Class 2: Strategic Issues in NPD January 23, 2007

Strategic Issues for NPD The Innovator’s Dilemma Sustaining vs. Disruptive Technologies How closely should you listen to your customers? Implications for Organizational Strategy Coping with Change Within existing structures (inside and outside corp. boundaries) Acquisition

Strategic Issues for NPD The Innovator’s Dilemma Sustaining vs. Disruptive Technologies

The Innovator’s Dilemma Sustaining Technologies Those that foster improved product performance Disruptive Technologies Those that foster worse product performance, at least in the near-term

The invasion of disruptive steel minimill technology into progressively more sophisticated steel markets Rebar Other Bars & Rods Structural Steel Sheet Steel Quality of Minimill Produced Steel Steel Quality

Changes in Market Leadership - Hard Drives Product Generation 14 in in in in in in1994 Leading Firm Control Data Priam, Shugart Seagate, Miniscribe Conner, Quantum Integral

Attribute Capacity (megabytes) Physical volume (cubic inches) Weight (pounds) Access time (milliseconds) Cost per megabyte Unit cost 8-Inch Drives (Minicomputer Market) $50 $ Inch Drives (Desktop Computer Market) $200 $2000 A Disruptive Technology Change: The 5.25-inch Winchester Disk Drive

The Innovator’s Dilemma What tends to happen over time?

Performance demanded at the low end of the market Performance demanded at the high end of the market Time Product Performance The Impact of Sustaining and Disruptive Technological Change

Progress due to sustaining technologies Performance demanded at the high end of the market Time Product Performance The Impact of Sustaining and Disruptive Technological Change Performance demanded at the low end of the market

Disruptive technological innovation Performance demanded at the low end of the market Progress due to sustaining technologies Performance demanded at the high end of the market Time Product Performance The Impact of Sustaining and Disruptive Technological Change

Barriers to Downward Mobility The promise of up-market margins The up-market movement of main customers Difficulty in cutting costs to move downmarket profitably

Case Study: Business Schools “ Harvard Business School is the next likely victim of a disruptive technology… It has become a finishing school for consultants and investment bankers ” - Clayton Christensen, HBS Tenured Professor

Case Study: Electronic Vehicles How much should Ford, Toyota, GM, BMW, Daimler Chrysler, and the other major manufacturers worry about electronic cars? Are electronic vehicles a disruptive technology?

How closely should you listen to your consumers? “Successful teams that drive winning new product projects pay special attention to the voice of the customer.” - Cooper Product Leadership (2000)

How closely should you listen to your consumers? If I’d asked people what they wanted, they would have said, “a faster horse” ---- Henry Ford

How closely should you listen to your consumers? “Precisely because these successful companies listened to their customers…, they lost their positions of leadership.” - Christensen The Innovator’s Dilemma (1997,2000)

Strategic Issues for NPD The Innovator’s Dilemma Sustaining vs. Disruptive Technologies How closely should you listen to your customers? Implications for Organizational Strategy Understand your firm’s capabilities Cope with change Within corporate boundaries Outside corporate boundaries (spin-off) Acquisition

Understand Your Firm’s Capabilities Resources People, technology, equipment, cash, brands, supply chain relationships, product design Processes Patterns of interaction, communication, & decision-making Values Acceptable gross margins Size of the hurdle for new business opportunities Harder to Change

Cope with Change Within corporate boundaries: Use “heavyweight” teams Outside corporate boundaries: Spin out an independent organization Acquisition: Decide whether assimilation is prudent