~ DECEMBER 2011
HBR .ORG
63 Spotlight
Reinventing Retail 104 organization
Who Really Makes The Big Decisions? Bob Frisch 34 Vision Statement
The Charts That Changed the World 125 Managing Yourself
Prepare for Your Promotion
ana Gary Hamel
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December 2011
hbr.org Harvard ~
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Cover Artist Elie Henein
64 The Future of Shopping If traditional firms hope to survive, they must embrace omnichannel retailing-an approach that melds the advantages of physical stores with the information-rich experience of online shopping. Darrell Rigby 78 Retail Isn't Broken. Stores Are The new head of one of America's most venerable department stores on his plans to reimagine everything An intetView with J.C. Penney CEO Ron Johnson, by Gardiner Morse
84 Know What Your Customers Want Before They Do Advances in IT, data gathering, and analytics make it possible to create highly customized offers-sometimes in milliseconds. Thomas H. Davenport, Leandro Daile Mule, and John Lucker
ABOVE Rachel Perry Welty, Lost in Hy Life (fruit stickers), detail 2010, pigment print
HBR .ORG Reinvent ing Retail continues at hbr.orgf spotlight/retail.
December 2011 Harvard Business Review s
HBR.ORG
Features December 2011 THIBIGIDIA
First, Let's Fire All the Managers Is it possible to create an organization that combines the discipline of a corporate hierarchy and the flexibility of market-centrism-without bosses, titles, or promotions? Morning Star, a global leader in food processing, proves that it is. Gary Hamel
The Power of Collective Ambition Articulating the seven elements of collective ambition can give employees a better sense of a company's purpose and how they can contribute to it. Douglas A . Ready and Emily Truelove
Who Really Makes the Big Decisions in Your Company? The CEO, of course, often along with an unnamed group of advisers. That's a good thing, as long as t he CEO constructs the group's role deliberately. Bob Frisch
Don't Let Your Supply Chain Control Your Business
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By delegating too much responsibility for managing their supply chains to their top-tier suppliers, manufacturers are putting themselves at risk. Thomas Choi and Tom Linton
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HBR.ORG How to manage a perfectionist blogs.hbr.org{ best-practices
•.,
43 HOW I DID IT
HSN's CEO on Fixing the Shopping Network's Culture
112
After seven CEOs in 10 years, Home Shopping Network needed a total makeover. Mindy Grossman 119 THE GLOBE
The Ordinary Heroes OftheTaj The valor displayed by employees of the Taj Mumbai hotel in the face of a 2008 terrorist attack was not merely a crisis response. It was a manifestation of deep-rooted HR practices that other companies can adopt. Rohit Deshpande and Anjali Raina 104
6 Harvard Business Review December 2011
A staff displays grace in a crisis.
•-
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Departments December 2011 KE NNETH COLE
Read the extended interview at hbr.orgjcole.
14
From the Editor 20 Interaction
MORE FROM OUR COLUMNIST
Rosabeth Moss Kanter at blogs.hbr.orgj kanter
Idea Watch
VIDEO
25 FIRSt"
34 VISION S'MTEM£NT
When Rivals Merge, Think Before You Follow Suit
The Charts That Changed the World
A less direct response may be a smarter move. PLUS Why early prototypes can kill creativity, and how lengthy travel time from headquarters hurts a subsidiary's profits
Management's most iconic graphics revisited 36 ITitATEGJC HUMOR
COWMill 32 DEfEND YOUR RIIEARat
Your Use of Pronouns Reveals Your Personality Tiny verbal clues speak volumes about someone's honesty. stability, and sense of self.
" I give myself the work." page 148
38 ROSABITH MOSS KANTER To act takes courage. To innovate takes even more. 40 SOHRAB VOSSOUGHI
Lobbying for social change is a waste of time. Instead, experiment with solutions-and then roll out the ones that work.
