Marketing Strategy and Competitive Positioning pdf ebook

CHAPTER 12 COMPETING THROUGH INNOVATION
1 
Alphabet/Google
2 
Amazon
3 
Apple
4 
Microsoft
5 
Samsung
6 
Netflix
7 
IBM
8 
Facebook
9 
Tesla
10 
Adidas
Source: BCG (2019)
These companies are managing deep-seated change, not just in products but in their 
business models.
Examining the issue of radical change in value offered to a market highlights issues such 
as: disruptive innovation – innovation that changes the way an industry operates; can-
nibalisation – the resulting forces that drive successful companies to compete with them-
selves; value innovation – the companies that pioneer change with increasingly perverse 
customers; big ideas – nurturing the big ideas that will change an industry; and innovation 
networks – the shift in managing innovation to open business models and cross-boundary 
collaboration. Importantly, globalisation may be one of the most important sources of 
radical innovation. We consider each of these issues.
12.1.5 Disruptive innovation
The failure of many major organisations to innovate and change is in some important 
ways explained not because managers are complacent, but because they follow con-
ventional wisdom in their industries. Clayton Christensen described what he calls the 
‘innovator’s dilemma’ (Christensen, 1997). His research question concerned why major 
companies get left behind. Why, he asked, when the computer market moved from main-
frames to mini-computers, was IBM left behind, and then when the market moved again 
from mini-computers to personal computers, were the makers of mini-computers (Digi-
tal, Wang, Nixdorf and the rest) left behind in their turn? Could it be that these compa-
nies were too short-sighted to see how the market was changing, or was there something 
else at work?
Christensen argues that the PC was an example of a ‘disruptive technology’. Generally, 
new technologies tend to do things better from the customer’s viewpoint – these are ‘sus-
taining technologies’, because they allow us to sell similar things to current customers, but 
better, cheaper and faster. But, the distinguishing characteristic of the disruptive technology 
is that it does the job worse than the existing technology – although it is cheaper. However, 
as disruptive technologies improve over time, and get to do the job adequately, then their 
lower prices drive the existing technology out of the market. Disruptive technologies are 
fundamentally different to conventional or ‘sustaining’ technologies.
For example, until the 1920s, the established technology for excavators was the steam 
shovel. This was followed by the machines powered by the internal combustion engine, 
which did the job better, and which was a sustaining technology. Most large steam shovel 
excavator manufacturers made the transition successfully. In 1947, J.C. Bamford developed 
the hydraulic shovel, or backhoe. This did a poor job – it could only handle small buckets-
ful of earth, far smaller than was demanded by the big contractors in mining and sewage 
construction. The JCB was, however, cheap, because it worked off the back of a tractor. 
Initially its market was restricted to digging narrow trenches in the street. As its technology 
became more robust, backhoes attacked the main excavator market. Few of the traditional 
manufacturers survived.

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INNOVATION STRATEGY
Established manufacturers are bad at coping with these breakthroughs because they are 
so good at serving their customers. These companies knew about the innovations in ques-
tion; the reason they did not adopt them was that their customers did not want them. The 
new technology appeals to less sophisticated, lower-margin customers. The product is not 
as good as what went before. It is not what our (currently) most profitable customers want.
In other words, sticking to tried-and-tested strategies with major customers may blind a 
company to changing market needs and to those competitors with new technologies. The 
risk faced is that established firms, excelling in the core competencies that keep their big-
gest customers happy, fail to see the threat of disruptive innovation in time because their 
customers do not see it, need it, want it, or ask for it (Donath, 2000). It is also the case 
that while the disruptive innovation undermines some business models, it may at the same 
time be a sustaining technology for others. The Internet, for example, disrupted Compaq’s 
distributor-based approach to computer marketing, but was an important sustaining tech-
nology for the direct marketers Dell and Gateway – the Web allowed them to serve custom-
ers in the same way they always had, but faster and cheaper.
Christensen also tells us that few established firms succeed in adapting to disruptive 
innovation. The best hope is to create an independent business with a completely new busi-
ness model designed to attack the competition, including its own parent company. It also 
has to ignore the wishes of existing major customers – he calls this ‘agnostic marketing’, or 
the ‘innovator’s solution’ (Christensen and Raynor, 2003).
More recently, Downes and Nunes (2013) have coined the term ‘big-bang disruptors’ 
to describe innovations that do not start at the bottom of the market with a lower-priced 
and inferior alternative to existing products. Big-bang disruptors can come out of nowhere 
and instantly be everywhere, and once launched they are hard to fight. Navigation-product 
makers such as TomTom, Garmin and Magellan were completely wrong-footed by the free 
navigation apps now pre-loaded on every smartphone, which are cheaper and far better 
than stand-alone devices. Consumers in every segment defected in a matter of weeks.
Faced with existing or potential disruptors in your market, the advice is to (1) identify 
the strengths of the disruptor’s business model, (2) identify your own relative advantage, 
and (3) evaluate the conditions that would help or hinder the disruptor from beating your 
current advantages in the future. The goal is to develop a disruption of your own before it 
is too late – to participate in new, high-growth markets while you still can.
It may be that responding to such radical, game-changing market shifts requires an 
equally radical change in a company. One view, for example, is that resilience to these mar-
ket shifts comes from two different efforts: first, repositioning the core business by adapting 
its current business model to the changed marketplace; and second, creating a separate, 
disruptive business to develop the innovations that will become the source of your future 
growth. Apple and IBM both took this twofold approach to adapting to changed markets. 
IBM rethought its mainframe business, shifting from proprietary systems to servers run-
ning open standard software, while creating a Global Services organisation that became 
the source of future growth. Apple repositioned its struggling computer business, trimmed 
the offering and focused on design; it was then ready to launch the iPod, open the iTunes 
store and proceed with the ‘i-revolution’.
Executives should constantly bear in mind that the evidence is that, in the volatile mar-
kets we now deal with, disruption can occur anywhere – and likely will.
An interesting example of large-scale disruptive innovation is the television business. 
The once-dominant cable companies face new online and digital competition to which 
the existing providers find it difficult to respond. Cable and satellite operators compete to 
gain viewers, while services such as Netflix try to draw them away. The likely response is 
mega-mergers to create giant media companies providing all services, from conventional 
television to video-on-demand and streaming of programmes and movies (Gapper, 2014).
Even in a more traditional area, utilities companies in countries such as the United States 
fear a ‘death spiral’ as more businesses and homeowners produce their own electricity with 

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