1. Presentation 1: Discontinuous, Disruptive Innovation
Easingwood & Harrington; Schmidt and Druehl;
Subramanian et al.

2. Concepts and Tools for the Wii Case
Disruptive innovation, low-end encroachment, dynamic capabilities

3. Terminology
Christensen (1997), and Schmidt and Druehl (2008): there are disruptive innovations, and sustaining innovations.
Kassicieh et al. (2002): there are discontinuous innovations and disruptive technologies, and continuous innovations and sustaining technologies. Under this system, not every discontinuous innovation is necessarily disruptive.
Sustaining technology
This is a small, incremental improvement to the existing technology.
It is the result of “continuous” innovation.
Disruptive technology
This is a radical, breakthrough improvement to the existing technology.
It is the result of “discontinuous” innovation.

9. SUSTAINING DISRUPTIVE
Fig. 1 shows Intel cannibalizing itself. The innovations are disruptive of sales, but not disruptive of technology. These are continuous innovations / sustaining technologies because they just increase processor speed.

10. Example: how smaller capacity (but more compact) disk drives disrupted larger capacity disk drives

13. Continuous innovation, sustaining technology
Example: Pentium 2, 3 and 4

14. Discontinuous innovation, disruptive technology
Example: disk drive sizes

15. Discontinuous innovation, disruptive technology
Example: cell phones (vs. land lines)

18. Example: overthrow of Nokia by Apple’s iPhone
At first Nokia ignored Apple’s iPhone because the iPhone had no multimedia messaging capability, because reception and sound quality were poor, because it couldn’t be used with one hand, and because touchscreens had previously failed. But the iPhone had an operating system (OS) that was programmable and easy to use.
The high-end users wanted a mobile phone with good reception and sound quality, but low-end users wanted a mobile phone with an operating system (OS) that is programmable and easy-to-use.

19. The point is: market segments often have different priorities
High-end users are willing to pay for good reception and sound quality, but they are not willing to pay for low quality.
The point is: market segments often have different priorities
Price the buyer is willing to pay
Highest quality
Current quality
Low-end users are not willing to pay much for high or low quality.
Lower quality
Lowest quality
Govern-mental
Commercial
Residential
Personal
Willingness to pay for good reception and sound quality as a function of market segment

20. Price the buyer is willing to pay
Low-end users are willing to pay for programmable, easy-to-use OS.
Price the buyer is willing to pay
Most easily programmable
High-end users are not willing to pay much for programmability and ease-of-use.
More easily programmable
Current (non-) programmability
Govern-mental
Commercial
Residential
Personal
Willingness to pay for programmable, easy-to-use OS as a function of market segment

21. Apple’s Strategy
Give the low-end of the market what it wants: a mobile phone with a programmable, easy to use operating system (OS), even if at first the phone has poor reception and sound quality.
Then gradually improve the reception and sound quality, so that the high-end also starts to buy the iPhone.

22. Old Mobile Phones & Old Smartphones
At introduction
Sales
At first, the only people who bought the new iPhone were at the low end of the market. They didn’t care so much about the poor reception and sound quality. They just wanted the new programmable, easy to use operating system.
Sales Of
Old Mobile Phones & Old Smartphones
Sales of
New
iPhones
Govern-mental
Commercial
Residential
Personal
Actual or potential market segments

23. Old Mobile Phones & Old Smartphones
After several years
Sales
Gradually, Apple is improving the reception and sound quality of the iPhone, so that higher-end users are starting to buy the iPhone. This is called “low-end encroachment.”
Sales Of
Old Mobile Phones & Old Smartphones
Sales of
New
iPhones
Govern-mental
Commercial
Residential
Personal
Actual or potential market segments

24. After a few more years
Sales
Sales Of
Old
It is possible that eventually the iPhone will control all of the market, from low-end to high-end.
Sales of
New iPhones
Govern-mental
Commercial
Residential
Personal
Actual or potential market segments

26. Thesis
Incumbent reconfiguration ability depends on the extent to which they leverage on their non-technology related strengths (their “dynamic capabilities”), namely:
Complementary assets (Complementary competencies)
Cooperative competence (Collaborative competencies)
Distribution channels (Dynamic marketing competencies)
In other words, it’s their ability to reinvent themselves on the fly

27. Constrast with “static capabilities”
Architectural competencies - Architectural competence is the ability to integrate different areas of knowledge or resources to develop new product configurations, whereas component competencies is the ability needed for day-to-day problem- solving at a local or component level (Henderson & Cockburn, 1994; Henderson & Clark, 1990).
Core capabilities and rigidities
Combinative capabilities

28. Why are dynamic capabilities important?
They enable firms to adapt to technology changes, to transcend “technological waves”

29. Dynamic capabilities are a type of commercial capability, not a type of technological capability
Veryzer’s (1998) Framework for Clarifying Innovation:
The technological capability dimension refers to the extent to which the innovation draws upon knowledge from distant or new technolo- gies in performing its functions
The commercial capability dimension refers to the users’ perception of the innovation in regard to the potential benefits and utility of the innovation.

30. Dynamic marketing competencies
Marketing competencies help firms to survive in established segments by satisfying customers and exploiting existing products
In contrast, dynamic marketing competencies enable firms to move into new territories
Market sensing: the ability to identify and create market- and technological shifts.
Example: the Wii controller

31. Nintendo’s dynamic market competency and the Wii Controller
Satoru Iwata, the company’s CEO: the ‘‘conventional path would eventually lead to a battle of sheer brute force with competitors and fewer and fewer consumers would be able to keep up.’’
Instead, Nintendo aimed to create new markets, thereby introducing new customers to the concept of video games.
Their new value proposition: “In the end, our premise was to make a design that’s accessible to everyone.”
Nintendo thereby also created a market- and technological shift.

32. Collaborative Competencies
Innovation occurs in a network of relationships between firms
Collaborative competency: a firm’s ability to realign its internal resources and capabilities to the changing environment by leveraging on external resources and capability-acquiring mechanisms such as
Strategic alliances
Acquisitions
Joint ventures
Nintendo’s strategy: Open Innovation

33. Complementary competencies
Sony and Microsoft continue to pursue the traditional path and compete head-to-head. In contrast, Nintendo is now far behind in primary performance and mainly competes with Sony and Microsoft on secondary features. (where have you seen that before?)

35. Summary of Subramanian et al.
Dynamic Competencies
Dynamic market
Collaborative
Complementary

36. Another tool: complementary technologies
The core technology is like the hub of the wheel. The complementary technologies are the spokes. They make the core technology more valuable.