HBS Working Knowledge: Innovation: The Innovator's Battle Plan - September 2006 Seems Clayton Christensen is the hottest thing in innovation at the moment - the result? Yet another book - it seems he's over the writer's block that spanned the years between Innovator's Dilemma and Innovator's Solution all of a sudden as "Seeing What's Next: Using the Theories of Innovation to Predict Industry Change" comes out on the market, much to the anticipation of Clayton's growing fanbase.
This article on HBS' Working Knowledge website excerpts from his new book which is co-written with fellow Innosight partner Scott Anthony and McKinsey consultant Erik Roth and looks at the interesting scenario of what happens when companies with asymmetrical abilities compete against each other. Specifically, the article focuses on 3 topics:
1) How asymmetries propel disruptive entrants
- The authors explain: "Asymmetries allow disruptive attackers to enter a market, grow without incumbent interference, and mitigate the incumbent's response when it is finally motivated to counterattack." They go on to say that this disruption tends to follow a 3 step process:
Step One - Entrants enter behind a shield of asymmetric motivation; early incumbent response leads to "cramming"
Step Two - Entrants grow and improve; incumbents choose flight - ie, the incumbent chooses to cede the new market space to the attacker because it continues to deem the market unattractive
Step Three - Entrants utilize the sword of asymmetric skills - what was initially a small market/attacker, has now become a big one - however, as the attacker still has the advantages of its asymmetrical skills, the incumbent has trouble adapting to compete because it find itself lacking the ability to adopt the new business model necessary. What was once the incumbent's strengths - successful products and processes are now its weaknesses.
2) Identifying the firm with the sword and the shield of asymmetries
A company given the space and time to create a new market and/or attack the lower tiers of a market with no competition from and incumbent has the potential to develop competitive advantage through different skills and business models. They have "asymmetric motivation". The authors identify three factors that contribute to that motivation:
a) A small opportunity that might be interesting for a small company, might well look uninteresting and too small for a larger incumbent
b) Opportunities such as these typically involve customers that are considered to be undesirable, non-existent, or in an unprofitable minority to be served directly by the incumbent
c) Smaller firms are able to utilize disruptive business models that would not fit the classic ways in which established firms make money.
3) Circumstances in which high-potential disruptive development will prove disappointing
There are of course, many situations in which the disruptive process is not followed through on. In these cases the incumbent is able/forced to come back and is usually caused by one of 2 circumstances:
1 - The flight response for incumbents is really only an option when they have a decently sized market to flee to. Firms might either not be able to flee to another segment or current majority customers might decide the new market is more attractive for them. This causes incumbents to fight for that share - sometimes before the entrant has time to develop the asymmetrical skills necessary to create competitive advantage.
2 - The entrant's use similar methods/business models/etc to the incumbent's (ie doesn't develop the unique skills to create barriers) - or develops a business model that is not unattractive to the incumbent - in that case, the barrier to directly competing is reduced and , once the entrant proves to the world that the market exists, the incumbent's reaction changes from flight to fight - without the advantages of developed asymmetry, the incumbent has a lot of advantages in the battle ahead.
This is an excellent article that should be read by everyone involved/interested in corporate strategy - which clarifies some great subtleties in the corporate battlefield for new markets. Looks like Clayton will have yet another hit on his hands! He's obviously not getting tired of book signings yet... :)