Designing and implementing solutions for society page40
Do you say " I think"? page 32
Experience 125 MANAGING YOURSELF
136 SYNTHESIS
Get Ready for Your Next Assignment
How marketers are rethinking demographics.
Insiders who move up have an advantage over external hires. Here's how to capitalize on it. Katie Smith Milway, Ann Goggins
Gregory, Jenny Davis-Peccoud, and Kathleen Yazbak 131 CASE STUDY
Can Nice Guys Fi nish First? Should a "perfect number two" insist on being made the CEO of a new venture? Jeffrey Pfeffer
10
Harvard Business Review December 2011
142 EXECUTIVE SUMMARIES 148 LIFE'S WORK
Kenneth Cole On merging work, home, and community
Katie Smith Milway on how to make the most of an internal promotion at hbr. orgjmultimediaj video
BRITISH AIRWAYS Sometimes, gomg the extra m1le means gomg to the extra pet store (
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SPOTLIGHT Go deeper into Reinventing Retail with blog posts and multimedia at
hbr.orgf spotlightf retail.
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SLIDESHOW
See who made this year's Thinkers so: the definitive list ofthe world's top business thinkers. hbr.orgf multimedia/
slideshows
BOOK You've heard of Michael Porter's seminal frameworks, now learn how t o use them. Download a free chapter from Understanding Michael Porter: The Essential Guide to Competition and Strategy at hbr.orgfchapters/
magretta.
WEBINAR Successful retailers must
reach customers in a hundred different ways, digital and physical alike. Learn how on Monday, December 12, at 12 PM EST. Register for free at hbr.orgfmultimedia/
webinars.
THE MANAGEMENT TIP Find a host of quick and practical business management tips at
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FLIPBOARD You can now find HBR in the award-winning Flipboard iPad app. Look for us in Flip board's business
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12
Harvard Business Review December
2011
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HBR.ORG
From the Editor
• •
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Pos1t1ve Dev1ance he death ofSteve Jobs sure got people thinking. Here was a man who seemed to represent all the qualities people admire in a leader (plus a few things they dislike). His passing prompted fascinating debates, on hbr.org and elsewhere, about everything from the role of the CEO, to the art ofinnovation, to the perils ofsuccession, to the very purpose ofa corporation. Many commenters concluded that Jobs was the ideal CEO: He led by instinct and vision, built a strong team around him, was a powerful and effective public face of his company, and produced strong earnings. Ascientific ranking of the world's best CEOs based on total shareholder return over their tenures, by Morten Hansen, Herminia Ibarra, and Urs Peyer (HBR, January-February 2010), concluded that Jobs was, objectively speaking, the world's number one CEO. An October update from the authors on hbr.org showed that during Jobs's reign at Apple from 1997 until his death, he delivered an industry-adjusted TSR of 6,621% (and a country-adjusted return of 6,682%). Apple's market capitalization increased during that period by $341.5 billion. Amazing. The visionary CEO model is not, however, the only recipe for success. Gary Hamel returns to HBR's pages this month with a provocative piece on a company that has thrived despite having no managers at all. His "First, Let's Fire All the Managers" (page 48) describes how California-based Morning Star, the world's largest tomato-processing company, has, by essentially tossing out the org chart, avoided the problems that arise at management-heavy organizations. Everyone shares the work of management. There are no centraily defined roles. Employees at any level can take the initiative, and they're held accountable. Morning Star is a private company, and its financial results aren't publicly available. But it says that over the past 20 years its volumes, revenues, and profits have grown by double digits- in an industry where annual growth averages 1%. Hamel writes, "Morning Star is a 'positive deviant'; indeed, it's one of the most delightfully unusual companies I've come across!' There are many paths to success.
