Week 10: Disruptive Innovation

 Incumbents vs Challengers
 (Political sense)
- Incumbents: The person who currently holds elected office.
- Challengers: The ‘new’ people running against them for their job.

 In business
- Incumbent:
Companies which have a leading market position
Tend to have better visibility (Brand Recognition)
Better access to resources
More experience

- Challengers: New competitors trying to gain market share.

 Case study: Netflix vs Blockbuster

 Blockbuster
- Had the advantages of:
1. Better visibility (
2. Better access to resources (Media license agreements, Millions of DVDs)
3. More experience

- Blockbuster could have bought Netflix for $50 million which was less than 1% of their value
at that time

 Netflix
- Their early business model took advantage of the invention and spread of the internet and
DVD players.
- DVD were lighter and more durable than video tapes, and thus could be mailed back and
forth, cutting out the need for video rental shops.
- The invention and spread of fast-speed internet and fast computers allowed video
streaming, cutting out the need to mail DVDs back and forth.

 Why don’t incumbents almost always win over challenges in business

- Challengers seem to be better than incumbents at taking advantage of ‘disruptive
innovations.’
- Disruptive innovations are a good product or service which provides a configuration of
features that will eventually take business from an existing product.
- Explanations why challenges are greater than incumbents:
 1. Awareness
- Many incumbents are not aware of the business opportunities created by changing
technology till it’s too late.
- Many are too focused on efficiency.

2. Risk aversion
- Potential disruptive innovations are more risky than incremental innovations.
- Risk aversion drivers
a. Psychological biases
b. Risk averse budgeting process
c.

3. Short term focus

- Investing in potential disruptive innovations means spending resources(now on something
that may payoff in the future.
- Drivers of short-term focus:
a. Hyperbolic discounting
b. Capital providers
c. Career Dynamics

4. Inertia
- Tendency to remain unchanged.
- Change requires lots of interdependent elements of the organisation to succeed which is
difficult and takes time.

 Examples of challenges
1. Transportation: Uber vs Taxi Companies
- Only disruptive in its early stages.
- Rideshare market has become saturated.

2. Vehicle manufacturing: Tesla vs Ford