Blog #4: Leap Before You Look; Weighing Strategic Options During Disruption

Reflecting on the readings this week, and my initial attempt at the Back Bay battery simulator, I couldn’t help but listen to the small voice piping up in the back of my thoughts regarding the current global pandemic, and its ability to disrupt so many industries, for better or worse, with such rapid force.   

One general example would be the almost immediate shift from an in-person workforce to a largely on-line one. In less than three months’ time, Zoom went from a niche corporate tool, to a ubiquitous brand and product, outpacing rival firms that are producing much of the same line of products and capabilities.  Some suggest that Zoom excelled by incorporating features that echo the functionality (and fun) of social media, such as appearance enhancing, backgrounds, and easy-to-use features (Gilbert, 2020). Thinking generally, to a quote from CISCO’s CEO, “The best indication of when to make the jump frequently comes from our customers.” (Chambers, 2016).  He goes on to indicate that often it is the customers not only indicating which direction or focus to take but also connecting that organization with the technological inspiration to do it.

Thinking more specifically to my current industry of higher education, everyone is currently looking to the fall, with a will-we-or-won’t-we approach to re-opening campuses and re-engaging with students and alumni in person again. From an Inside Higher Ed opinion piece, Jose Bowen sums up our hesitant nature by noting, "Humans have a bias to wait for more certainty, but when new information is almost certain to be contradictory and chaotic, we are waiting in vain. More uncertainty is coming, not less." (Bowen, 2020).  He goes on to note that making plans is fine and necessary, but that remaining nimble and open to redirecting your efforts is critical.  An organization’s ability to recognize that it is more important now to move with urgency and recognize that they will make mistakes, as a result, will be part of the process. (Bowen, 2020) Certainly, this is not a new approach, as author Clayton Christen noted 20 years ago in the Innovator’s Dilemma, “But in disruptive situations, action must be taken before careful plans are made.” (Christensen, 1997).  As he theorizes in this week’s reading, leaders that aren’t able to tell where the market is or is heading (as is the case for so many of us right now in this strange day-to-day existence), can work with a more open mindset, evaluating the questions they need to ask to find the information they need to know.  This comes full circle back to Chamber’s thought that, “By the time it’s obvious you need to change, it’s usually too late. Very often you have to be willing to make a big move even before most of your advisers are on board.” (Chambers, 2016) 

Educational institutions, and organizations in general, that will succeed during this global disruption, will be those who move nimbly, acknowledge errors and change course as needed, learn as they go, and keep pursuing forward momentum towards the avenues that align where their customers and their strategic plans want them to go.  

 

Bowen, J. A. (2020, May 19). Is Higher Ed Asking the Wrong Questions? Retrieved from https://www.insidehighered.com/views/2020/05/19/longer-term-questions-colleges-should-be-asking-response-pandemic-opinion 

Chambers, J. (2016, January 8). Cisco's CEO on Staying Ahead of Technology Shifts. Retrieved from https://hbr.org/2015/05/ciscos-ceo-on-staying-ahead-of-technology-shifts

Christensen, C. M. (1997). Discovering New and Emerging Markets. The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail. Boston, MA: Harvard Business Review Press.

Gilbert, B. (2020, March 24). All your friends are using Zoom, the video-chat app that is suddenly dominating competition from Google and Microsoft. Retrieved from https://www.businessinsider.com/zoom-video-everywhere-google-hangouts-skype-2020-3#why-are-people-using-zoom-thats-less-clear-but-there-are-some-obvious-upsides-to-zoom-over-its-competition-from-microsofts-skype-and-googles-hangouts-3

Blog #4

The Bay Back Battery simulation put a lot of perspective into strategies for technology companies and fighting to be ahead of the game, specifically in the battery industry. My first try at the simulation ended poorly, with dwindling sales and my R&D choices not making much of a difference. I also had very little idea what to do with my unit prices, which ultimately would have had me "fired" in this position. However, the second time around, I had watched the lecture and read the article. I dug deeper into the foreground information and paid deep attention to the market news stories. When I viewed the simulation as less of a game that I had little control over and more like a president of a major corporation, Bay Back's sales and customer-base grew, breakthroughs were made in recharge times and cycles, and both kinds of batteries were doing exponentially well in their industries.

What would have made the simulation even better would have been more information on my competitors and any potential disruptions in the sector. Knowing what my competitors were up to would have given me more insight into what customers want. Even though changing technologies are what cause disruptions, the root of the dilemma is that "disruption is a customer-driven phenomenon." Customers ultimately decide what they need and want to buy, and the company with the most customer-driven innovations will end up on top.

