Chapter 7: Mastering Disruptive Business Models PDF

Stuvia - Koop en Verkoop de Beste Samenvattingen Chapter 7: Mastering disruptive business models For many, the need to rethink and adapt their organizations arises in response to a fear of a different, dire outcome: disruption. Business disruption happens when an existing industry faces a challenge...

Stuvia - Koop en Verkoop de Beste Samenvattingen Chapter 7: Mastering disruptive business models For many, the need to rethink and adapt their organizations arises in response to a fear of a different, dire outcome: disruption. Business disruption happens when an existing industry faces a challenger that offers far greater value to the customer in a way that existing firms cannot compete with directly. - - First thing that separates disruption from traditional competition is the wide gap in value, which can lead to a tipping point when customers shift to the new offer. The other key distinction between disruption and traditional competition is that disruption is caused by asymmetric competitive threats. • Disruptive challenger is thus not selling a different version of the same product. Rather, it meets the customers’ needs with a product, service, or business model that the existing industry does not, and cannot, offer. Strategy per digital disruptor may vary: it may offer new services for free (Craigslist), or it may offer a substitute solution to a long-standing customer need (Airbnb instead of traditional hotel). Takeaway from the definition of disruption: not all innovation is disruptive. - Often, the result of an innovation is a better product or a new brand, but not a disruption. - A disruption is not just “extremely innovative”. Disruption in the digital age Why is disruption on the rise in the digital age? - Digital technologies have created opportunities for new challengers to take on long- profitable businesses that have failed to adapt. - E.g., (free) online adds instead of paying the newspapers to have an add placed in the paper. With their completely different cost structure (using adds to pay for the production of the papers), newspapers were unable to compete with this disruptive challenger. - E.g., Airbnb is not building expensive properties and renting rooms to travellers, but it provides an online platform that allows homeowners to rent out their homes when they aren’t using them, and travellers to find them. Airbnb offers a much better deal than a traditional hotel for many people – better price, more local and personalised experience, and more choice. Also, since hotels have invested in completely different assets, they cannot replicate this strategy. Gedownload door: matsmolenberg | [email protected] Dit document is auteursrechtelijk beschermd, het verspreiden van dit document is strafbaar. ¤ 912 per jaar extra verdienen? Stuvia - Koop en Verkoop de Beste Samenvattingen è New digitally powered businesses create great value for the customer while weakening or undermining the position of the traditional incumbent businesses. Theories of disruption Joseph Schumpeter: “Creative destruction”, where capitalism destroys old industries and economic systems in the process of innovating new ones. - Industry disruption as an inherent pattern in capitalism. Clayton Christensen: first theory of how disruption happens. ➢ Disruptor always starts out selling to buyers in a new market – buyers who are outside the market of customers currently served by the incumbent. ➢ “New market” disruptor offers an innovative product that is inferior in terms of ➢ performance and features but is cheaper or otherwise more accessible. ➢ First, incumbent ignores the disruptor because its customers are not interested in the ➢ challenger’s inferior products. ➢ Over time, the challenger’s innovation performance gets better while remaining ➢ much cheaper. ➢ Critical juncture: new technology becomes good enough to be a viable alternative for the customers and they begin to defect in favour of the cheaper alternative. ➢ Incumbent has resisted to change its long-standing product and business model and finds it almost impossible to compete. Critique on Christensen (by Thompson) - Christensen's theory is based on examples of buying decisions made by companies, not consumers. - In the mid-1990s, technology was mostly sold to businesses (B2B), not consumers. - Christensen did not expect the iPhone to disrupt established cell phone manufacturers, such as Nokia. - The iPhone was neither cheaper nor more accessible than Nokia's phones, and it did not start at a lower level of performance and gradually build up to catch up. - So, how did Nokia get so disrupted? - The author extends Christensen's theory to take into account newer dynamics of disruption that are now visible in the marketplace. Disruption that is driven by consumer purchasing behavior, disruption that starts with the incumbent's core customers (rather than starting with new markets), and Gedownload door: matsmolenberg | [email protected] Dit document is auteursrechtelijk beschermd, het verspreiden van dit document is strafbaar. ¤ 912 per jaar extra verdienen? Stuvia - Koop en Verkoop de Beste Samenvattingen disruption that is driven by values other than price or access. A business model theory of disruption - Author’s theory begins with the assumption that the best lens through which to view disruption is business models. - Many disruptors nowadays don’t introduce new fundamental technology to the market (e.g., new hard drive), but they apply established technology to the design of a new business model. • Business model describes a holistic view of how a