Mark's Notes from The Innovator's Solution

It is listed on my readings page, including links to the authors and related subjects as listed at the Toronto Public Library.

These notes are strictly for personal use and not to be distributed without proper legal consent from the authors of the book. In fact, I hope the snippets noted below (which I use as reminders of the deeper sense of the topics) encourage you to obtain the book and read it in its entirety!

AT: I owe you a huge thank you for this book.

Chapter 2: How can we beat our most powerful competitors?

The idea can become a new-market disruption if yes to at least one:
• 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?

Potential for a low-end distruption if yes to both:
• 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 overserved customers at the low end?

Potential for a new-growth disruption is yes:
• Is the innovation disruptive to all of the significant incumbent firms in the industry, i.e. it is not sustaining to some significant existing players?

Chapter 3: What products will customers want to buy?

Typical failure signs:

• Fear of focus: Worrying that the product can't have a broad reach because it has a narrow job that it performs.
• Opportunities must be quantified: A new-market disruptive product cannot be quantified since it has never existed or been used, let alone evolved into its potential.
• Channel limitations: The existing channels view the product as damaging (even canabalizing) their situation.
• Atypical advertising and branding strategies: Need to communicate the circumstance, and not the product or customer. Low-end disruptions are viewed as polluting the brand.

Don't ask customers to change jobs -- because they won't.

Chapter 4: Who are the best customers for our products?

Compete against noncompetition.

Extracting growth from nonconsumption:

• The target customers are trying to get a job done, but because they lack the money or skill, a simple inexpensive solution has been beyond reach.
• These customers will compare the disruptive product to having nothing at all. As a result, they are delighted to buy it even though it may not be as good as other products available at high prices to current users with deeper expertise in the original value network. The performance hurdle required to delight such new-market customers is quite modest.
• The technology that enables the disruption might be quite sophisticated, but disruptors deploy it to make the purchase and use of the product simple, convenient, and foolproof. It is the "foolproofedness" that creates new growth by enabling people with less money and training to begin consuming.
• The disruptive innovation creates a whole new value network. The new consumers typically purchase the product through new channels and use the product in new venues.

Consider service providers as customers, rather than their customers.

Chapter 5: Getting the scope of the business right

When there is a performance gap, competition lies in making the best possible product. In the race to do this, firms that build around proprietary architectures permit engineers more freedome to optimize performance.

When the functionality and reliability of a product becomes too good, customers will view it as a commodity in that they are unwilling to pay a premium for the given product vs. its competition.

Overshooting doesn't mean customers won't pay for improvement, it means the type of improvement for which they will pay a premium will change. Customers then begin to redefine what is not good enough: getting exactly what they want when they need it as conveniently as possible. The basis of competition shifts from functionality and performance to convenience, speed, customizations.

The shift in the basis of competition shifts the priority from proprietary to modular architectures (where the assembler can quickly change components). Competition then shifts downstream to modular subsystem/component manufacturers, who in turn, try to lead with proprietary internals displaying modular interfaces.

Align your architecture strategy to your circumstances.

Chapter 6: How to avoid commoditization

• As a new market coalesces, a company develops a proprietary product that, while not good enough, comes closer to satisfying customers' needs than any of its competitors. It does this through a proprietary architecture, and earns attractive profit margins.
• As the company strives to keep ahead of its direct competitors, it eventually overshoots the functionality and reliability that customers in lower tiers of the market can utilize.
• This precipitates a change in the basis of competition in those tiers which...
• ...precipitates an evolution toward modular architectures, which...
• ...facilitates the disintegration of the industry, which in turn...
• ...makes it very difficult to differentiate the performance or costs of the product vs. competitors, who have access to the same components and assemble according to the same standards. This condition begins at the bottom of the market, where functional overshoot occurs first, and then moves up inexorably to affect the higher tiers.

Brands are valuable when the products aren't good enough, in that they help close the gap for a product from a supplier with an unknown reputation.

Once the products are good enough, branding is difficult to help command a price premium. At this point, branding is valuable to the subsystem providers, and so on.

Chapter 7: Is your organization capable of disruptive growth?

Avoid choosing resources based on their measured experiences rather than equivalent circumstances to what you required.

Processes define capabilities in executing some tasks while simultaneously defining disabilities in others.

Values are the prioritization criteria, explicitly or inherently defined in an organization that influence decision making.

Consider what can be created vs. what can be acquired.

Capter 8: Managing the strategy development process

Values determine the resource allocation process which filters initiatives.

Matching the strategy process to the stage of business development: Emergent initially, then deliberate.

Need to carefully control the initial cost structure to acquire new customers.

Accelerating emergent strategy formulation: Discovery-driven planning (which is not trial-and-error), where decisions are made based on pattern recognition:

• Make the targeted financial projections.
• What assumptions must be proven in order for these projects to materialize? For example, is it a low-end or new-market disruption? Will customers use the new product for the job they're trying to accomplish? Will this lead the company to the point in the value chain where the money will be in the future? etc.
• Implement a plan to test whether the critical assumptions are reasonable.
• Invest to implement the strategy.

