Greenstein, 4631 Anticipating the Evolution of Industries Background: The popular view is misguided...
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Transcript of Greenstein, 4631 Anticipating the Evolution of Industries Background: The popular view is misguided...
Greenstein, 463 1
Anticipating the Evolution of Industries
• Background: The popular view is misguided• New thinking (1): dominant designs• New thinking (2): product cycles &
disruptive technologies• New thinking (3): Episodes of innovation• The million dollar question: Does the
information age & the biotech revolution require a new set of frameworks?
Greenstein, 463 2
Why study industry evolution?• Strategy depends on competitive conditions
– Diffusion changes “competitive environment”– Coin changers & soft drinks not a big deal, but the
microprocessor was. How do you know?
• Strategy depends on shifts in structure– Number of firms, leadership– Basis for customer/supplier relationships
• An old literature about historical examples– Do the old ideas apply to high tech today?– Internet is doing/will do this to some markets; do we
have the right framework?
Greenstein, 463 3
The view seen in movies: New science leads to new industry
• A scientist develops a new idea – Eureka!
• Entrepreneur has insight about how to use it– Watt had his Boulton, so too do others….
• Dogged prototyping and testing– This part is a bit vague
• Scale up for the market – Hire MBAs during this stage
• Spectacular commercial failure or progress thereafter
Greenstein, 463 4
Popular myth or actual fact? • Like all myths, precise examples are rare, but it is
not impossible to get vaguely close– Telephony (Bell) in 1880s– Electrical equipment (Edison) in 1900s– Nuclear power, post Manhattan project, in 1960s– Transistors in the late 1950s and 1960s– Business computing in the 1950 and 1960s– Some biotech in the 1980s
• Others? Electronics in the 70s?– Would another framework serve better for the
spreadsheet, the microprocessor, etc?
Greenstein, 463 5
Critique the view from movies: It just does not work this way
• New industries may not require new science – The industry leads & motivates new science (e.g., steel)– Agglomeration of lessons from many areas– Example: Bicycle, automobile, etc.
• Romantic view of the discovery process is wrong– Technologically elitist view is mistaken– Edison and his laboratory are unrepresentative– Translating technology into useful products is hard
work and requires information from users
• Not useful for commercialization strategy– Excessive focus on glorifying invention
Greenstein, 463 6
New thinking (1): The emergence of dominant designs
• The basic principal: Historical examples provide clue about regular patterns– Inductive methods– Does a past pattern predict the future?
• Large enterprises distinctive to modern industry– Look at the big ones: Autos, Steel
• Linking entrepreneurial vision & growth– Steel & Andrew Carnegie– Autos & Henry Ford– Good stories for some important examples
Greenstein, 463 7
The emergence of dominant designs has a pattern
• Multi-phase development of young industry– Fluid, transitional and specific phase– Patterns of market change
• What lies behind the dominant design?– Economies of scale in production– Mass marketing in brands, advertising, etc.
• Similarities with “Chasm” approach in spirit– No specific time line, just a ordering of events– Emergence of dominant design coincident with
emergence of mass market
Greenstein, 463 8
The specifics behind the patterns of change
• Predominantly product/process innovation?– Sources for new ideas?– Diversity of design/production techniques?– Specificity of production equipment?
• Scale of enterprises?– Organizational structures
• Structure of competitive environment?– Number of suppliers, entry, price & supply stability– Goals of innovation competition (e.g., first to market,
competing on price or new features?)
Greenstein, 463 9
Strategy and dominant designs
• Strategy before dominant design– Align tactics to direction of industry change
– Learning, flexibility, exploratory behavior
– Fight to control d.d. or be indispensable
– Focus on timing of external events
• After the dominant design– Survive inevitable shake-outs
– Align tactics to cost/price focus
– R&D focused on incremental change
Greenstein, 463 10
The standard critique of dominant design framework
• Does this work in non-mass markets?– How do you know you are in a mass market before it has
formed and when only a prototype is developed?
– Are economies of scale inevitable for all young markets?
• Who controls the pace/direction of change?– Many origins of the dominant design
– How do communities develop around standards?
– How to selfishly develop a dominant design?
• How representative are automobiles and steel?
Greenstein, 463 11
New thinking (2): Product cycles and disruptive technologies
• Will structural discontinuity arise?– Important: Forecasting such transitions is hard.
