Disruptive Innovations Portfolio assessment

Disruptive Innovations Portfolio assessment

Disruptive Innovations Portfolio assessment with a sample done.

To complete the assessment for this unit, you must produce a portfolio of three 1000- word essays.

These essays are to be based around one theory or framework, of your choice

This portfolio of essays needs to cover three areas:

Paper 1:discussion of an area of strategy

Paper 2: application of that theory or framework to an organisation of your choice

Paper 3: evaluation of the application of that theory or framework to your chosen organisation

We strongly recommend that you base your papers around  one of the areas covered in seminars – there is more detail in the unit handbook on Blackboard

Choose from the following

What is disruptive innovation?

How useful is the theory of disruptive innovation?

Disruptive innovation: In need of better theory

Disruptive technologies: Catching the wave

Disruptive innovation: An intellectual history and directions for future research

Paper 1

We would recommend you use one of the following strategy ‘areas’. These are very broad and there is lots of literature, theories and frameworks in each area for you to research, read and work with:

Generic strategies: choosing where and how to compete

Environment & industry analysis

RBV & Capabilities

Disruptive innovation

Corporate strategy: diversification, mergers, acquisitions.

This paper is your literature review. This will require you to research that area and to highlight the key papers that have helped to develop this approach. Each topic area is supported by reading materials – which you will find in a folder on Blackboard. These papers are a starting point for your literature review.

Paper 2

The second paper develops an application of the strategy theory or framework you discussed in paper 1. Here you will apply that theory or framework to an organisation or industry of your choice. You cannot use the case study companies we cover on this unit as your example, including any short case studies used in seminars. Be very wary also of choosing a case you might have studied in another unit, such as marketing, as the focus of your analysis is likely to be based in that subject and not in strategy. Also, be careful of choosing large corporations with many divisions operating in several markets and with several competitive positions; it is difficult to carry out any useful analysis at this level. It may be possible to pick a division of a 14

Unit Outline        Strategic Management

bigger firm which has had enough published about them but do check this out before committing yourself, and you should know that in past years such choices have typically been less successful.

Paper 3

In the third paper you will develop an evaluation of the theory or framework you have chosen and applied to an organisation or industry. How does the theory or framework inform your understandi ng of the performance of your chosen organisation or industry? We also expect some broader reflection on the area; how useful are the ideas, do they enable firms to  create and sustain competitive advantage, which is the ultimate objective of strategy. Is industry analysis useful? Are there critiques of the work in this area?

Portfolio Output Style

Essays are a form of academic wriiting that require you to follow the general structure of – introduction, body paragraphs and conclusion. An essay is written in whole sentences and paragraphs. If you do not use essay format you will lose marks. Essays do not necessarily need headings, though these are often useful for guiding the reader. Please avoid using appendices – the inclusion of any essential figures and tables in the body of the portfolio is preferred and avoid using bullet points.

Word Count

The total word count for the portfolio is 3000 words. References are NOT included in the word count and there is a +/- 1Oo/o variance allowed on the word count. If you exceed that upper limit we will stop reading after 3300 words. When you submit your portfolio please clearly indicate your references section using the heading ‘References’ or ‘Reference List’, we are then able to clearly identify where your references begin. When you submit please include a word count which excludes your references.

Referencing

Harvard style referencing is required for portfolios in this module. If you submit a

Disruptive Innovations Portfolio assessment example

1.     Introduction

Innovation has always been considered as the most important aspect in business strategy across the different market segments.  It has become one of the most important components that promote the growth and development of the organization. According to King and Baatartogtokh (2015), innovation is among the major drivers of growth and performance and it is an integral part of the success of any business and its business strategy (p. 80). Considering the fact that consumers today have many choices, they strategize methods most of the time to help them be distinguished from competitors in the market. Today, disruptive innovation plays a big role in improving people’s quality of life, international economies, and organizations’ business models (Christensen et al., 2015).  This technology is only acceptable if it enhances the company’s value chain and performance. The purpose of this report is to discuss disruptive innovation, its application in an organizational context, and evaluate its application on the organization.

