Tuesday, April 18, 2017

Dealing with unpredictability & deterred managers when entering new and disruptive markets

Dealing with unpredictability & deterred managers when entering new and disruptive markets

This blog post is based on the chapter “Discover New and Emerging Markets”, excerpted from ‘The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail’ by Clayton Christensen.

One of the most important messages of this chapter is that the markets of new and disruptive technologies are unpredictable. Nobody can accurately predict 1) who is going to use the product, 2) what it can be used for or 3) how many products can be sold for these purposes. For instance, a new microprocessor might open uses in domotica or smart household appliances. Nobody knows if this is going to take off, or if these processors might also be used in different products that might yet to be discovered/created.

Companies will always strive to be a first mover, as this brings about many advantages in profitability and market power, and therefore will be willing to put a significant amount of resources and effort in finding and impacting a new market. There is a trade-off for this attribution of resources though, as putting in too much resources might risk the company to be greatly (financially) affected if the strategy does not work, whereas too little resources will cause the strategy of entering the disruptive market to be not effective enough to make a real impact or will cause the market research to be wrong or inconclusive. Companies should therefore not put all their eggs in one basket and keep enough resources in store for multiple tries at new markets. As Christensen states: ‘Those that run out of resources or credibility before they can iterate towards a viable strategy are the ones that fail’.

The iteration part of entering new disruptive markets, brings about another issue. Managers that are put on the task of finding and facilitating the entering of a new market, find themselves in a rough spot, as they will try anything to get a success from their endeavor and not risk their position in the company due to a failed project. Christensen states that in the act of entering new and disruptive markets, actions should come before the planning. The markets should be tested in an empirical way and lessons should be drawn from the results.

I believe that if this is the case, there should be a mind shift on how manager’s success is determined in attempts of finding and entering new markets. Their success should be determined by the knowledge gain a company has gotten from the project, and not from monetary returns on investment or number of customers gained. If this change is implemented, less managers will be deterred of finding new and disruptive markets, as they can still have a successful project, even when the market entering does not provide any financial gains for the company. Also, the companies will benefit from learning effects, as an increased focus will be put on gaining knowledge and getting better at distinguishing new markets and entering them in the most efficient way. 

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