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Corporate entrepreneurship course materialsLecture 1 – Innovator’s Dilemma
Disruptive innovation – innovation that challenges a firm’s core competences breaking away from the past.
The fall of Nokia (Nokia did not necessarily do anything wrong, however, somehow, they still lost). And not just Nokia
Kodak, Yahoo, Free record shop, Blockbuster, Atari, Thomas Cook as well.
Large firms missing the boat
Typologies of technological change:
Old vs. new technologies (Cooper and Schendel, 1976)
Competence-enhancing vs. competence-destroying (Tushman and Anderson, 1986) when new
innovations come, does it enhance the capabilities that you already have, or does it destroy them?
Competence enhancing means that an innovation builds upon already existing competences or capabilities
of the firm, whereas competence destroying means that, from the perspective of the firm, a technology
doesn’t build on the existing competences or makes them obsolete.
Incremental vs. radical (Utterback, 1994) the extent of technological innovations
Sustaining vs. disruptive (Christensen and Bower, 1996) sustaining innovation means that the
technological changes contribute to the current improvement (builds on the same technologies) whereas
disruptive means that the innovation drastically disrupts the organization
It is especially the latter types of change (new, competence-destroying, radical and disruptive) that large established
firms have difficulties coping with. Additional note: technology means the processes by which an organization
transforms labor, capital, materials, and information into products and services of greater value. This concept of
technology therefore extends beyond engineering and manufacturing to encompass a range of marketing,
investment, and managerial processes. Innovation refers to a change in one of these technologies.
Disruptive innovation
Why? The success syndrome
If a company offers what customers want, there is a fit. Once there is a fit, there will usually be success. This helps
firms become bigger and older. As a firm becomes older, a firm starts to get a history so age can become a
constraint. Moreover, when a firms become bigger, structures are put into place. Therefore, size and age can lead to
inertia = rigidity.
Structural Inertia: making it difficult to make decisions because there are structures in place with many levels
and roles in the organization.
Cultural Inertia: there is a certain culture in place for the way things are done.
But, because companies have grown so large, they are confident that they are doing the right thing, which is kind of
normal to think. However, firms can become very overconfident which is fine when markets are stable, but it can
lead to failure when markets start to shift.
Is inertia always bad?
Not really, it prevents organizations from pursuing every fab. Inertia may result from accountability and reliability.
How to protect the traditional successful business and to engage in radical innovation at the same time?
The innovator’s dilemma According to Clayton Christensen, failure to adapt to disruptive innovation is not the
result of bad management, but a result of good management.
Why? Large companies depend on their existing customers and investors for resources. They listen closely to
these customers and investors and kill ideas for which there is little need.
,Point A = where an existing firm is. Point B = if you keep adding to your technology, at some point you will reach the
point of what the rich customers are willing to pay for your product (high-end market), and after that point you will
start overshooting (adding extra features that people don’t really care about). Point C = where innovations are not
really making customers happy, because the product performance is lower than at point A. But eventually, these
products do enter the market at point D and meet customer demands. At point E, the firm also serves the high end
of the market, while an established firm might have been overshooting by adding features that customers did not
really want.
Disruptive technologies typically have (at least initially):
Lower profit margins
Small markets
No reliable market statistics
Moreover, a firm’s customers and investors are most likely not a fan of disruptive technologies, therefore a firm will
likely not engage or invest in new technologies (which are good decisions based on the available information). This is
the reason why companies can fail eventually because they do not invest in disruptive innovations.
Tutorial 1
Reading materials
“The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail” (Christensen)
RQ: Why do well managed companies often fail in spite of doing the right thing – i.e., meet their customer needs?
