit and wait for someone else to come along. This typically does not happen.

  • Once the industry became “good enough” IBM needed to disintegrate; this was very costly and timely, and IBM’s profitability took a nose dive, and they got out of the less profitable “heads&disks>drives>computers” businesses.

  • It is interesting how your greatest strength can become your greatest weakness if you fail to switch your strategy from integrated to specialized.

Avoiding Commoditization & Finding the Performance-Defining Component

  • As products and services become good enough, their architecture becomes more modular. This allows companies with a specialized strategy to do one piece of the system very well. Over time, as a growing number of new competitors enter the market, commoditization occurs.Essentially, what happens is that barriers to entry are lowered as the various interfaces within the system become more defined (or more modular).

  • As commoditization develops within an industry, profits decline. Companies are forced to find profitability in new ways. In other words, companies must seek the performance-defining component.

  • The performance-defining component (or subsystem) is defined as the component in the value stack that provides the functionality that customers care most about. This is typically where the most profit can be made.The performance-defining component itself tends to be not yet good enough for customer needs. As a result, it is usually more interdependent than modular. Thus, the barriers to entry are high and attractive profits are available for few competitors.

  • Need to go to where the money is. this will shift over time. We are successful cause we are “here” at the right time.

  • Continually “skating” to the performance-defining component is critical to remain viable long-term. Another principle that will help you stay focused on the performance-defining component is the principle of the job to be done. If you can maintain a discipline to build products and services around the job to be done, your chance of continuing to produce the performance-defining component as commoditization occurs is greatly increased.

    • Integrate company around job to be done. (ruggedness?) If you do this differentiation is natural.

    • what we need to integrate and how we integrate to deliver an experience is hard for an attacking company to surmount.

  • MediaTek

    • est. 1997, based in Taiwan

    • chips, chips in optical disc reader, chipsets in mobile, on chip solutions

    • MediaTek integrated forward to the decoupling point. Turnkey solution

      • Low entry barrier

      • faster time to market (3 months to six months to market.)

      • allowed customer to add differentiation to the phone.

    • Leveraged “reference design”, could tweak, qualified components for verified vendor list

    • What if you were able to design a phone per a customers specific job to be done; service and support them all the same.

    • $200m to $7B

    • More business model disruption vs technology disruption.

Discovering the scope for your organization

  • Here are some takeaways to keep in mind as you try to maintain the disruptive scope of your organization:

    1. Always consider your strategy as being “temporarily successful.”

    2. “Skate” to the “performance-defining component.”

    3. Defend your competitive position by organizing around a “job to be done.”

    4. Frequently refer back to “these theories to guide your strategy like a compass.”

Maintaining a Disruptive Scope.pdf

Works Cited Maintaining a Disruptive Scope.pdf