Innovation in the Digital Age - Lecture 1 | Required Readings Summary
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Course
Innovation in the Digital Age (BMME119)
Institution
Erasmus Universiteit Rotterdam (EUR)
Wanna be prepared for the next class in less than 30 minutes? Summary of the required reading material for Lecture 1 of Innovation in the Digital Age:
- Why big companies squander good ideas (FT)
- Architectural Innovation (ASQ) by Henderson & Clark (1990)
Lecture 1 | FT - Why big companies squander good ideas
- J F C Fuller did not invent the tank:
• 1912: An Australian approached the British war office with a similar design to those tanks
which went into service.
• J F C Fuller, CEO of the tank corps/British army, introduced the tank.
• 1917: Fuller introduced a newer and faster tank, the Medium D
• Medium D traveled 200 miles at 20mph. Fuller argued it could attack the German army's brain
as it could roll across trenches and be on the German command posts in an hour.
• Fuller's idea was named Plan 1919 because it would cause the German army to disintegrate. •
Plan 1919 was never used by the British, instead, by the Germans in 1940. Fuller invented
blitzkrieg.
→ In short, the British army stuffed Fuller's plan.
- Why do some ideas slip out of the grasp of incumbents, then thrive in the hands of upstarts? This
article argues that there is an obvious explanation for failures and missed opportunities = people
are idiots.
- Other examples:
Xerox and personal computer:
• 1970: Photocopying firm Xerox launched the Parc Research Center in which it developed the
first personal computer
• Bill Gates and Steve Jobs observed Xerox Parc's developments with great interest
• Xerox still makes photocopiers today
Kodak and digital camera:
• 1975: first digital camera built by Steven Sasson, who worked for Kodak
• 1989: Sasson and colleagues built the first digital SLR camera
• Kodak built a business in digital photography and earned from the patents, but the firm
struggled with adjusting to a world in which every phone had a camera
• 2012: Kodak filed for bankruptcy
Sony and digital music player:
• 1999: Sony launched the Walkman, one of the first digital music players
• Sony brand widely recognized and the firm had a talent-soaked music label
• 2001: Walkman went nowhere and was eclipsed by the iPod
Britain and tank:
• 1918: Britain had the best tanks in the world with Fuller as one of the best military strategists
from the army. The Germans weren't allowed to use tanks at this time.
• 1930: British had conceded technical and tactical superiority to Hilter's army.
- The idiot term is a bit glib. The organizations mentioned above weren't run by idiots. These firms
stumbled for a reason. Management theorists have a word for it: disruption.
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, Innovation in the Digital Age
- Disruption describes what happens when firms fail because they keep making the kinds of
choices that made them successful. Successful organizations stick to their once-triumphant
strategies, even as the world changes around them.
- Why does this happen? According to the famous innovation theorist, C. Christensen: they are
flawed or under-developed at first, so do not appeal to existing customers. Holiday snappers do
not want to buy digital cameras the size of a shoebox and the price of a car. However, these
technologies do find customers: people with unusual needs previously unserved by the
incumbent players.
• The new technology gets better and, one day, the incumbent wakes up to discover that an
upstart challenger has several years' head start - and once-loyal customers have jumped ship.
- Christensen's theory is good, but not true in all cases:
• Xerox's failure to exploit the cutting-edge research at Parc: The computer isn't a low-end
competitor to the photocopier. They are different in nature.
• The iPod didn't sneak up on Sony from below: the firm saw potential in a digital music player
and moved quickly.
• Kodak wasn't caught by surprise either. They knew ahead of everyone else what was coming,
but were unable to put the right response together.
- Counter-example to Christensen's theory: Disruptive technologies begin as flawed or low-quality
options.
→ e.g. The iPhone was priced as a premium product with never-before-seen capabilities. It
devastated Nokia and BlackBerry in an echo of its once-iconic offering.
- A new theory was developed in 1990, by R. Henderson: Dominant organizations stumble when
the new technology requires a new organizational structure.
• An innovation might be radical but, if it fits the structure that already existed, an incumbent firm
has a good chance of carrying its lead from the old world to the new.
• e.g. IBM. While the performance of computers was being revolutionized by the semiconductor,
the integrated circuit, the hard drive, and the compiler, IBM maintained a dominant position
without breaking stride. This was because the organizational challenge of making and selling a
sophisticated mainframe computer to a bank in the 1970s was not greatly different from the
organizational challenge of making and selling a mechanical tabulating machine to a bank in the
1930s.
→ The change was constant but manageable.
- Rather than innovation being radical or disruptive, it was architectural. Architectural innovation
is an innovation that changes the relationship between the pieces of the problem. It can be hard
to perceive because many of the pieces remain the same. But they fit together differently.
- An architectural innovation challenges an old organization because it demands that the
organization remake itself. The question is who wants to do that?
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