1. What is the Innovator’s Dilemma exactly?
The logical, competent decisions of management that are critical to the success of their companies are also
the reasons why they lose their positions of leadership. (see picture of innovators dilemma above)
2. How is the disruptive vs. sustaining distinction different from the radical vs. incremental distinction?
Incremental vs radical change: size of the change
o Incremental = change in small steps
o Radical = change in big steps
Sustaining vs disruptive: how does it relate to your current business?
o Sustaining enhances the performance of your current business
o Disruptive destroys your current business
Examples:
o Incremental, sustaining: e.g., new razor, going from 3 to 4 blades
o Incremental, disruptive: e.g., Ford’s model T: production-line process for car manufacturing
o Radical, sustaining: e.g., Air fryer
o Radical, disruptive: e.g., digital photography
3. Why do firms not invest in disruptive technologies?
o Companies depend on customers and investors
o Small markets don’t solve growth needs
o Markets that don’t exist can’t be analyzed
o An organization’s capabilities determine its disabilities
o Technology supply is not equal to market demand
“Darwin and the Demon” (Moore)
,RQ: How can firms innovate and survive in the long term? What are the forces that firms must overcome?
1. Explain the title of this article
o Darwin evolution, survival of the fittest
o Demon inertia
o Darwin vs the demon
To overcome Darwinian selection processes, firms need to innovate
The demon of inertia manifests itself in too much reliance on product innovation early on,
and overshooting later on
2. Which type of innovation should firms focus on?
It depends on the product-market life cycle
3. How can inertia be overcome?
Introduce new types of innovation while deconstructing old processes and organizations. Deconstruction
driven by productivity, not differentiation: centralize, standardize, simplify, automate or outsource.
Differentiation-creating innovation and productivity-creating deconstruction must be conducted at the same
time.
Lecture 2 – guest lecture
Bitcoin replacing traditional banking system. Cancel-on effect: the rich get richer and the poor get poorer when
money is printed raised prices of houses/ the stock markets because of scarcity bitcoins are an alternative
because there is a limit to the number of coins. Quote: “The internet is not an industry, it’s a technology that
disrupted all industries. Blockchain will be the same, but bigger”. The current banking system faces the innovators
dilemma they are confident that there will be banks in the future and that there is no real threat this is where
the danger lies. Bitcoin has a bigger market cap than three of the largest banks combined.
Theory From core competencies (traditional focus) to core rigidities (slows you down). Double S curve:
Any organization requires the combination of two tasks: exploitation and exploration see lecture 3
, Banks should spend 10% on blockchain technology to protect their business in the future, but they are not doing that
right now.
Blockchains (bitcoin/ Ethereum are applications that are built upon a blockchain)
A blockchain is a ledger where you keep track of balances. Every bitcoin has a bitcoin address which has a public key
and a private key. Moreover, there is a network of hundreds of thousand computers that form the network that
check the transactions. see video. Decentralization is key!
Smart contracts: in a regular contract, several parties have to agree on the terms and there is often an event that
triggers the contract. You can do the same with a smart contract, but the difference is that it automatically executes
because there is no need for a middleman safer.
Proof of work – all the miners trying to guess the number and using electricity and computing power to guess this
number and the one that guesses the number right gets the reward, which is 6.25 bitcoin and the transaction costs.
Proof of stake – everybody who wants to be can put its coins into a smart contract and then you are one of the
players. The more coins you have in these contracts, the more chance you have to be the winner of that particular
round, so you don’t have to guess a number but it more or less like a lottery where you can propose a block. When
you cheat, and it is discovered, you get slashed and some of your coins will be taken away. Therefore, it is in your
best interest to behave correctly.
Lecture 3 – ambidexterity
How to combine exploration and exploitation in a single organization?
Example: IBM, remote-work pioneer, is calling thousands of employees back to the office
Organizational structures
Example apple: many people around a leading entrepreneur structure that works very well for small firms
because everyone is in touch with the boss and fast decisions can be made, so the firm is usually agile, nimble and
small. Another example is amazon, this firm has a more hierarchical structure with multiple levels and different
structures. Facebook is more represented as a network. Microsoft apparently has a less friendly culture between
different business units.
Google Alphabet: google restructured into alphabet be able to innovate while also focusing on its core activities,
so in other words; to better manager ambidexterity.
Reasons for restructuring Google into Alphabet
1. Allows each unit to deploy the right approach to strategy and execution
2. Makes it easier to build the required capabilities in each business
3. Lowers the hurdles to acquiring and growing companies
4. Easier structure, different leadership teams
The structure of a firm is very important, and many firms restructure to stay innovative.
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