Full article: [[Clayton Christensen, Mark Johnson and Darrell Rigby, “Foundations for growth: How to identify and build disruptive new businesses”|/static/files/MBI/Module%208/foundations%20for%20growth.pdf]], MIT Sloan Management Review, Spring 2002 Many firms underinvest in building really disruptive innovations, why? * When times are good and core business are growing, starting new developments seem unneccesary * When times are bad, new business can't send new profit fast enough As the second problem cannot be escaped managers should invest in disruptive innovations in good times. The difference between [[Sustaining innovation]] and [[Disruptive innovation]] can be understood along the following lines: * The pace of technological progress outstrips customers to make effective use of the improved version of a product ** Technologies that aren't good enough to address customers needs at one point improve to provide more than enough performance at a later point. * Companies earn attractive profits when they stretch their products upmarket, targeting customers in a more demanding tier who are not yet satisfied by existing offerings. A down market move towards customers who are already satisfied by by available products yields profit margins that are not as attractive. As a result, "Asymmetries of motivation" grow out of technological change. Whenever entrants are motivated to attack less profitable customers in less attractive tiers of the market, established businesses will always be motivate towards more profitable customers. * Innovations that help incumbent companies to earn higher margins by selling better products to their best customers are sustaining not disruptive. Sustaining innovations comprise both simple, incremental engineering improvements as well as break through leaps up the trajectory of performance improvement. * Industry incumbents are not always first to market with a sustaining innovation, but they almost always end on top. They have more resources and more at stake than new entrants. * Disruptive innovations appeal to customers who are unattractive to the incumbents. Although disruptive innovation typically involve simple adaptations of known technologies, entrants almost always beat incumbents at this game because established companies lack the motivation to win. * Companies that want to create new growth businesses should therefore seek disruptive opportunities because industry leaders will not be motivated to pursue them. The normal corporate process for shaping and funding ideas turns them into sustaining innovations that target large, obvious markets as the innovators plans get hijacked by less visionary middle management. The authors developed two strategies to prevent this from happening: # ''Creating a new market as a basis for the disruption'' ## Test 1: Does the innovation target customers who in the past haven't been able to do it themselves for lack of money or skills ## Test 2: Is the innovation aimed at customers who will welcome a simple product? ## Test 3: Will the innovation help customers do more easily and effectively what they are already trying to do? # ''Disrupting the business from the low end'' ## Test 1: Are prevailing products more than good enough? ## Test 2: Can you create a different business model? To make a disruptive strategy work, the following assets need to be managed: * ''Resources'' ** //Managers//: Do not use managers with a strong record in the existing core business. To choose the right managers use a three column chart *** Left most column: list the challenges that the manager will need to overcome. *** Middle column: list the experiences that the manager should already have had. *** Right column: list the background of candidates ** //Cash// *** Make sure that the new disruptive business does not get too much cash to play with. This will reduce creativity. * ''Processes and values'' ** In any company, processes and priority criteria have been created to protect the core business. ** Typically: //''processes that work well for the core business (such as strategic planning and product development) actually impeded what needs to be done in an emerging business''// ** Criteria for priorities and decisions for new businesses need to be totally different. ** CEO needs to decide as there are no simple rules to follow. Other tips for successfully starting a new business: * ''Start before you need to'' * ''Establish an aggregate project plan'' * ''Train people to distinguish between disruptive and sustaining ideas'' * ''Create processes for shaping disruptive business plans'' * ''Managers with MBA's favor data driven decisions & analytical process to assess market needs'' such process can only shape [[Sustaining innovation]] and as a a consequence a company will loose its ability to create a [[Disruptive innovation]].