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

3. Time Disruptive innovations Most demanding customers Performanc e Performanc e demanded by mainstream customers Least demanding customers Sustaining innovations Source: Adapted from C. Christensen and M. Raynor (2004), p. 33. Exhibit 6.2 Disruptive innovations enter the market from below and improve over time until they meet the demands of mainstream customers

4. Rigid plan, high commitment Flexible plan, high commitment Rigid plan, low commitment Flexible plan, low commitment Threat Framing during implementation Framing during resource commitment Opportunity Threat Exhibit 6.3 To overcome organisational rigidities, incumbents need to adopt two contradicting cognitive frames 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 Over-served customers Disruptiveness to competitors 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? Is the innovation disruptive relative to all relevant rival companies that are currently competing in that market? 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?

6. There are numerous ways to deal with disruptive innovations Not responding at all Migrating/harvesting Defending Straddling The migration strategy is based on a conscious decision to ‘milk existing resources’. 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 Not responding is quite often based on ignoring or not properly assessing the underlying facts. Switching Leapfrogging 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. 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. 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.