– “Chasm” only approach (so far) to forecasting this
• Easiest to see as disruption to “product cycle”– Regular release of new and improved
– Feedback from observation to redesign
• Might help w/a modern examples?– Microprocessors, PC hardware, disk drives, some
components, software, video games…
Greenstein, 463 12
Strategy and Product Cycles in stable industries
• Foundation for this view inside many firms– There is a routine to change and it is cyclical
• Routine: Keep up w/frontier, nearest rival, fads, etc.– Listen to lead users, best customers, etc.– Staple of product development: Integrate different
processes for rapid response; strategies for speed, racing– Balance “pull” and “push” for innovation– Good companies do this well
• Notice: simplistic about sources of instability– Not about changes to competitive conditions
Greenstein, 463 13
Strengths/weakness of cycle approach
• Product Cycle describes quasi-stable market – Same distribution & manufacturing processes over time– Resolving push/pull issues has incremental
consequences for competitive position
• Approach good for setting work pace inside a firm– Yet, what determines the cycle’s length?– e.g., Autos at yearly cycle, OS at 3 yrs, Printers at 6
months, Why?– Conventional view: “Disruption” arises when firms
forget how to execute on cycle – Beware: “paradigm shift” & “inflexion points”
Greenstein, 463 14
One approach to origins of disruption
• Managers get so focused on present users to notice possibilities outside present activity– New stuff: Margins low in short run– Present financial/marketing division cannot see it– Internal technologist fails to articulate vision
• Myopic “lead users”– New stuff: Unappealing to present customers– Primitive capabilities interfere w/clear forecast of future– Savvy customers, if there are any, don’t get message
through to change agents
Greenstein, 463 15
Strengths/weakness of the new view of disruption
• Useful counter-example to arrogant management– Can do everything right & still be hurt– Fosters sense of paranoia
• Identifying tendencies against change– Habits within internal processes
• Establishing separate division involves trade-offs– Starting afresh eliminates old mind-sets– Starting afresh throws away refined processes– Cross functional coordination?– Recent experience with e-tailing
Greenstein, 463 16
More strengths/weakness of the new view of disruption
• Infers too much from too few examples– Most markets do not go through massive disruption for
good reason– How to assess probabilities of disruption?– Some markets seem destined to disruption. Why?
Generalities?
• Not a good predictive framework– Possibility of preparing for battle that does not arise.– Too muted about inertia: things will stay as they are.
• No gradation b/w the big & little disruption– A new channel not same as loss in leadership
Greenstein, 463 17
New thinking (3): How do incumbents react to innovation?
• Abernathy and Clark– Innovative opportunity arises from outside– Why Detroit missed the movement to small cars….
• Does an innovation preserve or destroy market and technical capabilities?– Emphasize the firm/market nexus in a particular
episode of innovation– Will this technology will disrupt incumbents
• Is this about anything more than cars?– Overtaken by Henderson and Clark…
Greenstein, 463 18
More on how incumbents react to innovation
• Henderson and Clark: again focus on episode– Again, innovative opportunity arises from outside, but
parses the situation differently
• Does an innovation enhance or destroy architectural or component knowledge?– Emphasize some situations more dangerous than others– A firm’s failure to anticipate/respond to a dangerous
situation w/appropriate strategy
• How to quickly figure out whether or not this is a technology w/small/large change imbedded in it– Typical product cycle does not destroy much
Greenstein, 463 19
How to quickly assess
• Are capabilities being destroyed/devalued?– Focus on organizational routines linking production to
marketing/distribution– Focus on technical knowledge about components
• Architectural w/o technical– Xerox and the small copier– scientific commercial computing
• Technical w/o Architectural– vacuum tubes to solid state computing
• Where do you place EB & the CD ROM?
Greenstein, 463 20
The good/bad of focusing on episodes of innovation
• Quickly assess chance that an innovation will not lead to incremental change– Are capabilities being destroyed?– Focus on obsolete organizational routines– Recognizing links b/w technical skill & organization
• Issue: Does discontinuity = incumbent failure?– Depends what you care about…– Choosing a niche: Must a firm always lead?– Not much about restructuring the value chain
• Too much about capabilities and no role for buyer
Greenstein, 463 21
Learning points
• Forecasting changes in industry structure
• The linear view, the cycle
• Dominant design
• Disruptive technologies
• Episodes of innovation
• Does the information age & the biotech revolution require new frameworks?