Adi Ignatius, Editor in Chief
14 Harvard Business Review December 2011
~Harvard
Business Review
EDITOR IN CH IEF Adi Ignatius EDITOR, HBR
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FIRST
When Rivals Merge, Think Before You Follow Suit Many companies react to competitors' acquisition sprees reflexively, by launching bids of their own. Smart managers should consider other moves. by Thomas Keil and Tomi Laamanen
n October 25, 2005, the Swedish telecommunications equipment maker Ericsson announced the acquisition of key parts of Marconi's telecom business- thus starting a wave of deals that would reshape the global industry. Many competitors responded to the news by initiating similar moves. Alcatel and Lucent merged in 2006; Nokia and Siemens combined their telecom equipment units the following year. Today Ericsson remains the
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undisputed market leader. The companies that tried to keep pace by launching mergers of their own not only failed to usurp Ericsson but also found themselves under assault by the only player that abstained from the M&A frenzy: the Chinese com· pany Huawei. The M&A domino effect occurs in industry after industry. It has played out over the past decade in pharmaceuticals, automotive manufacturing, and financial services. When a major rival executes a headlinemaking merger, companies often feel under attack. These events can be so ernotionalJy charged that it's hard not to get drawn into a competitive acquisitions game. But December 2011 Harvard Business Review 25
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is countering with your own M&A always the smartest move? Our research, which spans a number of high-tech industries, shows that- contrary to the established wisdom about competi· tive dynamics- companies that react to a rival's merger with a head-on merger of their own frequently exhibit poorer performance than companies that carefully develop a less direct response. We' ve identified three interrelated reasons. First, managers under pressure to act quickly are more apt to come up with flawed plans. Second, after a company has made an acquisitive move, others in the industry may engage in a bidding war for the remaining targets, which often results in overvalued transactions that may not be good fits. Fi· nally, the firm making the initial acquisition gets the first pick, leaving rivals to settle for less-optimal targets.
Alternative Responses For many companies contending with the challenge of a competitor's merger, the fol· lowing strategies may prove more effective than an in-kind response:
A strategic retreat. If the merger attack isn't in your main market, consider retreating to your core market rather than diverting valuable resources to protect a peripheral one. For example, faced with increasing consolidation in the businessservices industry, Siemens divested itself of its business-services unit and concentrated on its core industrial businesses instead. An oblique maneuver. Sometimes you can obtain more advantage by turn· ing to ilmovation and organic growth. For instance, during the many telecom mergers of the rnid -2ooos, Huawei opted for indirect counterattacks, in the form of innovation and focused investments, rather than the more direct assault of bidding for competitors. From 2005 to 2010 it gradually increased its R&D budget from just over $800 million to more than $2.5 billion. It leveraged this investment to become one of the top patent holders in the emerging wireless standard called LTE and sirnulta· neously gained share in developed mar· kets once dominated by competitors that had joined the merger fray and were now distracted by postmerger issues. Similarly,
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WINNING THE BATTLE••• In 2007, with the market for personal navigation devices close to its peak, industry leaders TomTom and Garmin, along with Nokia, started a bidding war for the two main suppliers of digital maps. Garmin soon withdrew and struck a content deal with one supplier. TomTom and Nokia completed their acquisitions.
from 2004 to 2010 Oracle attacked SAP through acquisitions valued at more than $40 billion. With the exception of its 2008 acquisition of Business Objects, SAP re· sponded not by counterattacking directly but by renewing its focus on product devel· opment and improving its capabilities for helping big companies manage complex technologies. Consider what happened in the per· sonal navigation device (PND) market. In 2007 the dominant manufacturers were TomTom and Garmin. Along with Nokia, which was looking to expand its naviga· tion device business, they began bidding for Tele Atlas and Navteq-the main suppliers of digital maps. When the attacks and counterattacks were over, TomTom owned Tele Atlas, Nokia owned Navteq, and Garmin-which had withdrawn from the bidding-had a long-term content deal with Navteq. While all this was going on, however, a much bigger threat was looming: compe· tition from Apple's iPhone and Google's Android operating system. Both use maps developed by Google, which chose not to
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participate in the bidding war, innovated its own technology, and eventually ate into the PND market. A string-of-pearls acquisition strategy. Instead of trying to match a rival's deal with an acquisition of comparable size, many successful companies, including the SAS Institute, Novartis, and Microsoft, have used small acquisitions to gradually build a counterposition. With its size and financial resources, Microsoft, for instance, could have easily put together a large deal to challenge Oracle's acquisitions in the ERP software business. Instead it chose the relatively small acquisitions of Great Plains Software and Navision. This approach allowed it to fill gaps in its portfolio and fo· cus on developing the products it acquired, resulting in a tighter integration of its new and existing products than would have been possible with a single large acquisition.
