MGM102H5 Chapter 3: Chapter 3 Managing Innovation and Change
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Chapter 3 Managing Innovation and Change
Paradigm Shift; occurs when a new tech or business model comes along that dramatically alters the nature of demand and competition. It
appear when the following conditions are in place.
//Natural Limits to Technology
Figure 11.1 Technology S-Curves Figure 11.2 Established and Successor Techs
Figure11.3 Swarm of Successor Tech
Tech S-Curve tells us R&D investments yield rapid improvement->diminishing return->improvement slows->natural limit (Richard Foster)
-when tech approaches natural limit, research attention turns to possible alternative techs. Among Swarm of potential successor techs, only
one of those alternatives become commercialized and replace established tech. Initially the contenders for replacement tech are not as
effective as established tech but the rapidly improving new tech soon replace the old tech. Even if firms recognize that a paradigm shift is
imminent, they may not have resource to invest or invest in the wrong one. And they are at disadvantage when paradigm shift happens.
//Disruptive Technology; a new tech that gets its start away from mainstream of market and then, as its functionality improves, invades the
main market. (Clayton Christensen built on Foster’s) –revolutionize industry structure/competition, often causing decline of established
Companies are often aware of new tech but do not invest in it
1) Firms listen to customers and customers don’t want it-b/c new tech is at beginning of tech S-Curve. When new tech improves and
customers want it, it is new entrants that have accumulated knowledge required to bring new tech into mass market.
2) Initially new tech serves such small market niches that seem unlikely to affect revenue/profit. As new tech started to improve and
invade main market, firms’ investment was often hindered by the fact that exploiting the new tech required a new business model
different from established model, which was thus difficult to implement.
-established companies and also their suppliers and distributors ignore disruptive tech. When there are new entrants, new network of
suppliers and distributors grow up. Disruptive tech change the entire network of suppliers/distributors.
//New Business Model: the way in which enterprise intends to make money.
Ex/ Razor and Razorblades business-sell razors at cost and then sell replacement blades for substantial premium. Google’s search-based
advertising model; creates problems for traditional media
The development of new business model can radically alter competitive playing field, disrupting competition by capturing demand from
established enterprise, cause a paradigm shift.
Technological innovation offers fertile ground for development of new business models. But new business models can sometimes emerge in
absence of new tech. Ex/ WestJet-lowering cost
//Punctuated Equilibrium: a view of industry evolution asserting that long periods of eqm are punctuated by periods of rapid change when
industry structure is revolutionized by innovation.
Figure 11.4 Punctuated Eqm might look like for one key dimension of industry: competitive structure.
t0-t1; competitive structure is stable/highly concentrated with handful of companies sharing market
t1-t2; major innovation taken by existing/new firm. New tech lowers barriers to entry into industry; industry structure becomes more
fragmented and competitive. Value typically migrate to business models championed by new entrants and new strategies. . Industry settling
down into new eqm with new market leaders.Many incumbent enterprises go into decline/wrenching change. Ex/Kodak
T2; industry become consolidated again but now different firms dominate the market.
Organizational Inertia-internal/external forces that make it difficult to change strategy/organ architecture of an enterprise. These inertia forces
//Cognitive Schemata-mental models of world their enterprise inhabits.
-mgm team with shared cognitive schema leads to quick decisions but have cognitive blind spots, fail to understand threat posed by new
-Danny Miller “Icarus paradox”; mans in successful enterprises often develop powerful cognitive schemata about what works but these ideas
can be invalidated by rise of new tech.
//Internal Political Constraints
Organ-political system within which there is an existing distribution of power and influence.
Any change, tend to alter the established distribution of power and influence within organ. Those whose power is threatened will tend to
oppose it and bc they have power, this opposition may be considerable. This constitutes a source of organizational inertia that might
//Organizational Culture-culture expressed in norms and value systems.
Closely related to cognitive schemata, reflect deeply held beliefs. Values emphasized for prolonged period, suddenly announcing they are no
longer appropriate can produce resistance/dissonance. Among employees.
//Commitments and Capabilities
Strategic commitment; firms’ investment in tangible/intangible(skills/knowledge) assets to support a particular way of doing business/
business model. Firms are unwilling to walk away from their existing commitment; and their capabilities may not be well suited for new
//External Institutional Constraints
External constraints imposed by powerful institutions can act as a source of inertia
-Unions; keep the cost structure high, gov’t regulations; can limit ability of organ to change its strategy and organ to meet new competition,
perhaps lowering the cost.