business creates value, delivers it to the market, and captures value in return. Two sides of a Business model To allow for better understanding of disruption, we split the business model into two sides. Side 1: Value proposition = the value that a business offers to the customer. Side 2: value network = the people, partners, assets, and processes that enable the business to create, deliver, and earn value from the value proposition. • Includes things like channels, pricing, cost structure, assets, resources, and the customer segments on which a business is focused. Once we can see any business model in terms of these two sides, we are ready to apply them in a new theory of how disruption happens The two differentials of business model disruption Theory of business model disruption: in order to disrupt an existing business, a challenger must possess a significant differential on each side of the business model: - A difference in value proposition that dramatically displaces the value provided by the incumbent - A difference in value network that creates a barrier to imitation by the incumbent. Business disruption only happens when both of these conditions are met. - Without the first differential, there is no disruption, just traditional competition. - Without the second differential, an incumbent would simply be able to watch the success of an innovative new challenger and profitably imitate it with a copycat offering of its own. Gedownload door: matsmolenberg | [email protected] Dit document is auteursrechtelijk beschermd, het verspreiden van dit document is strafbaar. ¤ 912 per jaar extra verdienen? Stuvia - Koop en Verkoop de Beste Samenvattingen • Incumbent that actually gets disrupted is unable to replicate its challenger due to the value network that the incumbent established in building its business. Value proposition differential A difference in value proposition that dramatically displaces value provided by the incumbent come from many possible sources – value proposition generatives. Key value proposition generatives common to digital disruption are: - Price: digital business models allow the same product to be offered at a lower price. - Free or “freemium” offer: free offers stimulate many more customer trials than a low price. Freemium is when some level of service is available, but a premium paid version offers additional value. - Access: digital business models allow access to content/services remotely, any time, everywhere. - Simplicity: digital business models often disrupt by removing friction from the sales process (i.e., they make decisionmaking, purchasing, etc. much simpler and easier. - Personalisation: customers prefer more choices to pick from and the choice of a product or service that fits their particular needs. - Aggregation: digital platform businesses create value by clustering multiple sellers for the customer to choose from. - Unbundling: added value can come from letting the customer buy only the part they need or from focusing on and improving the part of the bundle that matters most. - Integration (rebundling): Value of integration comes when the various parts work together in a way that was not possible when they were separated (i.e., smartphone) - Social: the ability to share the experience of a product/service with others is increasingly valuable to many customers. These generatives arise from many of the strategic concepts that have been discussed throughout the book (i.e., customers’ network behaviour, path to purchase, etc.). Gedownload door: matsmolenberg | [email protected] Dit document is auteursrechtelijk beschermd, het verspreiden van dit document is strafbaar. ¤ 912 per jaar extra verdienen? Stuvia - Koop en Verkoop de Beste Samenvattingen Value network differential Differences in the value network can be found by looking at many different value network components (those things that enable a business to create, deliver, and earn value): - - - - Customers: challenger may be pursuing different customer segments or types than the incumbent currently serves. Channels: Is the challenger using different channels to come to the market? (e.g., direct delivery?) Partners: key partners in sales, manufacturing, or the supply chain that are critical to the challenger’s offer. Networks: if the challenger has a platform business model, then an established network of customers or partners may be essential to how it delivers its offer. Complementary products or services: challenger may already provide customers with other products or services that are essential to the value created by its new offer. Brand: established reputation, brand image, and a prior relationship with the customer maybe essential to the challenger’s ability to provide its value. Revenue model: how is the customer paying for the offer? Per use, monthly subscription, revenue share, etc.?) Cost structure: includes both fixed and variable costs incurred by the challenger in order to provide its offer to the customer. Skills and processes: challenger may have unique processes and organisational skills that are essential to the value it delivers. Physical assets: may include factories, equipment, stores, etc. IP assets: intellectual property like patents, rights, licenses, unique technologies, etc. Data assets: challenger’s value proposition may also depend on unique data assets and capabilities (e.g., using data to create personalised offerings). Gedownload door: matsmolenberg | [email protected] Dit document is auteursrechtelijk beschermd, het verspreiden van dit document is strafbaar. Powered by TCPDF (www.tcpdf.org) ¤ 912 per jaar extra verdienen?