Choosing the Right Response Different situations call for different strategies. Four questions can help you decide which one makes the most sense for your company:
••• BUT LOSING THE WAR Meanwhile, new rivals were emerging: the iPhone and the Android operating system, which use maps created by Google. Within four years the newcomers captured much of the market that had once belonged to TomTom and Garmin. By 2011, 33% of u.s. consumers were using smartphones for navigation, and the share prices of TomTom and Garmin had cratered.
What is the nature of t he attack? Not all acquisitions present competitive threats. In fact, a rival's merger can pro· vide an opportunity for other players to strengthen their positions at the expense of the attacker (and of other rivals who react by making acquisitions themselves). The first step is to determine the merger's potential for industry disruption. How mahue is the market, and how important is it to your firm? Is the attacker exploring a new market or shoring up its position in an established one? If the former, does it have a history ofsuccessfully entering new markets through acquisitions? Finally, can the attacker leverage complementary resources or market positions? Which strategies are best suited to our part icular company? Once the nature of the attack is clear, systematically evaluate your possible responses, weighing the wisdom of a direct counterattack against various alternatives, including the three described above. Are there targets that lend themselves to a string-of-pearls strategy? Will other companies in the in· dustry, or companies in adjacent industries, be available to form an alliance against the attacker? Could you use new-product introductions to retaliate, or could you find other ways to go after your rival's customers? Although it's important to consider all options initially, you may find that only some are realistic in a given situation. What resources and capabilities would we need for each strategy? Once you've narrowed down your choices, determine whether your company has the capabilities to execute them. In addition to financial resources, complementary resources such as your existing customer base, ecosystem, and technological and market assets are crucial. If you're facing resource gaps or disadvantages of scale, think about whether you could access what you'd need from outside the company. One benefit of an indirect response is that it may demand fewer resources than would be required for a blockbuster deal. What critical execution challenges would we face? Before finalizing your
Not all acquisitions present threats. A rival's merger can provide an opportunity to strengthen your position at the expense of the attacker. decision, you need to look at the factors that would be central to each strategy and consider your ability to manage them. How important is the speed ofexecution? What are the main risks, and could you mini· rnize them? How well could you maintain your focus on your core business while mounting your response? Could you avoid overstretching managerial and financial resources? Resisting the impulse to respond to a rival's merger or acquisition by striking back with a sizable deal of your own requires real fortitude on the part of top managers. When industries consolidate, time pressure and the concerns of external stake· holders, such as customers and investors, can make executives feel compelled to of· fer a quick, bold counterattack. But recent business history shows that carefully considering a broader set of strategies-and, when appropriate, implementing one of them instead-often helps to avert a catastrophic mistake. 0 HBR Reprint Fl112A ~
Thomas Keil is a professor at Aalto University, in Finland. Tomi Laamanen is a professor at the University of St. Gallen, in Switzerland. Decemb er 2011 Harvard Business Review
27
HBR.ORG
IDEA WATCH
IN NOVATION by Paul M. Leonardi