2.     What is Disruptive Innovation Theory?

 Disruptive innovation theory is useful in discussing the influence of new technology on firms’ existence. In Christensen’s (1997) book The Innovators Dilemma, disruptive innovation is a new technology that has been developed to increase value than the current technology and is able to change how people work, live, and do business. Christensen (2013) describes disruptive innovation as a process in which small businesses with few resources challenges established companies by entering the bottom of the market and continue to climb up the same market. At first, disruption is considered substandard to compare to what is currently offered in the market. Mostly, customers are willing to wait until they are satisfied with the quality of the new product but do not switch due to lower prices (Christensen et al., 2015). Disruption is a process developed over a period of time that happens gradually (Christensen and Weasel, 2012). Disruptive innovation is only possible when they start with two types of markets, the new-end, and the low-end markets. According to Christensen et al (2015), low-end markets arise when the incumbents concentrating on high-end markets and not low-end markets. This gives the disrupters the opportunity to provide sufficient products to low-end markets and satisfy their needs (Makides, 2006, p. 20) New-end markets occur where a new market is created by disrupters where they change non-consumers to become consumers (Christensen et al., 2015). The new entrants will then exploit an entirely new market. Disruptive innovation is established due to the need that exists in the market niche that has not been filled by the current companies. In this case, the incumbents lack a competitive advantage in the newly created market.

Christensen (1997) explains that disruptive innovation is unpredictable and for these reasons, successful and properly managed companies are affected negatively. Innovation improvement leads to the improvement of the performance of established firms. The products of these firms will then possess the features of disruptive innovation which are fast, cheap, and smaller (Christensen & Reynor, 2015). The new technologies are simpler and meet the needs and expectations of customers. Great companies adopt and exploit the potentials of these technologies.  Firms upgrade their levels of performance with an increase of competition through the production of better products to get more consumers. Performance improvement will lead to an increase in the rates than what the customers expected which results in disruptive innovation (King and Baatartogtokh, 2015). The x-axis in the Christensen theory is the time whereas the y-axis shows the performance whereas the z-axis is the consumer segments. The more the product increases its performance, the more it satisfies customer needs and exceeds their expectations (Christensen and Reynor, 2003). This results in a gap of needs that are not yet met and require simple and convenient intervention

This theory is useful in providing managers and business associates with ideas on how disruptive innovation impacts them and the causes of organizational failure when facing such innovations. The model also guides new companies on how to make disruptive innovation functional. The theory of disruptive innovation has really affected the consciousness of the business as economists described the theory as among the most influential modern business ideas. Christensen, Grossman, and Hwang (2009) propose that disruptive innovation is a framework that helps in thinking about social issues like poverty, unemployment, and illiteracy. Most established firms have embraced innovation in order to develop and grow their businesses (Christensen et al., 2015). As a result of competition, most enterprises attempt to improve their market position, performance, and competitive advantage by growing innovation through new resource accumulation like new expertise, new technologies, and diversification of products.

From Christensen’s The Innovator’s Dilemma, disruptive innovation gives different compared to the normal technologies and at the beginning, they are considered to be underperforming (Disruptive Innovation, 2012). However, the disruptive technologies end up replacing the old established innovation as well as the incumbent companies which provide innovation. Disruptive theory shows the difference between disruptive innovation and sustaining innovation.

2.1.          The key elements of disruptive innovation

 King and Baatartogtokh (2015) developed the four key elements of disruptive innovation theory as discussed below;

One of the major elements of disruptive innovation is that companies provide different innovation improvements as new products are produced and improved. The result of this incumbent trajectory in business is sustaining innovation where companies try to improve as years pass by (Christensen, 2013). Sustaining innovation enhances the improvement of products in certain areas. As explained by Christensen and Reynor (2003), good managers try to improve products so that they can sell for high profits to unsatisfied customers in demanding markets.