References:
https://hbr.org/2019/06/disruption-starts-with-unhappy-customers-not-technology

Blog Post #4: Developing Strategic Options (Part II)

The decision-making processes involved in strategy and innovation are riddled with cognitive biases. Perhaps that is why companies whose leadership focus on information coming from their customers and the market succeed over companies who practice ‘good management’ principles without doing the former as well.[1] That is, after all, what former CEO of Cisco, John Chambers, attributed the company’s success to: responding to market transitions, even at the expense of cannibalization and organizational restructuring.[2]  The inability to rely on routine and standardized decision-making however, can be addressed by following frameworks such as that prescribed in Clayton Christensen’s book, The Innovators Dilemma, and by being aware of these common pitfalls. In this blog post, I will explore how some of these biases are currently taking place in the jewelry, watch, and accessories industry (JWA).

 

The JWA has slowly been transitioning in two major ways. First, the way people are buying has changed. The industry has not been exempted from the transition from brick and mortar to online retailing. Unfortunately, most JWA retailers are small, independently own businesses which lack either the capital, expertise, or con to capitalize on this transition. Hundreds of independent brick and mortar stores have closed in the U.S. in the past decade. The remaining retailers have attributed their success to ‘being the best’ at what they do. The remaining few were the most successful stores in their region and believe that their survival is due to ‘good management’ and a loyal customer base.

 

The second major transition has been the introduction of ‘disruptive technologies’, primarily smart watches and synthetic diamonds. Started by the Apple Watch, smart watches have led to a new category of accessories called wearable tech. This new product category has had a minor role in the market, with most products outstripping customer needs. Traditional retailers and watchmakers have struggled with how to incorporate wearable tech into their product line. As described in The Innovators Dilemma, these products have minor margins and a small customer base. Retails have had little incentive to invest in incorporating smart watches into their inventory and allocating significant shelf space or advertising.

 

Synthetic diamonds present a different challenge: the threat of cannibalization. Customers and gemologists alike are unable to detect the difference between real and synthetic diamonds.[3] These new stones have become more popular in the mainstream market due to the diminishing purchasing power of millennials, who are now getting engaged and looking for alternatives to the large price tag of a real diamond, while maintaining social expectations and pressures.  Genuine diamonds are generally five times more expensive than their synthetic counterparts and make up about a third of most retailers profits.[4]

 

While the JWA is not as fast-moving as tech industries, it is facing many of the same challenges brought upon by emerging and disruptive innovations. Successful companies in this space should borrow a few lessons from companies in the tech industry, before it is too late.  

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[1] Christensen, Clayton M. The Innovator's Dilemma. Harper Business, 2011.

 

[2] Chambers, John. Cisco’s CEO on Staying Ahead of Technology Shifts.

[3] Perron, Celeste. “Can You Tell Which Diamonds Are Lab Grown?” Brilliant Earth, 30 Jan. 2020, www.brilliantearth.com/news/can-you-tell-which-diamonds-are-lab-grown/#:~:text=Although%20grown%20by%20scientists%20instead,you%20the%20chance%20to%20guess.

 

[4] https://www.reuters.com/article/us-diamonds-debeers-synthetic-analysis/lab-grown-diamond-prices-slide-as-de-beers-fights-back-idUSKCN1OK0MQ

 

