On Innovation Models
Ziya G. Boyacigiller
This presentation was created and given by Ziya
Boyacigiller who was leading Angel Investor and a loved
mentor to many young entrepreneurs in Turkey. We have
shared it on the web for everyone’s benefit. It is free to
use but please cite Ziya Boyacigiller as the source when
you use any part of this presentation. For more about
Ziya Boyacigiller’s contributions to the start-up Ecosystem
of Turkey, please go to www.ziyaboyacigiller.com
On Innovation Models…
Ziya G. Boyacigiller
How to Know in Advance
if you have a Chance?
Ziya G. Boyacıgiller
Sabanci Universitesi
Yonetim Bilimleri Fakultesi
Which approach is better?
You are going to start a new business:
a) You will develop products that have improved
performance and functionality than existing
products, and sell them for higher prices.
b) You will develop products that are simpler and
better than existing products, and sell them for
lower prices.
Ziya G. Boyacigiller (c) 2005
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Sun Tzu says…
“Now an army may
be likened to
water, for just as
flowing water
avoids the heights
and hastens to the
lowlands, so an
army avoids
strengths and
strikes weakness.”
Ziya G. Boyacigiller (c) 2005
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How do you identify
your competitor’s
strengths and
weaknesses?
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Theory 1:
Resources, Process, Values (RPV) Theory
Resources, Process, and Values a firm has, define its
strengths and weaknesses.
Firms successfully tackle opportunities
when they have the Resources to succeed,
when their Processes facilitate what needs to get done, and
when their Values allow them to give priority to that
opportunity - compared to other opportunities and demands
that compete for the firm’s resources.
Q: What does RPV imply for competing with
incumbent firms?
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RESOURCES PROCESSES VALUES
Things or assets Established ways The criteria by
that firms can firms turn which
buy or sell, build resources into prioritization
or destroy. products or decisions are
services. made.
Knowledge Resource allocation Profit margin
Technology Hiring Cost structure
Products Training Income statement
Equipment Product definition Customer demands
Brand Product development Size of opportunity
Cash Manufacturing Ethics
Channels Planning/Budgeting …
People … Market research…
Ziya G. Boyacigiller (c) 2005
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Theory 2:
Prof. Clayton Christensen’s
Disruptive Innovation Models
1
3
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…asymmetric
motivation…
Industry leaders are always motivated
to go up-market, and almost never
motivated to defend the new- or
low-end markets that the disruptors
(entrepreneurs) find attractive.
This asymmetric motivation is at the
core of innovator’s dilemma and
its solution.
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Resource Allocation Decisions
Result in Allowing Disruption
Company upper-management allocate their
resources first to support their most important
customers.
Also, middle managers minimize career risk by
developing products for existing and important
customers (as opposed to nonconsuming or
unattractive customers).
Therefore, companies develop better (next
generation, improved) products for these
important customers – allocate their resources to
these projects.
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What Good is Disruptive
Innovation?
Few technologies or business ideas are
intrinsically sustaining or disruptive in
character.
Their disruptive impact must be molded into
strategy as entrepreneurs shape the idea
into a plan and then implement them.
Point: Learn disruption and use it !
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How Incumbent Companies
T h i n k…
what our customers want…
flee..
(e.g. Southwest Airlines, Japanese cars)
(e.g. PC, desk top copiers, cell phones)
not attractive..
Ziya G. Boyacigiller (c) 2005
Why?
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Cell-Phones vs Home-Phones
1987 – Cell Phones are bulky, work in
cars only, quality of voice not good,
coverage is spotty.
2010 – Almost everyone has a cell-phone,
many people are choosing not to get a
home-phone. Even at home, many use
cell-phones although its “air-time” costs
more than home-phones.
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Litmus Tests for Disruptive
Ideas
1. Can the idea become a new-market
disruption?
• Is there a large population of people who
historically have not had the money, equipment,
or skill to do this thing for themselves, and as a
result have gone without it altogether or have
needed to pay someone with more expertise to do
it for them?
• To use the product or service, do customers need
to go to an inconvenient, centralized location?
Example: Personal Computer / Cell Phones
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Litmus Tests for Disruptive
Ideas
2. Is there low-end disruption potential?
• Are there customers at the low end of the market
who would be happy to purchase a product with less
(but good enough) performance if they could get it at
a lower price?
• Can we create a business model that enables us to
earn attractive profits at the discount prices required
to win the business of these over-served customers
at the low end?
Example: Internet telephones (Skype) / Honda
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Litmus Tests for Disruptive
Ideas
3. Is the innovation disruptive to all of the
significant incumbent firms in the
industry?
If it appears to be a sustaining innovation to
one or more significant players in the industry,
then the odds will be stacked in that firm’s
favor and the entrant is unlikely to win.
Example: Internet Banks vs Incumbent Banks,
Internet grocery shopping
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Sustaining Innovations
Targeted performance of the Performance improvement most
product or service valued by industry’s most
demanding existing customers.
These may be incremental or
breakthrough.
Targeted customers or market Most attractive (profitable)
application customers in the mainstream
markets willing to pay for improved
performance.
Impact of the required business Improves or maintains profit
model (processes and cost margins by exploiting current
structure) processes and cost structures and
making better use of current
competitive advantages.
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Sustaining Innovation Targets to
Identify Bigger/More Value
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What is good about
sustaining innovation?
Entrepreneurs can:
1. Generate quick cash flow by replacing existing products
in an established market.
2. Develop infrastructure and capabilities to “catch-up”.
3. Develop key customer relationships by offering them an
alternative supply source.
But, don’t wait! Start to create non-sustaining type
disruptive innovations as soon as you can!
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Low-End Disruptions
Targeted performance of the Performance that is good
product or service enough along the traditional
metrics of performance at the
low end of the mainstream
market.
Targeted customers or market Over-served customer in the
application low end of the mainstream
market.
Impact of the required business Uses a new operating or
model (processes and cost financial approach or both – a
structure) different combination of lower
GM and higher asset utilization
to win business at lower prices
required to win business at the
low end of market.
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New-Market Disruptions
Targeted performance of the product Lower performance in “traditional
or service attributes, but improved performance
in new attributes – typically simplicity
and convenience.
Targeted customers or market Non-consumption – customers who
application historically lacked the money or skill
to buy and use the product, or no
product alternative existed.
Impact of the required business Business model must make money at
model (processes and cost structure) lower price per unit sold, and at unit
production volumes that initially will
be small. Gross margin dollars per
unit sold will be significantly lower.
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Disruptive Companies in History
Hybrid
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Lessons Learned:
Not all innovative ideas can be shaped into
disruptive strategies, because the necessary
preconditions do not exist.
In such situations, the opportunity is best
licensed or left to the firms already established
in the market.
Disruption does not guarantee success: It just
helps with an important element in the total
formula for success…
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