The second element is the pace of sustaining innovation that overshadows the needs of the customers in a particular market. According to Christensen and Reynor (2003), a firm that positions its products based on customer needs will likely overshoot what the customers can use in the future. Christensen and Reynor (2003) used the case of the computer industry that when typing things before through the word processor, you had to stop in the middle for the Intel 286 chip to adapt but now the processors are faster more than what the customers can process.

Another element of disruptive innovation is that the incumbents are capable of responding but does not exploit it. Christensen and Reynor (2003) argue that most, incumbent firms have the capabilities needed to be successful but the managers do not exploit them well to avoid the possible disruptors. Disruption paralyzes market leaders. Even when resources are allocated well to back sustaining innovation, they are not able to respond. The managers do not also accept and respond to possible threats (Christensen et al., 2015). If the occurrence of the disruption is on new markets, incumbent firms ignore the threat or flee the attack if it involves low-level customers.

Incumbent firms flounder due to disruptive innovation. Christensen (2013) studied the circumstances for the failure of big companies due to technology. The author explained that performance oversupply results in a convenient and less expensive disruption.  Businesses with such disruptive innovation can improve the performance of their products and result in them taking over the market.

3.     Application of Disruptive Innovation in Netflix

Netflix is an innovative organization that has brought changes to the way people rent and watch movies and TV shows. The company’s business model involves subscription services that provide DVD rental deliveries at home and TVs and movie streaming. Reed Hastings co-founded Netflix that offers rentals known as rent-by-mail movies in 1977 (Netflix, n. d.).

Netflix transformed its DVD business model to video rental businesses thus grabbing the market which made the major competitor in the industry, Blockbuster to declare that it is bankrupt a decade ago. Netflix ensured that it provides services like extended rental periods with no penalties helped the company to reach the small and untouched customer base and other small and unsophisticated services (Mikhalkina, 2014).   Netflix transformed the underserved Blockbuster customer base when they saw an opportunity to enter the market and create a business model by providing accessible, available, and affordable services (Roberts & Muscarella, 2015). Through this momentum, Netflix has developed over the years to become the biggest streaming video on demand with more than 83 million users (Netflix, n. d.). Today, Netflix has become the largest retail movie subscription service in the U.S and has over 30 million users (Netflix, n. d.).

3.1.          Netflix Business Model

The business model of Netflix is concentrated on subscription services for online streaming like films and TVs and DVD rentals. The company first started as a DVD rental service and has continued to give these services whereas the subscription-based services have continued to be its own revenue source as they put their focus on product developments for the future (Netflix, n. d.). The SVOD subscription has changed various elements of digital firms and businesses.  This has had a negative impact on the connection between the entertainment content streaming services and the Multichannel Video Programming Distributors (MVPD) like the cable TV enterprises (Roberts & Muscarella, 2015). All of these major market actors are common as they are subscription-based models (Mikhalkina, 2014). A customer can buy a package of MVPD or purchase an online streaming content subscription. They are different only in terms of accessibility and convenience. They both offer a wide range of entertainment content but MVPD and TV packages use a linear TV model when consumers are not able to choose when, where, and how to use such content (Roberts & Muscarella, 2015). Netflix obtains its competitive advantage with its non-linear SVD content model since it allows consumers to access content on any device at any time and they can rewind, stop, re-watch, and forward which is convenient to the consumers. Moreover, the traditional TV business models depend on TV ads in between the shows but Netflix does not depend on its TV model for advertising (Netflix, n. d.). Netflix is a representation of the classical business model in the industry of video-on-demand that provide entertainment content through video streaming technology and customers pay a subscription fee in exchange (Netflix, n. d.).