Blog #4 disruptive tech

"When a market isn't in transition, gaining market share is hard". The longer a specific market exists the more it's profit margin gets chipped away by competition. But if that market keeps changing than it's a continual gold rush to take advantage new opportunities. But to do that companies need "to disrupt themselves". Currently our department at CMU is transitioning to SalesForce and it is extremely painful. The amount of fires I have to put out in terms of finding lost transactions has made us less efficient, not more. But SalesForce is also becoming industry standard for fund raising and Alumni engagement tracking, so for us to not adopt this would be a huge mistake. The cost of adopting this has also been massive. In the John Chambers article he sights customers as the catalyst for making a change, for us it's our competitors. Our department benchmarks it's success by looking at other ivy league institution and comparing their endowments to ours. If there are trends that are happening among our "competitors" we tend to adopt them as well. This may not give us an advantage but it is the minimum necessary to keep up with the pack. From the Clayton M. Christensen article it is clear that our adoption of SalesForce is a "sustaining" technology so it is unlikely to cause us any problems in the long run. Indeed its adoption was an easy case for our Information Systems director to make because it was being adopted by many of our competitors. By contrast "disruptive" technologies offer the lowest initial profit potential and are not adopted until the case is easy to make and by then it's too late. Fund raising is not exactly and innovative endeavor and if there where a "disruptive" technology coming to these departments on college campuses I'm sure we would miss it. However in terms of customers and investors we are not really beholden to anyone in how we raise funds. Our "customers" do have demands in how their money is spent but they are not as particular in how we ask for it as long as we ask nicely and make them feel included in what the University is doing. So if there was a "disruptive" technology our stake holders may be largely indifferent to us adopting it. Our customers dictate the investments of the University as a whole but do not care how our department operates. Our real investor and customer in this sense is CMU, and Central Finance, they would be the ones to keep us away from something new that did not promise immediate high returns.
Principle #5 in the Clayton M. Christensen article mentions accounting software as a technology that may be surpassing it's users needs. When this happens the buying criteria changes to functionality, convenience, and price. CMU Central Finance, University Advancement, and others on campus have adopted Excel4Apps, an add on program for excel that enables automatic spreadsheet updating and drill down capability. This product certainly has outstripped my needs and many others from what I hear. The decision to adopt it and what has been pitched to various departments by Central Finance, is not that it does anything new and great but that it can help us do what we do now allot faster and with less busy work. It is only a better version of the same thing and so would be considered a "sustaining" technology. Fortunately it doesn't seem likely that our line of work is going to run into too many "disruptive" technologies, but if we do, I'm sure we'll miss it.

Disruptive vs. Sustaining Technologies

by Melanie Simko

The distinction between disruptive and sustaining technologies and the different strategies associated with each were key takeaways from the readings this week. As noted in the Innovator’s Dilemma excerpt, when leading companies evaluate whether to develop or acquire disruptive technologies, it requires leadership to essentially abandon the strategies that have made them so successful. Much of the investment in technological innovation by these companies is focused on improving existing product offerings based on features that their current customers value and maintaining the status quo. It is not likely that investing in disruptive technology will result in increased profits or sales growth in the short term so it is often a less attractive option for company leadership.

Most established companies use customer feedback to guide their product innovations for sustaining technologies because that is where the largest profit margins exist, but the readings offered a strategy that companies can use to discover the disruptive technology that will keep them competitive in the future. John Chambers and Cisco’s approach of listening to their customers’ perspectives on new technologies in order to find their next big opportunity requires meaningful conversation beyond just looking for the next sale. This method can also be used effectively to explore larger emerging trends for novel technologies when there is not much available in the way of traditional market analysis.

Disruptive technologies often begin as low-end products and, in this way, they can fly under the radar of industry leaders. The Innovator’s Dilemma reading alluded to mini mills as disrupters in the steel industry. Throughout the 1970’s, Nucor revolutionized the steel industry with its disruptive technology of converting scrap metal into raw materials for steel production with the use of electric arc furnaces¹. This method allowed the company to produce bar steel cheaper than it could buy from domestic or foreign suppliers. Its upfront capital costs were also far less than the larger, integrated steel mills who had already invested in infrastructure to support traditional coke and iron manufacturing processes. Ultimately, some of the larger mills that clung to the costlier integrated model, such as Bethlehem National and Republic Steel, were unable to compete on price with Nucor and they were forced out of business.

At the time that the decision was made to adopt the mini mill technology, Nucor was already a major player in the steel joist market and its sales and profits were growing. They could have kept this strategy that seemed to be working for them using the sustaining technology but in this case, they were able to successfully integrate the disruptive innovation and position themselves to gain significant market share in not only the steel joist market but also in steel decking and sheet steel.

Reference

1.     http://www.fundinguniverse.com/company-histories/nucor-corporation-history/

Blog #4: Developing Strategic Options (Part II)

For this week’s readings, “Cisco’s CEO on Staying Ahead of Technology Shifts” (Chambers, Harvard Business Review, May 2015) was the article with the most interesting key takeaways for me. The article starts off with the following quote from the CEO of Cisco, John Chambers: “Over the years, I’ve watched iconic companies disappear—Compaq, Sun Microsystems, Wang, Digital Equipment—as they failed to anticipate where the market was heading.” I completely agree with him, in that a leader needs to not only manage and lead a business through its successes and adversities, but also be courageous enough to take risks and predict the future of the market and its company.

