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.

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: Reflections on the Simulation, my future employer and Uber

The discussion of disruptive innovation from this week’s lecture and articles makes me wonder what type of company could be successful investing in a disruptive innovation. The article on "Discussing New and Emergent Markets" focuses on case studies in which disruptive innovation was pursued successfully within a business but does not feature a standalone company pursuing disruptive technologies. In the articles, large companies like HP and Honda were featured. 

 

An important caveat that was not emphasized enough in the articles is that disruptive innovation seems to only be something that is successful if it is part of a larger company that has other revenue streams.The disruptive innovation that was being pursued was in one area of the business but did not represent the business in its entirety. The simulation reinforced this idea as well. I found that when I focused on the disruptive technology and made significant price changes to the core product, cumulative profit plummeted and did not recover. Only when I maintained the sustainable technology and increased price only when R+D investments were made in the product was I able to grow the disruptive technology segment.  In the cases mentioned, the disruptive innovations being pursued were likely cost centers initially and possibly indefinitely if the technology didn’t show profits eventually due to poor strategic management. Essentially, I left feeling like not all companies can participate in disruptive technologies because financially they can not take on the risk.

 

This fact makes me think of two scenarios: how my future employer is positioned and how Uber is positioned. My future employer has a stable investment in their core business but is focused on growing a new product line. The new product line has some synergies with the existing product offerings but is much more regulated than the current product offerings. The approach being taken is to grow that business by 50% over the next few years yet there has been no discussion our how the existing, sustainable product is being altered. The company has been doing extremely well financially due to a successful acquisition but I also feel my impression of the company has not changed. They remained focused on their core product while expanding offerings. I believe that is key to adding disruptive technologies to one's portfolio while maintaining the core business to support it.

 

Uber was discussed in class lectures but when I think about the business, though it is unclear whether it is a disruptive technology, it has spent a lot of time investing in disruptive technologies with its autonomous vehicle business. Based on the articles read, it doesn’t seem like Uber is well positioned to invest in disruptive technologies as its net income has been negative or close to $0 for at least the last three years (Source: 2019 Uber 10-K). It will be interesting to see when the company can turn a profit and sustain it but for now, it looks like Uber is not positioned to come out financially solvent if the principles of disruptive technologies hold.

Blog #4: How to make strategy to prepare for an inexistent market

Key Takeaways:

1. When there is a market that does not exist but has a large market size, companies can utilize an adaptive strategy to prepare for it.
2. An innovation laboratory fits for the adaptive strategy in the technology industry.
3. Strategic objective: Improve the return on investment of the enterprise’s investment portfolio by identifying and investing in the areas with the most opportunities or breakthroughs.

If there is a market that does not exist but has a large market size, how could we prepare for it even though we cannot analyze it?[1] In the field of technology, there will always be a lot of huge industry opportunities, but we may not be able to predict these opportunities in advance. Christensen mentioned in his book “The Dilemma of Innovators” that Intel had become an industry leader through the development of microprocessors, while HP lost money because it manufactures a large number of disk manufacturers that exceed demand. How can a company formulate a strategy when it is not possible to analyze an inexistent market? BCG’s Your Strategy needs a Strategy[2] gives us a great answer.

 

In the BCG’s book, the author proposes that when the market environment is unpredictable and unchangeable, companies should adopt the adaptive strategy. Companies can win the competition through continuous adjustment, adapting to new opportunities and conditions, and promoting growth and maintain advantages. Innovative products need to face an external environment that is difficult to predict and change, and their product forms and customer types are very different from the previous ones. At this time, it is suitable for adaptive strategies, utilizing innovative laboratory methods to achieve breakthrough innovation. The core of the Innovation Lab is to build a strategic experiment portfolio. Not every new product development can succeed, but the success rate must be improved.

