Transcript Chapter 6: Sustaining a competitive advantage over time

Chapter 6: Sustaining a competitive
advantage over time
After this session you should be able to:
 Understand the requirements for a successful imitation and
the barriers to imitation.
 Appreciate how companies can assess the threat of a
disruptive innovation.
 Identify the ways that companies can follow in order to deal
with a disruptive innovation.
 Recognise the cognitive frames that companies can adopt
when facing a disruptive innovation and understand the
reasons underlying their contradicting nature.
Exhibit 6.1 A company can build up
numerous barriers against imitation
Imitator
Requirements for successful imitation
1
Must be able to identify
competitive superiority
2
Must be willing to imitate
3
Must be able to understand
sources of competitive
advantage
4
Must be able to build/acquire
necessary resources
Source: Adapted from H. Hungenberg (2006), p. 251.
Incumbent
Barriers against successful imitation
• Withhold information about profitability
• Forgo short-term profits for long-term
success
• Deterrence: signal promise of retaliation
• Make commitments to make threat credible
• Pre-emption: exploit all available investment
opportunities/secure access to resources
• Tacit knowledge: rely on skills,
processes or culture/resources that are
implicit
• Causal ambiguity: rely on a complex,
multidimensional mix of sources
• Base differentiation on resources
that are rare/immobile/contracted
• Exploit-time lags
Exhibit 6.2 Disruptive innovations enter the market from below and improve
over time until they meet the demands of mainstream customers
Performanc
e
Most demanding
customers
Sustaining
innovations
Performanc
e demanded
by
mainstream
customers
Disruptive
innovations
Time
Source: Adapted from C. Christensen and M. Raynor (2004), p. 33.
Least demanding
customers
Framing during
resource commitment
Exhibit 6.3 To overcome organisational rigidities, incumbents
need to adopt two contradicting cognitive frames
Threat
Rigid plan,
high commitment
Flexible plan,
high commitment
Opportunity
Rigid plan,
low commitment
Flexible plan,
low commitment
Threat
Opportunity
Framing during implementation
Source: Adapted from C. Gilbert (2006), p. 152
To determine whether there exists a threat
of a disruptive innovation, managers need to
consider the following
Non-served
customers
Over-served
customers
Disruptiveness to
competitors
Is there a large group of people who previously did not have
the money or the skills to purchase the product themselves?
Did customers have to go to a central, inconvenient location
to purchase the product?
Are there customers at the bottom end of the market who
would buy the same product with fewer features for a lower
price? Is it possible to build a profitable business model while
keeping down prices?
Is the innovation disruptive relative to all relevant rival
companies that are currently competing in that market?
There are numerous ways to deal with disruptive
innovations
Not responding at all
Not responding is quite often based on ignoring or not properly
assessing the underlying facts.
Migrating/harvesting
The migration strategy is based on a conscious decision to ‘milk
existing resources’.
Defending
Straddling
Switching
Leapfrogging
Source: See P. Ghemawat (2005), p. 106.
When defending their existing markets, incumbents need to
improve their business model so that they are either able to lower
their prices or increase the benefits they provide to their
customers
This strategy attempts to combine the best of both worlds. While
this option might seem to be the most promising at first sight, it
also entails major risks.
This option entails a complete switch to the new business model.
Yet, it is also the riskiest of all options, since there is always a high
degree of uncertainty associated.
Through this approach, a company tries to out-substitute the
substitution. From a long-term strategic perspective, this option is
highly attractive, yet it requires a very deep understanding of how
technology and market demand will evolve.