While working in management consulting, I experienced a lot of data-related issues that had to do with technology shifts and clients not having stayed ahead of them. Often times, when companies grow through acquisition, the data from the different organizations is not consolidated and ends up being siloed and unable to connect to the data from other organizations within the conglomerate. With the rise of data analytics through big data, we can argue that “it’s tempting to view market disruptions as a threat, [rather than] view[ing] them as an opportunity.” Cisco views market disruptions as opportunities, and this is one of the things that made them, and continues to make them, very successful.

During one of my projects, I worked on a due diligence for a commercial kitchen manufacturer. They had grown through acquisition of twelve companies, and therefore had twelve different ERP systems. The data was in different formats and unable to communicate between one ERP system and another. This private equity-owned commercial kitchen manufacturer had not invested in staying ahead of the technology shifts. The client thought it was too much of a threat rather than an opportunity. It is arguably true that the efforts required to incorporate these twelve systems would further disrupt the business for a few years, accompanied by millions of dollars in implementation costs.

However, not integrating the ERP (or any IT) systems would cost more in the long run. For example, having consultants like me try to decode the data for weeks costs the business hundreds of thousands of dollars, multiplied by the several years of non-integration and need for consultants. The benefits of integration clearly outweigh the costs, not only for the business itself, but for the private equity company trying to get a return for their highly levered investment. John Chambers would agree with my perspective as well, given that “making tough decisions and immersing ourselves in a process of disrupting the market and at times ourselves” benefits the business and is important to stay ahead of technology shifts.

Moreover, while incorporating “lessons learned” after our project, we put together a lit of resources summarizing best practices and why there is such a strong need for clean data in corporations in order to stay ahead of technology shifts:

“Why Organizations Need to Clean Their Dirty Data” (https://www.cmswire.com/information-management/why-organizations-need-to-clean-their-dirty-data/)

“What is data cleaning and why is it important?” (https://sunscrapers.com/blog/why-is-clean-data-so-important-for-analytics-and-business-intelligence/)

“The Staggering Impact of Dirty Data” (https://www.marklogic.com/blog/the-staggering-impact-of-dirty-data/)

“The Ultimate Guide to Data Cleaning” (https://towardsdatascience.com/the-ultimate-guide-to-data-cleaning-3969843991d4)

In conclusion, John Chambers emphasizes his commitment to staying ahead of technology shifts on behalf of Cisco and its ability to “transform our entire business, expanding to capture growth, and thinking very differently about the future of information technology.”

Disruption by tech

In India, I have seen autorickshaws since I was young. Autorickshaws are 3 wheeled taxis that are much cheaper than a car. We used to call it auto. There was no way to book autos. If we wanted to catch an auto, we had to go outside our house and stand on the road and wait for a random passenger-less auto to pass in front of us. This posed a lot of problems. We had no idea how long it will take for us to reach the destination because it depended on how soon we get an auto. We also had to ask each auto that we see, if they are ready to go to the destination we want to go to. The auto drivers also had to continuously drive an empty auto to different places so that they can find passengers. By now, I am sure you must be thinking uber would have destroyed the industry, and that is exactly what happened. Almost.

With the entry of uber in India, several of the passenger's problems were solved. They could book the cab from the comfort of their homes. They knew the price up-front. They got a view of the map of the travel. The safety of the passenger was given much more importance. Cars being completely closed are safer in an accident. The uber app also provides an emergency button that can be used to immediately call the police. Needless to say, uber almost destroyed the auto industry.

I believe, the auto industry should have seen it coming. It was fairly obvious that tech can disrupt the industry. I remember often telling the auto drivers to take requests over a phone call. The auto driver's union was also often told to be more tech-savvy. I have read interviews of individual union leaders who say they had proposed being more welcoming to tech. But often the union did not prefer it because it meant extra expenditure in terms of the internet, mobile, etc. It also meant they had to learn how to use technology.

But, not all autos failed. There are some individual autos that still run. Autos had the biggest advantage of providing service at a cheaper price. So, individual auto drivers who embraced technology, are thriving today. Many auto drivers I talked to when I was in India, told me that they could foresee technology destroying their jobs unless they stayed ahead of the technology. Even before uber entered the market, they started learning about tech. A group of auto drivers, with the help of some local company, also created an app to book autos. They would often say they started the transition early because they never knew when they will be hit by tech. I feel what these auto drivers said is so similar to what John Chambers said in the article, "By the time it’s obvious you need to change, it’s usually too late. Very often you have to be willing to make a big move even before most of your advisers are on board. You have to be bold. And you need a culture that lets you figure out how to in even without a blueprint. That’s how we’ve always done things at Cisco." One primary reason, according to me, the auto driver's union was reluctant to change was because they had a monopoly and they got comfortable with it and didn't want to take the risk of changing. Just like what John Chambers says, 'Right now some companies have left it open because they’ve gotten comfortable with their traditional business models and are afraid to change'. 