Early Prototypes Can Hurt ATeam'sC n product development, a popular tool is the quick-and-dirty prototype. Because simple prototypes make the abstract concrete, they can guide innovators' conversations and focus their attention, helping them to move forward. But many companies rapidly follow them with polished prototypes-and the trouble begins. Research I've conducted in the auto industry shows that when people see a detailed prototype, something odd happens: They concentrate on the prototype's form and function, forgetting to attend to any remaining ambiguities about the problem the product is meant to solve or the obstacles in the way. Instead of clarifying the path ahead, the prototype puts a halt to useful brainstorming. This occurs because when a complex technological product is under development, the groups involved often try to proceed in unison without realizing that they don't agree about what prompted the project in the first place or what is blocking its completion. This "innovation blindness" causes conflict and delays and may sink a project altogether. How can organizations avoid this pitfall? In the early phases of development, they should retain the ambiguity inherent in any technological challenge, moving on only after everyone is clear on what problems the product should tackle and how. 28
Harvard Business Review December 2011
At one U.S. automaker I studied, a prod· uct that had been shelved because of in· novation blindness was resurrected by a return to ambiguity. All the people I met with, from managers to engineers, agreed that crash-simulation analysis-slamming computer representations of vehicles into virtual walls-should play a greater role in product development, in order to improve safety and reduce costs. Many departments, working together, had come up with an idea for a computer-based tool that would increase the accuracy of analyses and help decision makers evaluate designs. But despite apparent agreement on the broad goal, basic disagreements remained.
For example, one set of developers thought that what was needed to reach the goal was faster engineering. Another thought it was more-accurate data. When a detailed prototype was built, the discussion rapidly devolved into arguments. "Everyone kept saying, 'Why doesn't it have this feature or that feature?"' one par· ticipant told me. The haggling went on for years. "It was a brutal time;• another said. It took the arrival of a new managersomeone with a fresh perspective-to res· urrect the tool. Because the manager saw a problem completely different from what the others had seen, he unwittingly rein· jected ambiguity into the thinking. Wres· tling with this ambiguity forced people to stop simply defending the prototype's fea· tures. The prototype was abandoned, the groups clearly defined what they needed to solve, and the tool was built. It's now help· ing engineers design safer cars and trucks. Although prototypes often make it easier for developers to translate their knowledge for one another, they can stymie progress if they become too detailed too early. Organizations need to retain some ambi· guity until groups have agreed not only on goals but also on the fundamental difficulties at hand. Early on, a manager's mantra should be:"! don't want to hear solutions. I want to hear about the problems that our product needs to solve." o HBR Reprint Fl112B "
Paul M. Leonardi is the Allen K. and ~ Johnnie Cordell Breed Junior Chair of Design in the departments of communication studies and industrial engineering and management sciences at Northwestern University.
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IDEA WATCH
Defend Your Research James w. PeMebabr
HBR puts some surprising findings to the test
Is the chair of psychology at the University of Texas at Austin and the author of
The Secret Life of Pronouns: What our Words say About us (Bloomsbury Press. 2011).
• • The finding: A person's use of function words-the pronouns, articles, prepositions, conjunctions, and auxiliary verbs that are the connective tissue of language- offers deep insights into his or her honesty, stability, and sense of self.
The research: In the 1990s, James Pennebaker helped develop a computer program that counted and categorized words in texts, differentiating content words, which convey meaning, from function words. After analyzing 40o,ooo texts-including essays by college students, instant messages between lovers, chat room discussions, and press conference transcripts- he concluded that function words are important keys to someone's psychological state and reveal much more than content words do.