3.2.          Netflix Market Disruption

Netflix started as a firm that provides rental DVDs through the mail and for the first few years, it established a sustainable model. For the next five years, the firm fought for the U.S market with Blockbuster to a point that Reed Hastings offered to buy the firm in 2000 but the offer was declined (Netflix, n. d.). The CEOs of Blockbuster did not have the mind to see how the industry was changing and declared bankruptcy in 2010 (Netflix, n. d.). As the market incumbent, Blockbuster worth estimation was $24 million and Netflix was worth $13 billion during that year (Netflix, n. d.).

Once Netflix disrupted the incumbent firm in the market, it established itself as the most powerful online streaming company. The company continued to grow in terms of technological advancement, online streaming, web 2.0 and increased downloading of content from the web. In 2007, Netflix started to stream movies and TV shows in the United States, and in 2010, it went international (Netflix, n. d.). Netflix’s SVOD has become the most preferred source of entertainment especially among young people (Netflix, n. d.).  This change is consumption patterns have affected TV networks and TV cable firms. Netflix has used this to its advantage and reinvested itself by developing its products to more than SVOD (Netflix, n. d.). In 2013, Netflix upgraded itself from steaming online content purchased through IP licenses to producing its own content (Netflix, n. d.). Today, the strategy used by Netflix focuses on attraction of more subscribers by providing exclusive and original content in their platform (Milkhalkina, 2014). This has received good recipients from the consumers and the firm even received a reward. The firm was given 34 Emmy nominations in 2015 which increased to 54 in 2016 (Huddleston, 2016). This nomination has been helpful to Netflix as a creative company when entering new markets.

Today, Netflix has become an international SVOD service provider with a presence in more than 190 countries. Netflix intends to keep leading in providing the best online entertainment content with new market opportunities like internet TVs to replace linear (Netflix, n. d.). Netflix has been successful in building customer relations by offering high-quality content and videos and this is the reason for its leading position in streaming services market.

4.     Evaluation of Application of Disruptive Innovation to Netflix

Though Netflix has not been the only service provider in the online streaming services industry, the company has become the leading one based on its competitiveness, market share, and consumers. The way in which Netflix does its operations is different from most of the industry incumbents (Netflix, n. d.).  The firm does not depend on the revenue from advertisements and thus it has been able to attract customers with its lower subscription fees than the close competitors. Similar to the other content providers, Netflix’s revenues are obtained from their premium subscriptions, added features, and upgrades (Netflix, n. d.).  Moreover, they do not follow the process of linear TVs in releasing content as they do these weakly. The control and liberty are on the customers which allow them to access the content at their convenience. This has impacted the market such that other players from different markets are starting to switch to online streaming services as they feel the disruption.

Netflix is now benefiting from the competitive advantage through the implementation of strategies that differentiate them from others. This has assisted subscribers to get more access to content and to get content of high quality. Netflix is also benefited from such investments as the firm added 7.05 million subscribers in 2016 (Lee, 2017). Netflix also intends to produce more than 100 million original programming hours in the next few years (Lee, 2017). Netflix has improved its performance due to disruption as seen in the increased number of contents in the industry more than before as well as access to content at its own convenience.

Disruption has enabled Netflix to obtain and maintain market share. The firm has expanded its boundaries extensively by motivating customers to become Netflix’s subscribers. This has been achieved by ensuring that the content is of high quality and investment in content creation to be differentiated from other market players. The cost of MVDPs cable TV subscription has risen over the past years which has increased the use of Netflix content (Netflix, n. d.).  More than half of U.S households are now subscribing to Netflix SVODs. Having grown in the American market, Netflix has developed in the international market as well. Lee (2017) explains that this strategy has succeeded though most of the subscribers are from the U.S segment. However, this has cost Netflix a lot of expenditure to dominate its international market in more than 200 countries (Lee, 2017). To obtain more subscribers, Netflix is required to convert customers using MVPD cable TV to become SVOD subscribers. However, Netflix has diversified its investment to maintain the market share through the attraction of current and new customers. Netflix has also changed from being content distribution to content creation which has ensured that it becomes successful in the future in the television industry (Netflix, n. d.). Since Netflix create original films and series, the firm has been able to motivate competitor’s subscribers to shift to Netflix content.