This story has helped me better understand why uber and other industries are investing so much in self-driving cars. 

Walmarts move toward Electronic Check Out Stations

In the book excerpt,Why Good Companies Fail to Thrive in Fast Moving Industries, I would like to focus on, "Technology Supply does not equal market demand" I take this concept and apply it to Walmart and their new strategy to offer a service in which they are, offering, "products [and services] whose features and functionality closely match market needs today often follow a trajectory of improvement by which they overshoot mainstream market needs tomorrow." More specifically, a recent Fox Business article, "Walmart Tests Self Check Out Only Stores" stated, "A spokesperson for the company told FOX Business that Walmart Supercenter Store #359 is removing its conveyor belt lanes and replacing them with self-checkout counters. The goal is to see if the increased use of self-checkout will speed up purchases while providing a safer experience for shoppers through less interaction." In the short run this maybe a adaptive solution to the COVID-19 crisis, however, this could be problematic in the sense that its forcing the consumer to adhere to technology innovations that may not be applicable or can contribute to a poor customer experience on behalf of shoppers. It's built in assumptions is limiting such that the shoppers would be able-bodied or tech-savvy. This could be more drawbacks that any proposed benefits due to consumer experience for a innovation that is more reflective of shifting values than application. 

Blog#4 : Samsung’s Evolution to market Domination

As rightly mentioned by John Chambers in this week’s article, “The best indication of when to make the jump frequently comes from our customers.” One particular company that I can think of is the Samsung Group which has had a huge transformation right from its foundation to date by using innovation as their key metric and understanding their customer’s needs.

Samsung has witnessed tremendous growth from starting out as a grocery store to now becoming a tech giant. The biggest factor that we can attribute to this enormous transition is innovation at the right time and for the right consumers. Samsung is one of the finest examples of how evolving strategic solutions are the need of the hour for organizations who want to survive and profit in this rapidly  changing world.

Founded in 1938 in South Korea, Samsung was a grocery store which traded fruits, vegetables and dried fish throughout the country as well as exported it to China.

1^st Evolution: After the Korean War, Samsung expanded to textiles and setup the first Woolen mill in Korea. This not only helped nation’s economy but also generated lot of jobs.

2^nd Evolution: Understanding the customers need and changing preferences, Samsung entered the electronics market and produced household appliances. Capturing the consumers shifting habits and seeing the rise of the electronics industry, Samsung entered this domain at the perfect time and made huge profits.

3^rd Evolution: Not wanting to be left out in the emerging field of heavy industries which was growing with the needs of new industries, Samsung opened subsidiaries like Samsung Heavy Industries and Samsung Shipbuilding. It also ventured into investing in Chemical and petroleum industries. Even though Samsung tried to diversify in different fields they ensured that they identified the potential market sooner than the rest.

4^th Evolution: This advent of technological evolution changed the dynamics of the company and placed them as the market leader in memory chips and the world’s biggest manufacturer of semiconductors. Knowing that semiconductors are needed in almost all electronic equipments, Samsung made a smart strategic move to capture this market soon before anyone else tried to monopolize it.

In spite of emerging as a major manufacturer, Samsung was left with a reputation of not making high quality and long-lasting products. Even though Samsung was becoming a market disruptor, it was time for a pause in order to rethink its own existing strategy for the upcoming evolution.

5^th Evolution: Samsung underwent a major transformation and reinvented itself as a major manufacturer of “Quality Technology Products”. This was their biggest evolution which accelerated their growth manifold. Samsung started making quality mobile phones and faced stiff competition from Nokia. But over the years by staying ahead in technology and developing their products with the growing needs of consumers, it disrupted the mobile segment and displaced Nokia out of the market. Its first commercial success was Galaxy S phones which sold more than 25 million units.

Even amidst controversies and numerous failures during the evolutions, Samsung is now the 15^th largest company in the world. As Chambers mentions, “Even great companies are imperiled if they miss a market transition”, In my opinion Samsung exemplifies that with  evolving strategies, cutting edge technologies and adoption of changing market trends at the right time not only makes them successful but also undisputed amongst conglomerates. Had they not been this agile in adopting new technologies, Samsung would have faded into oblivion akin to Nokia.

