1. Chapter 6: Sustaining a competitive advantage over time
After this session you should be able to:
Understand the requirements for a successful imitation and the barriers to imitation.
Appreciate how companies can assess the threat of a disruptive innovation.
Identify the ways that companies can follow in order to deal with a disruptive innovation.
Recognise the cognitive frames that companies can adopt when facing a disruptive innovation and understand the reasons underlying their contradicting nature.

2. Exhibit 6.1 A company can build up numerous barriers against imitation
Imitator
Incumbent
Requirements for successful imitation
Barriers against successful imitation 1
Must be able to identify competitive superiority
Withhold information about profitability
Forgo short-term profits for long-term success 2
Must be willing to imitate
Deterrence: signal promise of retaliation
Make commitments to make threat credible
Pre-emption: exploit all available investment opportunities/secure access to resources 3
Must be able to understand sources of competitive advantage
Tacit knowledge: rely on skills, processes or culture/resources that are implicit
Causal ambiguity: rely on a complex, multidimensional mix of sources 4
Must be able to build/acquire necessary resources
Base differentiation on resources that are rare/immobile/contracted
Exploit-time lags
Source: Adapted from H. Hungenberg (2006), p. 251.

3. Exhibit 6.2 Disruptive innovations enter the market from below and improve over time until they meet the demands of mainstream customers
Most demanding customers
Sustaining
innovations
Performance demanded by mainstream customers
Disruptive innovations
Performance
Sustaining innovation:
zielt auf anspruchsvolle, high-end Kunden ab
bringt bessere Leistung, als bisher vorhanden war
sowohl inkrementell als auch break-through
Platzhirsche gewinnen, weil
besseres Produkt kann für höhere Profitmargen verkauft werden
sie Resourcen haben
Disruptive Innovationen:
bieten Produkte, die nicht so gut sind wie bisherige Produkte
Vorteile
Einfacher
bequemer in der Nutzung
günstiger
Least demanding customers
Time
Source: Adapted from C. Christensen and M. Raynor (2004), p. 33.

4. Framing during implementation
Exhibit 6.3 To overcome organisational rigidities, incumbents need to adopt two contradicting cognitive frames
Rigid plan,
high commitment
Flexible plan,
high commitment
Threat
resource commitment
Framing during
Rigid plan,
low commitment
Flexible plan,
low commitment
Opportunity
Threat
Opportunity
Framing during implementation
Source: Adapted from C. Gilbert (2006), p. 152

5. To determine whether there exists a threat of a disruptive innovation, managers need to consider the following
Non-served customers
Is there a large group of people who previously did not have the money or the skills to purchase the product themselves? Did customers have to go to a central, inconvenient location to purchase the product?
Over-served customers
Are there customers at the bottom end of the market who would buy the same product with fewer features for a lower price? Is it possible to build a profitable business model while keeping down prices?
Disruptiveness to competitors
Is the innovation disruptive relative to all relevant rival companies that are currently competing in that market?

6. There are numerous ways to deal with disruptive innovations
Not responding at all
Not responding is quite often based on ignoring or not properly assessing the underlying facts.
Migrating/harvesting
The migration strategy is based on a conscious decision to ‘milk existing resources’.
Defending
When defending their existing markets, incumbents need to improve their business model so that they are either able to lower their prices or increase the benefits they provide to their customers
Straddling
This strategy attempts to combine the best of both worlds. While this option might seem to be the most promising at first sight, it also entails major risks.
Switching
This option entails a complete switch to the new business model. Yet, it is also the riskiest of all options, since there is always a high degree of uncertainty associated.
Leapfrogging
Through this approach, a company tries to out-substitute the substitution. From a long-term strategic perspective, this option is highly attractive, yet it requires a very deep understanding of how technology and market demand will evolve.
Source: See P. Ghemawat (2005), p. 106.