Netflix has also changed consumption patterns of content. The manner in which content is used has changed over time due to disruptive innovation. In the past, entertainment was only done during leisure or weekends but Netflix has allowed them access such services at any time and any place (Netflix, n. d.).  Leisure is now happening with their smartphones at home, at work, commuting, or during weekends. This has become a success for Netflix as more consumers are now subscribed to these contents.

However, disruptive innovation has increased competition and cost for Netflix. The competition from firms like Apple, Google, Hulu.com, and other cable enterprises have posed big content creation and distribution rivalry (King and Baatartogtokh, 2015). This has affected its market share where it is starting to lose the market share it has had in the past few years. Due to this competition from the rivals, Netflix has been forced to get and license its content in terms of fixed cost which is different from DVD and streaming contents. This has led to an increase in the company’s cost from $2.4 billion to $3.4billion in the last few years (Netflix, n. d.). This rise in the content cost has affected the ability of Netflix to generate revenue to be used in the future.

Through disruptive innovation, Netflix has been able to improve its customer service. One of the key features of high performing companies is to be able to attract and maintain customers by providing the best services (Huddlestone, 2016). Disruptive innovation is the best when it can still deal with the issues facing the subscribers. Netflix has been able to handle problems regarding subscriptions or payments. Technology has enabled the company to understand the consumers better and deal with their issues within the shortest time possible (Netflix, n. d.). This has improved its performance by providing solutions and maintaining great relationships with them.

5.     Conclusion

In conclusion, disruptive innovation has become one of the most important components that promote growth and development of the organization.  A company that embraces disruptive innovation attains growth opportunities that result from new trends. Firms also achieve a lot from disruptive innovation from competition and customers as they are able to provide better, cheap, and accessible services. The small firms compete with big and established firms by starting their market segments. For companies to obtain and remain in the market in the face of disruptive innovation, they should use the momentum obtained from disruption to launch themselves as leaders in the industry.

 

References

Christensen, C. (1997) The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail. Boston: Harvard Business School Press.

Christensen, C. M. (2013) The innovator’s dilemma: When new technologies cause

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Christensen, C. M., Grossman, J. H. & Hwang, J. (2009) The Innovator’s Prescription : A

Disruptive Solution for Health Care. New York: McGraw-Hill.

Christensen, C. M. & Raynor, M. (2003) The innovator’s solution : creating and sustaining

successful growth. Boston, Mass.: Harvard Business School Press.

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Christensen, C. M. and Wessel, W. (2012) “Surviving Disruption.” Harvard Business Review. https://hbr.org/2012/12/surviving-disruption&cm_sp=Article-_-Links-_-

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Huddleston, T, Jr. (2016) “These Networks (and Netflix) Dominated the 2016 Emmy

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King, A. A. and Baatartogtokh, B. (2015) How useful is the theory of disruptive innovation. Sloan Management Review, pp. 77-90.

Lee, D. (2017) “Netflix’s Gamble Pays off as Subscriptions Soar.” BBC News. BBC, 18 Jan. 2017. Web. 20 Jan. 2017. http://www.bbc.com/news/technology-38672837

Makides, C. (2006) Disruptive Innovation: In Need of Better Theory. The Journal of Product Innovation Management, 23(1), pp. 19-25. https://doi.org/10.1111/j.1540-5885.2005.00177.x

Mikhalkina, T. (2014) “Netflix Business Model.” http://www.cass.city.ac.uk/__data/assets/pdf_file/0017/220517/Netflix.pdf

Netflix, (n.d.) Netflix Media Center. Netflix, n.d. Web. 06 July 2016.

https://media.netflix.com/en/about-netflix

Roberts, C. & Muscarella, V. (2015) “Defining Over-The-Top (OTT) Digital

Distribution”. 1st ed. Rentrak, 2015. Web. 14 May 2016.