 

References :

1.       https://www.businessinsider.com/history-of-samsung-2013-2

2.       https://hbr.org/2011/07/the-globe-the-paradox-of-samsungs-rise

Blog 4: The Role of Customers and Disruptive Innovations

    In his 1995 book The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail, Professor Clayton Christenson developed the idea of a disruptive innovation. For a long time, it was believed that a disruptive innovation was simply “a breakthrough that makes good products better.”[1] Christenson took this definition one step further. He defined a disruptive innovation as a product that once was complex and available to only a small group of people, but through a new innovation, is simplified and made available to more people.[2] One of the principles that Christensen outlines is the role of investors and customers. Through the resources they provide, a firm can have a better idea of its positionality and ability to invest in a disruptive technology.[3]

            This principle is very present in the disruptive innovation that was the radio. When transistor radios came on the market, they were only available to middle- and upper-class families who would gather around and listen to their favorite programs. Ryan Moore writes, “middle class families owned nice radio consoles made by RCA and Zenith. Sound quality was excellent, but they were clunky, expensive, and inefficient.”[4]Then along came Sony who entered the market with their Walkman radios. Sound quality was poor, but the radios were cheaper to produce and sold well because they found a new market. Teenagers. Sony was able to keep improving its product while RCA and Zenith struggled to keep up and eventually began to fade away.

            This is an example of the power that customers can have when it comes to disruptive innovations. Sony was able to see that teenagers, who really like music in a portable way, were a new market with untapped potential and as a result Sony had to transition its strategy and investment patterns to cater to their customers. By the time RCA and Zenith realized what their customers wanted, it was too late, and Sony had overtaken them. But Sony itself would also be overtaken in this market when Apple introduced the iPod in the early 2000s.

            When it comes to disruptive innovations and technologies, investors, and particularly customers, have critical influence. Firms that listen to their customers and determine what they want and what they don’t want to have a better chance to improve their positionality and prepare for and defend against disruptive technologies. It is a common expression that the “customer is always right.” They may not always be right but they can certainly make or break a company.

 

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[1] Ryan Moore, 11 Disruptive Innovation Examples (and Why Uber and Tesla Don’t Make the Cut)

[2] Clayton Christensen, The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail, 1995

[3] Ibid

[4] Ryan Moore, 11 Disruptive Innovation Examples (and Why Uber and Tesla Don’t Make the Cut)

Blog #4: Renewables as a disruptive force in the energy sector

In Clayton Christensen’s “Why Good Companies Fail to Thrive in Fast-Moving Industries,” the author describes how good companies often fail because they do not take seriously disruptive technologies. I think looking at how big oil and gas companies have reacted to the rise in renewable energy within the energy sector is a good example of this scenario.

By many measures of performance, renewable energy sources are inferior to conventional fossil fuels. Renewable energy has historically been more expensive, land intensive, and unreliable compared to fossil fuels. This has made them uneconomical, unfeasible and, as a result, unable to easily meet market demand.

However, some large oil and gas companies such as BP and Shell are investing in renewable energy research and development. This is because globally we are trending toward renewable energy. It may not be outperforming traditional fossil fuel generation now, but as advances in technology put renewable energy on par with the market demand, it will certainly outperform fossil fuel generation in other categories such as limited or zero green house gas emissions, resiliency, and resource preservation.

According to a report in 2019, Chevron, Exxon, BP and Shell since 1965, have been behind more than 10% of the word’s carbon emissions (Link to The Guardian article). With alarm over climate change increasing, at least two of the four companies are beginning to incorporate renewable energy into their strategies.

In 2017, BP acquired 43% stake in Lightsource, the largest solar power project developer in Europe. It also made several investments into rapid-charge batteries and fast charging infrastructure. Notably BP also changed their name (British Petroleum Company to Beyond Petroleum) and it’s core purpose  to reflect their shifting focus. Shell has also made several clean energy investments including the acquisition of NewMotion, Europe’s largest electric vehicle charging company, and buying stake and equity in several renewable energy companies. (Link to NS Energy article).

Unlike BP and Shell, Chevron and ExxonMobil have made minimal investments in renewable energy, instead focusing on new technologies that will reduce carbon emissions or capture them for storage. (Link to NS Energy article). Although these strategies are wise, responsible and may protect the companies from possible future policies and regulations regarding carbon emissions, they are not considering the possibility that renewables may outperform oil and gas in the future.