Amazon Lab126 is an example of an innovation laboratory. The birth of Lab126 is to solve the problem that the original business boundaries are gradually fixed 10 years after Amazon was established and to enhance Amazon's internal innovation capabilities. It independently developed new products, which are different from the main business but have synergies, and become the source of Amazon’s innovative products. Lab126 has great autonomy in resources, organization, and culture. Amazon provides Lab126 with separately accounted for R&D personnel and funds. The organization is led by an external company VP, recruits people in Silicon Valley instead of Seattle headquarters, and has a cultural philosophy that focuses on innovation, research, and development. It is different from Amazon’s customer-oriented center. Product R&D needs to find a balance between speed and single product economic benefits to improve the overall rate of return. Finally, this lab creates several amazing products such as Kindle, Echo, and so on.

 

In conclusion, when a company tries to prepare for the inexistent market, it should:

Suitable for environments where it is difficult to predict the future of the market and it is difficult to maintain a single long-term competitive advantage

Use the “change-choose-promote” ring model of an adaptive strategy

Create an Innovation Laboratory, which tolerates single failure and pursues overall return.

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[1] Christensen, C. M. (2000). Chapter 7. In The innovator's dilemma. Boston, MA: Harper Business.

[2] Reeves, M., Haanaes, K., & Sinha, J. K. (2015). Your strategy needs a strategy: How to choose and execute the right approach. Boston, MA: Harvard Business Review Press.

How to keep the ocean blue?

Blue ocean strategy is about creating a new market with a specific customer base and demand for your product/service. It is usually used by startups to create a new market for their innovative ideas and very few established companies try to explore a new market using blue ocean strategy. Blue ocean strategy also gives a first mover advantage which is very difficult to maintain. It is very likely that some other players see the new market developed by you and they try to perform better in the areas that you have explored. Here, I would walk you through my thoughts on how to sustain the “Blue Ocean Advantage” of low cost and differentiation for a longer time.

Standardization and Regulations

One of the major advantages of creating a new market is that you get to write the rules. Microsoft has been one of the most successful companies in history to set favorable standards in the market. Microsoft created a huge market for their operating system, Windows, by putting it in almost every personal computer in the world by different methods. As a consequence, users got so much used to Windows, that all new entrants in its market had to follow some specific user interface patterns and had to allow Microsoft auxiliary software on their operating systems. Thus, standardizing, patenting or regulating the market according to your own needs and competencies is very useful.

Differentiation by Value Innovation

Innovation could be a must while entering the blue ocean but pure innovation does not help to keep the ocean blue. “Value innovation” is to create your innovation at lower cost and offer it at best price to the consumers. It is a threat that other big players quickly enter your blue ocean after you and start providing value innovation to your consumers. Hence, differentiation by value innovation is a key requirement to keep the ocean blue in long run.

Create competitor friendly market

When companies are creating a niche in the market for theirselves, they need to make sure that they make it attractive to other entrants as well. Deterring market entry by various means is an obsolete concept now. Google, the biggest and the most successful executer of Blue Ocean strategy, has used similar concept for their Android open handset alliance. This free alliance allows any hardware producer to modify the operating system software (Android) as per their needs and sell it with their phones. It appears to be a risky strategy as Google also produces and sells phones and they themselves are encouraging competitors to use their OS. Essentially, they are not inviting other competitors in its Blue Ocean of open source mobile operating systems. Such tie ups and eco systems make the ocean of auxiliary products even more red while keep your own ocean blue.

Make switching easier and make loyal customers

The traditional competitive red ocean strategy insists on imposing heavy switching costs on existing consumers while blue ocean strategy focuses more on making loyal consumers and keeping switching costs low. For example, when Zipcar created its blue ocean, a lot of car rental companies had customers locked in (using gold memberships, etc). Yet Zipcar has been successful in attracting and retaining customers by offering lower switching costs. Consumers can anytime go back to car rental companies but they do not because they are loyal to Zipcar and not locked in with Zipcar.

Blue ocean strategy is widely being used but it quickly turns into red ocean. Keeping the ocean blue for a long time helps sustain the company for a long time and meanwhile making a lot of money and consumer loyalty!

Blue Ocean Strategy, Kim and Mauborgne