• Make assumptions about the future.
• Define a strategy based on those assumptions, and build financial projections based on that strategy.
• Make decisions to invest based on the financial projections.
• Implement the strategy in order to achieve the projected financial results.

Chapter 9: There is good money and there is bad money

The death spiral from inadequate growth:

• Company succeeds
• Company faces a growth gap
• Good money becomes impatient for growth
• Company temporarily tolerates losses
• Mounting losses precipitate retrenchment

• Launch new-growth businesses regularly when the core is still healthy, and can therefore still be patient for growth.
• Keep dividing business units or acquire small ones on a regular basis so that there are enough of them that can be patient for growth since they are small enough to benefit from investing in small opportunities.
• Minimize the use of profit from established businesses to subsidize losses in new-growth businesses. Be impatient for profit and demand early successes.

Chapter 10: The role of senior executives in leading new growth

Theory A: Senior executives rarely see or make the key decisions, since they are made by lower staff and management based on the organization's values. Additionally, only select information will be provided since full analysis must generally be compressed into an easily digested form. Therefore only those ideas that the lower levels assume the senior levels will find attractive will be passed up to them for review. This implies that since senior execs can't participate where the real decisions are being made, "driving decisions down to the lowest level" will help get decisions moving.

Theory B: The larger the organization, the more likely decisions are made by established processes. Disruptive businesses are usually (at least initially) small, and with the need to make quick decisions on a frequent basis, this implies larger organization cannot fit the bill.

The reality: circumstances should dictate whether decisions should be made using the organization's usual values and processes (if you're dealing with sustaining innovations), whereas these values and processed won't suit unconventional (i.e. disruptive innovation) situations, and therefore should be pushed down to the trenches with the cultivation of senior management's support and assistance.

Creating a growth engine by embedding the ability to disrupt as a process:

• Start before you need to, while the company is growing and can be patient.
• Appoint a senior exec to shepher ideas into the appropriate shaping and resource allocation processes
• Create a team and a process for shaping ideas: Interesting ideas abound in a firm, but the usual processes that are required to shape an idea lose their disruptive growth. A completely separate operating process is required. The team has continually refine their skills in putting ideas through the litmus tests and knowing how to reshape them to pass the tests.
• Train the troops to identify disruptive ideas, in the hope that they will feed interesting ideas to the rest of the organization and eventually, have a sufficient pipeline of potentially disruptive concepts.

Epilogue: Passing the baton

When formulating a new business, accurately predicting the details of one's strategy or how technology will evolve is not the key. The key is to start from a good place, based on getting the initial conditions set correctly so that the choices that lead to success will look like the right choices. You need to create a business model whose resources, processes, and values can harness these forces to propel you to success.

Summary of advice:

• Never say yes to a strategy that targets customers and markets that look attractive to an established competitor. Identify a disruptive foothold that established competitors will be happy to ignore or be relieved to walk away from.
• Compete against noncompetition. Avoid the massive investment typically required to make disruptive technologies preferable to the established products that customers are already using comfortably.
• If nonconsumers are not available, search for a low-end disruption with a bsuiness model that can make sufficient profits for the low-end of the market, where customers can't use all the functionality they currently must pay.
• Find a way to help customers get done more conveniently and inexpensively what they are already trying to get done. Don't compete against customers' manifest priorities.
• Segment using the jobs customers want to accomplish, not conventional marketing plan characteristics (e.g. price point, demographics). Think of the one-size-fits-all milkshake accomplishing two different tasks: one for the morning commuter, the other for the dinner kid's meal.
• Know that the basis of competition will change and factor this into the product's improvement road map. Keep looking at the low end, where the basis of competition often changes.
• Pursue modularity only once it is warranted, and stay with a proprietary architecture while the basis of competition warrants it. Develop competencies where the money will be made in the future, rather than cling tenaciously to those skills that made you successful in the past.
• Avoid core-competency analysis. Instead, ask: do we have the resources to suceed, will our processed facilitate what needs to be done to succees, will our values permit the proper attention? The answers determine the required changes or new organizational structure required for the new idea.
• Ask the same three questions about the venture's channels. You must motivate their processes and values (including motivations).
• Look for experience with the circumstances, not attributes of managers.
• Ensure the team remains unconvinced they have found the best strategy. Insist on a deliberate strategy that accelerates the emergence of a viable strategy.
• Be impatient for profit and avoid assuming years of initial losses are required (as this then sounds like a plan to cram a disruptive idea into a sustaining market). Patiently pursuing losses permits a team to continue with a potentially incorrect strategy for too long.
• Keep the company growing so that it can be patient for growth. Disruptive growth requires a long time to hone, and pushing it too fast pushes it an established market too early.