Personally, I think BP and Shell are applying a strategy more in line with the principles outlined by Mr. Christensen and would be wise to continue to increase their investments in renewable energy. According to the EIA’s 2020 outlook, the percentage of electricity generation from renewable energy is expected to jump from 19% to 38% by 2050 (Link to EIA Energy Outlook). Another consideration that should be noted is the dependence we still have on oil within the transportation sector and the slow and uncertain penetration of electric vehicles within the automobile market. It is likely that big oil and gas will not make a large strategic push toward renewable energy until electric vehicles become more prevalent.

Blog #4 –Disruptive Technologies are NOT Always New Technologies

A stereotypical view of disruptive technologies is that they are generally cutting-edge technologies. Therefore, with great inventions comes great opportunities. Undoubtedly, this is true to some extent, but the people who eventually made money from the “new” technology are not the ones who invented them. Ironically, in a lot of the cases, the technologies we deemed as disruptive are no longer new when they become disruptive.

 

There are a lot of examples that disruptive technologies are not necessarily new technologies: electric cars seems to be the latest fashion in the automotive industry, but electrified vehicles can be dated as way back as the 19th century; the iPod was a huge success that saved Apple back in its glorious days, but the product itself is more of a combination of existing mature technologies; digital cameras swept over the camera market and dominated film cameras, but it took nearly 30 years for digital cameras to achieve such dominance.

 

The list of such examples goes on and on. Nevertheless, there are things shared among disruptive technologies: perfect timing and complementary technologies. Electric cars only become popular when battery technologies improves and environmental concerns boast the call for replacement of fossil fuel; iPod was a great success due to Jobs’ brilliant market strategy that provided unprecedented convenience; digital cameras took 30 years to mature and eventually take over the market when digital image processing capabilities and memory devices finally became adequate for the whole package.

 

When we look at successful technological advancements that are deemed as disruptive, we tend to only look at a single aspect of the technology but neglect the whole package that comes with it, which makes it successful. Timing and whole packaging of technology are what makes these inventions great and usually it takes quite a long time for all conditions to be mature.

 

Nowadays when we look at successful disruptive technologies, we are somewhat blinded by the survivorship bias: we only look at successful ones and conclude that incumbents which do not embrace new inventions are risking being taken over. In reality, incumbents have plenty of time to learn, analyze, and react. The reason why some incumbents failed must not only be they didn’t embrace the new trend. It must have something to do with poor decision makings.

 

New technologies will gradually replace old technologies, but not necessarily new entrants can replace incumbents. Sometimes, incumbents can take action and gain the lead in the industry. For example, when Apple launched its iPhone, Google, who’s already in the phone market making simple phone system for traditional phones, quickly reacted by shifting its phone system development into making an equivalent contender to the iPhone system, which later becomes Android.

 

Therefore, disruptive technologies are not always new and not always favor new entrants. Rather, disruptive technologies will favor those who make the right decisions in the right situation at the right time.

Blog #4 : Paralysis by Analysis

Ryan Gallagher

After reading the excerpt from Christensen’s “The Innovator’s Dilemma”, I had a really strong connection with his third principle : market’s that don’t exist can’t be analyzed. As an analyst myself, a large portion of my position is to understand market data, analyze trends and report these findings to quantify future business decisions. However, all of the research that is done happens on events that occur in the past while new and disruptive technologies can lead to new market offerings and entirely new markets which occur in the future. Christensen’s principle is not meant to belittle or discourage the role of research or analysts, but more to highlight that we cannot always rely on events of the past to influence future decisions.

Researching additional viewpoints on this idea, I stumbled upon a short podcast from Motley Fool (a finance/investing advice company) where two of their analysts talk about this exact book and principle. When you actually break it down and think about the principle logically, it makes a lot of sense.  Disruptive innovations occur when incumbents have determined a portion of the market is not as profitable as their current customer base which leads for the opportunity for new offerings and/or markets to arise. New offerings and new markets by definition don’t have large amounts of data about them for that exact reason; they are new.  A great example of this that they cited in the podcast was from AT&T back in 1980. At that time the idea of a cellular phone was in its first stages and AT&T hired top consulting firm McKinsey to conduct a study to estimate how many cell phone users there would be in 2000 (20 years later). McKinsey estimated that there would be around 900,000 users while the actual number of cell phone users in the United States alone in 2000 was 109 million. The TOP consulting firm was nowhere close to estimating the prevalence of this technology only 20 years later. If there were tons of data pointing to the potential of this market, every company would’ve invested into it. For Motley Fool’s full breakdown, you can view their podcast (link in the footnotes)[1].