The challenge: Can insignificant words really provide a "window to the soul" ? Professor Pennebaker, defend your research. Pennebaker: When we began analyzing people's writing and speech, we didn't expect results like this. For instance, when we analyzed poems by writers who committed suicide versus poems by those who didn't, we thought we'd find more dark and negative content words in the suicides' poetry. We didn't-but we did discover significant differences in the frequency of words like ''I:' In study after study, we kept finding the same thing. When we analyzed military transcripts, we could tell people's relative ranks based on their speech patterns-and again, it was the pronouns, articles, conjunctions, and other function words that made a difference, not the content words. HBR: Why are function words so important? 32 Harvard Business Review December 2011
In English there are about 500 function
words, and about 150 are really common. Content words- nouns, verbs, adjectives, and most adverbs-convey the guts of communication. They're how we express ideas. Function words help shape and shortcut language. People require social skills to use and understand function words, and they're processed in the brain differently. They are the key to understanding relationships between speakers, objects, and other people. When we analyze people's use offunction words, we can get a sense of their emotional state and personality, and their age and social class. Here's a simple, pronoun-heavy sentence: I don't think I buy it. Ooh. You just revealed something about yourselfin that statement. Why did you
say "I don't think I buy it" instead of"I don't buy it" or even "That's ridiculous"? Pronouns tell us where people focus their attention. Ifsomeone uses the pronoun "I:' it's a sign ofself-focus. Say someone asks "What's the weather outside?" You could answer "It's hot" or "I think it's hot?' The "I think" may seem insignificant, but it's quite meaningful. It shows you're more focused on yourself. Depressed people use the word "I" much more often than emotionally stable people. People who are lower in status use "I" much more frequently. Can you tell if someone's lying by their use of function words? Yes. A person who's lying tends to use "we" more or use sentences without a firstperson pronoun at all. Instead of saying "I didn't take your book:' a liar might say "That's not the kind of thing that anyone with integrity would do!' People who are lying also use exclusive words like "but" and "without" and negations such as "no:' "none:' and "never" much more frequently. We've analyzed transcripts of court testimony, and the differences in speech patterns are really clear. Function words sound like two-by-fours: They're important but not meaningful in creating the overall architecture. You might even think of function words as the nails. It seems natural to pay them little regard. If you type a sentence into Google, its algorithms disregard function words, because it's interested in content. But these words convey important subtleties-"a ring" versus "that ring?' In foreign languages, function words often convey people's status relative to one another.
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HARVARD BUSINESS SCHOOL EXECUT I VE E D UCAT I ON
How do people react to your analyses of their speech?
everything I wrote-even e-mails. I also developed a recorder that people could wear. It would turn on for 30 seconds every 12 minutes to capture bits of everyday speech. I wore it myself. When I analyzed my speech, it struck me how differently I spoke to my son, who was then 12 years old. With my daughter and my wife, my language was much more informal and personal. With my son it was more cool and detached. I realized I was drawing back from him-! wasn't being psychologically present. This was during a period of some tension in OUT relationship. He was a typical adolescent and was acting out a bit, and I was responding by being cool and detached, which males stupidly do when we're annoyed. When I realized this, I tried to become more human, emotional, and honest with him.
I did it using my own speech and was really surprised. I used the software on
Are there gender differences in how we use function words?
If you listened to a job interview, what would the use of function words tell you?
It's almost impossible to hear the differences naturally, which is why we use transcripts and computer analysis. Take a person who's depressed. "I" might make up 6.s'Yo of his words, versus 4% for a nondepressed person. That's a huge difference statistically, but oUT ears can't pick it up. But hypothetically, ifi were to listen to an interview, I might consider how the candidate talks about their coworkers at their last job. Do they refer to them as "we" or "they"? That gives you a sense of their relationship to the group. And if you want someone who's really decisive in a position, a person who says "It's hot" rather than "I think it's hot" may be a better fit.
