WHAT ARE SOME ASPECTS OF A FIRM’S STRATEGY FOR DEALING WITH CHANGE WHEN IT CONSIDERS CREATING NEW MARKETS?
With all of the technological advances in recent years, we have witnessed some incredible new market strategies. Throughout our MBA program, we have been learning about the relevance of social theory and the power of disruptive innovation. Schumpeter (1989) taught us that entrepreneurs introduce radical technologies and industrial revolutions that invigorate and dramatically restructure entire industries. Creating new markets can greatly impact the future of an industry, but it requires a different type of strategy. Carpenter and Sanders (2008) taught us that there are three strategies to consider creating a new market: high-end disruption, low-end disruption, and hybrid disruption.
Vazquez Sampere (2012) describes the unique idea behind high-end disruption, in which established companies will react to the new entrants, but their reaction won’t be effective because the new entrant has intentionally placed itself in a position out of reach of the established companies. One of my favorite companies, and a great example of this type of disruption, is Tesla. The technology disruption that Tesla has created has made it difficult for competitors to rapidly imitate. They also developed a retail strategy that is unique from traditional car makers, where they sell directly to consumers rather than opening independent dealerships (Frohman, 2015). Tesla has focused on high performance in two areas: performance (acceleration) and efficiency (fuel mileage. Frohman also points out that Tesla have created a value proposition by producing a vehicle with high levels of performance and efficiency that is unmatched, which subsequently allows them to have more pricing power and create demand at the high end of the market.
Anthony, Eyring, and Johnson (2004), define low-end disruption as meeting the needs of overserved customers by providing them adequate functionality in return for lower prices. The first example that comes to mind for this would be Spirit Airlines. They developed a fundamentally low-cost business model, and charge a la carte for snacks, carry-on luggage, etc., which is typically bundled into the higher-price of non-discount airlines. For customers who do not need these additional add-ons, this can be a great cost savings. However, there have been a substantial number of passenger complaints centered around service. While currently, many passengers are accepting these service issues for the low-price structure, I fail to see how this can be sustainable. Good customer service requires no additional cost to the organization and should not be overlooked simply because they are offering a lower price.
The last strategy, hybrid disruption, is when an organization enters the new market with the low-end disruption strategy in traditional attributes, but improved performance in new attributes. Southwest Airlines seems to be a hybrid disruption to me. They entered the market as a discount airline and targeted consumers who were using alternate transportation, such as buses trains. Over the years, they have created value in their brand with their stellar customer service and have pulled customers from other major airlines.
Jaruzelski, Staack and Goehle (2014) provided some great insight into how to successfully implement these strategies, stating: “Innovation is a function that can be managed: There are principles that are known, capabilities that can be build, and levers that can be pulled to improve the process” (p. 16). Jaruzelski, Staack and Goehle also pointed out that R&D spending has declined, with the possible explanation being that organizations are discovering how to do more with less. This is something we seek to do in our organization. We try to focus on hiring the best talent who truly understand the industry and will be great leaders who can develop the staff into a team of innovators.
HOW CAN THE VALUE CURVE BE USED TO ANTICIPATE CHANGE?
The value curve is a tool that can be used to show organization’s where value is created and how new disruptions might be targeted. This tool can help prepare organizations for the aforementioned disruptive changes. An organization should take a close, personal look at their attributes when creating a value curve. As we know, an organizations’ value propositions are vulnerable to changes in technology, consumer preferences, governmental regulations, demographics, enhanced buyer power or increased attractiveness of substitutions (Sheehan & Bruni-Bossio, 2015).
I like to mention Blockbuster often in these discussions, because I feel they are a great example of an organization that was taken out by a new disruption and subsequent lack of strategic foresight. Many of the aforementioned vulnerabilities are the reason Blockbuster failed. While Blockbuster was offering physical rentals of DVD movies, Netflix was offering an online video service. Blockbuster focused their attention on the competition from VHQ and missed the threat to its value proposition posed by Netflix’s substitute offering. If they were to take macro environmental trends into account and created a value curve looking at the future value proposition of their strongest rival, this could have helped mitigated the issue (Sheehan & Bruni-Bossio, 2015).
Anthony, S.D., Eyring, M., & Johnson, M.W. (2004). A Diagnostic for Disruptive Innovation. Strategy & Innovation. Retrieved from https://hbswk.hbs.edu/item/a-diagnostic-for-disrup…
Carpenter, M.A. & Sanders, Wm. G. (2008). Strategic Management: A Dynamic Perspective. Upper Saddle River, NJ: Pearson Education.
Frohman, M, (2015). Applying the theory of disruptive innovation to recent developments in the electric vehicle market. Asia Pacific Business & Economics Perspectives. 3(1).
Jaruzelski, B., Staack, V., & Goehle, B. (2014). Proven paths to innovation success: Ten years of research reveal the best R&D strategies for the decade ahead. Global Innovation 1000 77, 1-16. Retrieved from 00295_The_Global_Innovation_1000_Proven_Paths_to_Innovation_Success.pdf
Schumpeter, J.A. (1942). Capitalism, Socialism, and Democracy. New York: Harper & Brothers.
Sheehan, N. and Bruni-Bossio, V. (2015). Strategic value curve analysis: Diagnosing and improving customer value propositions. Business Horizons, 58(3), pp.317-324.
Vazquez Sampere, J.P. Vazquez Sampere, Juan Pablo, The Contingent Solution to the Innovator’s Dilemma. Published as: Uncovering the High End Disruption Mechanism: When the Traditional Start Up Wins. Global Perspectives on Technological Innovation, Management and Policy. 1(1): 516