As we have discussed and learned throughout the course so far, strategy, analysis, and evaluation are key components to a company’s health and are critical to its success. However, the importance of leadership cannot be understated. As Christensen pointed out, market followers tend to do relatively as well as leaders in sustaining innovations however they don’t share in the advantages of the first-mover[2]. The difference between the followers and the first-movers can be as simple as executing a vision/hunch even when there aren’t the statistics/date to support the strategy. The decision to follow these visions/hunches more times than not comes down to leadership which is why it is so important. Although statistics, market data, and trends are excellent tools to support decision-making, they can’t be the end-all be-all.  If they were, then no future innovations would ever come to fruition.

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[1] https://www.fool.com/investing/2016/09/25/5-principles-to-find-disruptive-companies-no-3-mar.aspx

[2] https://hbsp.harvard.edu/download?url=%2Fcourses%2F726192%2Fitems%2F1713BC-PDF-ENG%2Fcontent&metadata=e30%3D

Blog #4: To Navigate Disruption, be Vigilant and Have Options to Adjust

Take-Away: To survive disruption, companies should understand both disruptive opportunity drivers and potential cost impacts. They should possess capabilities that provide flexibility in how they navigate disruption.

Even the best managed companies can become victims to disruption.  In fact, in many instances disruptive technology leads to failure of the industry leader [1].  In order to prevent an untimely end, companies should be vigilant for the next disruptive opportunity or trend.  They should also understand generally the adjustment cost of disruption for their industry.  Companies should maintain mechanisms that allow for Research and Development, Acquisitions, or “Spin-ins” where appropriate [2].

 Understand the Mechanics        

Having the “best” product does not mean that all customers are happy.  Traditionally, improving the feature set is a concrete way to retain customers for established products, but focus on customer facing activities is a great place to look for disruptive opportunities [3].  It was not a better DVD but how it was delivered that helped Netflix overcome Blockbuster.  Simplicity, convenience, or a narrower feature set (resulting in a lower price) are each indicators of a potentially disruptive product.

[3] 

Knowing what adjustment costs from disruption may look like is also valuable.  The higher a company’s asset base, and greater the competitive intensity, the more expensive it will be to navigate disruption.  For example, automotive manufacturers with significant assets have a high cost of retooling while keeping sustaining products competitive.  In contrast, established software companies without heavy competition can create new, highly scalable digital products with a comparably much smaller cost impact. [4] High intensity / low asset companies face intermediate indirect cost through cannibalization and resource limitations, and high asset  / low Intensity companies face intermediate indirect costs acquiring requisite assets.

 [4]

Tools to Adapt 

Capabilities for navigating disruption need to be considered.  It is likely that necessary actions addressing disruptive trends will be contrary to that of the core business, so bifurcation or ensuring the autonomy of decisions needs to occur.  Companies with resources and the appropriate circumstances may utilize their R&D program, but this provides minimal separation (and requires foresight).  A company may alternatively choose to acquire the expertise.  This is a good option if the company does not have expertise in-house, or if disruption is already in motion.  If the disruptive trend sharply contrasts with the existing business, companies can “Spin in” a specialized group or create a stand-alone entity that is free to carry forward with near or full autonomy.  As many disruptors benefit from a start-up mentality, this can be an appealing option.  Each of these options may be more or less appropriate depending on the industry and circumstance, but having options provides an advantage.

Disruptive trends are historically difficult to predict, and to address them can require deviating from traditional management principles and/or the core business.  Having visibility to possible disruptive trends, a grasp of how costly disruption may be, and viable options to react and adjust are important tools a company should have to successfully navigate the next disruption.

 [1] https://hbsp.harvard.edu/download?url=%2Fcourses%2F726192%2Fitems%2F1713BC-PDF-ENG%2Fcontent&metadata=e30%3D

[2] https://hbr.org/2015/05/ciscos-ceo-on-staying-ahead-of-technology-shifts

[3] https://hbr.org/2019/06/disruption-starts-with-unhappy-customers-not-technology

[4] https://hbr.org/2018/11/research-self-disruption-can-hurt-the-companies-that-need-it-the-most