THE 20 MOST COMMONLY USED WORDS
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Most people think men use "I" more, because men are more narcissistic and self-congratulatory. But across studies and cultures, we found that women use "I:' "me:' and "mine" more. Women are more self-attentive and aware of their internal state. Men use more articles: "a," "an:' and "the." That means men talk about objects and things more. You use articles when you're referring to concrete objects, because articles precede concrete nouns. Women also use more third-person pronouns-"he:' "she:' and "they"-because women talk more about people and relationships, and they're better at managing them. And in many ways, relationships are more complex. 0 HBR Reprint Fl112D
Learn more at www.exed.hbs.edu/pgm/hbr/
IDEA WATCH
Vision Statement The Charts That Changed the World
MARKIT SHARI
Data compiled by Andrea OVans
This issue of HBR contains about 20 charts, graphs, and other exhibits-all aimed at visually communicating the ideas of our contributors. We hope t hey augment readers' understandingbut we realize that many of t hem are useful only in their original context. Once in a w hile, however, a chart so deftly captures an important strategic insight that it becomes an iconic part of management thinking-and a t ool that shows up in MBA classrooms and corporate board rooms for years to come. As HBR prepares for its goth anniversary, in 2012, our editors have combed the magazine archives and other sources to select some charts t hat changed the shape of strategy. o HBR Reprint Fl112Z
THE EXPERIENCE CURVE
Created by the Boston Consulting Group in 1966, this diagram may look simple, but it captured the notion that companies develop competitive advantage through economies of scale: Over time, they learn to lower costs, gain efficiencies, and improve products by redesigning and utilizing better technology. SOURCE WALUR KJECHEI., THE LORDS OF STRATEGY (HARVARD BUSINESS PRESS. 2010)
STARS
QUESTION MARKS
CASH
DOGS
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THE GROWTH SHARE MATRIX SOURCE WALTER KIECHEL, THE LORDS OF STRATEGY (HARVARD BUSINESS PRESS. 2010)
THE FIVE Prior to Michael Porter's breakthrough 1979 HBR article, "competition" referred to rivalry between companies. Few people considered whether or why some industries were inherently more or less profitable than others or how persistent their profits were over time. Porter's diagram changed that-and students, strategists, consultants, and entrepreneurs now assess a company's competitive position according to the strength of the five forces. SOURCE • HOW COMPETITIVE FORCES SHAPE
SlRAUGY." HBR MARCH-APRIL 1979
34 Harvard Business Review December 2011
This grid, devised at Boston Consulting Group in 1968, crystallized the relationship between market growth and market share to help determine the overall prospects for various business units. It is used to teach managers to milk cash cows, divest dogs, invest in stars, and weigh the risks and rewards of question marks.
BARGAINING POWER OF SUPPLIERS
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Choosing the "best" of anything is admittedly a subjective exercise. What iconic management diagram do you think should be on these pages but isn't? Talk back to us at www.hbr.org/charts.
SUSTAINING UC:HNOLOGY BRINGING A BETTER PRODUCT INTO AN ESTABLISHED MARKET
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DISRUPTIVE INNOVATION
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LOW·INO OISTR18UTION ADDRESSING OVERSERVED CUSTOMERS WITH A LOW· COST BUSINESS MODEL
• •• • • • • NIW MARIUT DISRUPTION
•••• •••
COMPETE AGAINST NONCONSUMPTION
When Clayton M. Christensen and Joseph L. Bower introduced this idea, in a 1995 HBR article, their simple chart illustrated a key insight: Established players can be threatened by lower-quality offerings that fulfill the needs of "overserved" customers-and those offerings tend to improve over time. SOURCE '"OlSRUPTIVE TECHNOLOGIES: CATCHING THE WAVE.• HBR JANUARY· FEBRUARY 1995
THREAT OF NEW ENTRANTS
THE MARKET PYRAMID
Today managers take for granted that the biggest growth opportunities lie in emerging markets-and that viable businesses can be built to serve people near "the bottom ofthe pyramid." That can be traced to this chart, introduced by C.K. Prahalad and Kenneth Lieberthal in HBR in 1998. People living on $5,000 to $10,ooo a year may not sound like lucrative consumers, but they constitute a demographic of immense purchasing power for companies selling food, housing, or energy. SOURCE ' THE END OF CORPORATE IMPERIAUSM." HBR JULY-AUGUST1998
RIVALRY AMONG EXISTING COMPETITORS
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