Week 5: Disruptive Technology and Organization Innovation MIS5001: Management Information Systems David S. McGettigan

2 Agenda Prior Lecture Recap Disruptive Technology Case study: RadioHead Next Week

Prior Lecture Recap Web Services  What is a web service?  Why is it beneficial to business? Standard Messaging  What is standard messaging?  How does XML enable it?  Why is it beneficial to business? 3

Disruptive Technology Any sufficiently advanced technology is indistinguishable from magic. Arthur C. Clarke

Definitions Sustaining Technology  Products advance as rapidly as basic improvements in science permit and along the lines desired by the customers of the company Disruptive Technology  Improves a product or service in ways that the market does not expect, typically by lowering price or designing for a different set of consumers. 5 Source: and

Disruptive Technology Characteristics  Cost - usually simpler and cheaper than the sustaining technology  Functionality- may offer less capability  Profit - They do not fit the sustaining market and, typically, provide lower profit margins.  Reaction – (of well established companies) usually shunned “Disruptive technologies are often shunned by well-managed companies - which are often later destroyed by them.” 6 Source: and

Disruptive Technology: Examples InnovationDisrupted Market Personal ComputersMainframe Computers Digital PhotographyInstant Photography PlasticWood, Metal and Glass LCD (monitors / television)CRT (monitors / television) 7 Corporate Examples  Mobil Travel Guide: now the Forbes Travel Guide – paper vs. online  Speedpass: RFID vs. credit card  Reverse Auctioning: RFP vs. online  Pharmaceuticals – Biosimilars  Discussion question from the assigned reading:  Why are so many web based products “free”? Source: and

Case Study: RadioHead Discussion Questions:  From the perspective of the recording industry (record labels), what are the advantages and disadvantages of digital media compared to physical media?  What are the implications for Radiohead’s name-your-own- price model in the relationships between artists and consumers, artists and records labels, and consumers and record labels?  Based on what you learned from this case, do are some of the challenges and opportunities for constructing a long- term, successful business model for the online distribution of digital media (music, movies, TV) over the Internet?  NEW: Which model is more profitable for RadioHead, the iTunes model or their own name your price? 8

Organization Innovation Civilization advances by extending the number of important operations which we can perform without thinking of them. Alfred North Whitehead ( )

Impact of Disruptive Technology 10 Source: P Q Product A Product B Porter’s Five Forces  Note the Threat of Substitute Products Substitute Products  If Product B is a substitute, what happens to the quantity demanded of both products if there is an increase in the price of Product A?  What are the implications of this for Product A’s firm?

Organizational Innovation New ways work can be organized, and accomplished within an organization to encourage and promote competitive advantage. How organizations and individuals, manage work processes in such areas as customer relationships, employee performance and retention, and knowledge management. Core Concept: the need to improve or change a product, process or service. All innovation revolves around change - but not all change is innovative. Encourages individuals to think independently by applying personal knowledge to organizational challenges.  Requires a culture of innovation that supports new ideas, processes and generally new ways of "doing business". 11 Source:

Benefits Cross functional team building while discouraging silo building Innovation is about change, therefore continuous learning is a requirement of organizational innovation success. Risk taking by employees while lessening the status quo Knowledge should be used for new ways of thinking, and as a stepping stone to creativity and toward change and innovation. If new organizational knowledge doesn't result in change, either in processes, business outcomes, or increased customers or revenues, then its value hasn't been translated into success. Must deliver value to the bottom line. 12 Source:

Process of Organization Innovation Establish a climate of innovation supported by senior management. Managers routinely bring together those individuals more oriented toward innovation those willing to think new ideas and act on them. Establish a process in place monitoring innovation teams and identifying what has and hasn't worked as a result of them. Ensure organization remains focused on it goals yet builds and develop an innovative culture. Identify an important variable or ingredient that fuels an organization toward an innovative culture. 13 Source:

Adapting to Change Change Management – the “change curve”  Shock  Denial  Hostility  Negotiation  Depression  Trial  Acceptance 14

Discussion Why do well managed and established firms often misjudge the disruptive technology? Who is responsible for awareness in the corporate structure? How is this different than tech firms? Example: will subscription based music work? Why or why not? What is Google with subscription music? What should they do? What should Sony Records do?Sony Records 15

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