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Value Networks and the Impetus to Improve
by Clayton M. ChristensenWhy do leading firms frequently stumble when confronting technology change? Most explanations focus on management or organizational issues. This chapter proposes another theory, based on the concept of a value network--the context within which a firm identifies and responds to customers' needs, solves problems, procures input, reacts to competitors, and strives for profit. This chapter was originally published as chapter 2 of "The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail."
What Goes Up, Can't Go Down (How Successful Companies Become Increasingly Vulnerable)
by Clayton M. ChristensenIn established companies, resources and energy coalesce most readily behind proposals to attack upmarket into higher-performance products that can earn higher margins. This rational pattern of upmarket movement can create a vacuum in low-end value networks that draws in entrants with technologies and cost structures better suited to competition. This chapter examines the steel industry as a salient example of this phenomenon. This chapter was originally published as chapter 4 of "The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail."
Hanson Manufacturing Co.
by Robert N. Anthony Robert L. LavoieCenters on pricing, contribution to overhead, cost system.
Dilemmas of Innovation: A Summary
by Clayton M. ChristensenThe chapter summarizes, at a very high level, why and how new capabilities must be developed in organizations faced with rapid technological change. Though the vast majority of innovation challenges companies will face are sustaining in nature, some are disruptive--and successfully addressing those will require different skills, approaches, and strategies. This chapter was originally published as chapter 11 of "The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail."
Why Strategic Innovators Need a Different Approach to Execution
by Vijay Govindarajan Chris TrimbleStrategic innovators seeking long-term growth and competitive advantage for their organizations face three major challenges: forgetting, borrowing, and learning. Outlined in this introductory chapter, the main objective of the book in reviewing stories of 10 major U.S. companies is not only to tell what happened, but also to explain why it happened and how decisions about organizational DNA either accelerated or constrained progress on the three challenges. The authors analyze root causes that lead to problems, and offer frameworks and recommendations for overcoming them.
Why Organizations, Like Elephants, Never Forget
by Vijay Govindarajan Chris TrimbleIn response to the explosive growth of the genomics field in 1998, Corning created a new division, Corning Microarray Technologies (CMT), to capitalize on this promising new market. This chapter focuses on the story of Corning Microarray Technologies and demonstrates how Corning's initial choice to replicate its existing DNA for CMT made it difficult for CMT to overcome the forgetting challenge.
Taming the Elephant (How to Overcome the Forgetting Challenge)
by Vijay Govindarajan Chris TrimbleContinuing the story of Corning Microarray Technologies (CMT), this chapter describes how Corning changed CMT's organizational design, and explains how this reconstruction of a new and distinct organizational DNA accelerated progress. The authors then develop a framework that guides organizational choices to help a new company cope effectively with the forgetting challenge.
Why Tensions Rise When NewCo Borrows from CoreCo
by Vijay Govindarajan Chris TrimbleOvercoming the forgetting challenge is necessary but not sufficient. To have the best possible chance at success, NewCo must also borrow CoreCo resources. This chapter looks at the development of New York Times Digital (the business unit of the New York Times Company that provides online news and information services in multimedia format), describing the stresses that arose as New York Times Digital discovered that it needed to assert its distinctiveness while continuing to benefit from access to the resources of the New York Times newspaper.
Turning Tension into a Productive Force
by Vijay Govindarajan Chris TrimbleNew York Times Digital is profitable and continues to grow because its organizational design allows forgetting and borrowing simultaneously. This chapter suggests specific roles and responsibilities for a senior executive responsible for ensuring the effectiveness of six types of operational links between NewCo and CoreCo.
Why Learning From Experience is an Unnatural Act
by Vijay Govindarajan Chris TrimbleDespite the unsettling reality that much more is unknown than known when it comes to strategic experiments, companies must occasionally take risks on strategic experiments if they hope to stay ahead of the competition. The winner is not necessarily the one that starts with the best plan, but rather, is often the one that learns and adapts the quickest. This chapter describes the nature of the learning challenge and identifies four types of learning disabilities.
How Being Bold, Competitive or Demanding Can Inhibit Learning
by Vijay Govindarajan Chris TrimbleChapters 7 and 8 show how the inevitable pressures associated with strategic experiments lead to well-intentioned actions that disable the learning process by altering aspirations, expectations, and judgments about performance. Chapter 7 reviews the history of Hasbro Interactive, an ambitious initiative that targeted the video game market.
How Being Reasonable, Inspiring, or Diligent Can Inhibit Learning
by Vijay Govindarajan Chris TrimbleChapters 7 and 8 show how the inevitable pressures associated with strategic experiments lead to well-intentioned actions that disable the learning process by altering aspirations, expectations, and judgments about performance. Chapter 8 analyzes the development of a new services business at Capston-White (not its real name), a large information technology company.
Finding Gold with Theory-Focused Planning
by Vijay Govindarajan Chris TrimblePlanning is crucial for strategic experiments because it establishes the context for learning, but past chapters have explained why the conventional planning process is inappropriate. Theory-Focused Planning (TFP) is an entirely different approach to planning and is much better suited than conventional approaches to the dynamic and uncertain environments faced by strategic experiments. This chapter describes a solution to overcoming the barriers to learning described in chapters 7 and 8, offering six alterations executives should make to the planning process.
Ten Rules Explained
by Vijay Govindarajan Chris TrimbleUsing the story of Analog Devices and its efforts to develop a new technology for automotive crash sensors, in this chapter the authors summarize their advice as ten rules for strategic innovators. To commercialize the revolutionary crash sensors, the company's leadership team succeeded in overcoming the three challenges of forgetting, borrowing, and learning, ultimately becoming a profitable business that still has tremendous growth potential. This is an ideal demonstration that leading a strategic experiment using the ten rules is well within reach.
Introduction (The Strategy Map as a Visual Representation of Organizational Strategy)
by Robert S. Kaplan David P. NortonAn organization's strategy describes how it intends to create value for its shareholders, customers, and citizens. If an organization's intangible assets represent more than 75% of its value, then its strategy formulation and execution need to explicitly address the mobilization and alignment of intangible assets. This chapter introduces the strategy map, derived from the four-perspective model of the Balanced Scorecard, as an indispensable visual tool for aligning intangible assets to strategy for sustainable value creation. Two case studies follow to demonstrate the use of strategy maps.
Operations Management Processes
by Robert S. Kaplan David P. NortonOperating processes produce and deliver goods and services to customers, and while operational excellence alone is not the basis of a sustainable strategy, managing operations remains a priority for all organizations. Without excellent operations, companies will find it difficult to execute strategies. This chapter discusses important operations management processes, from developing and sustaining supplier relationships to managing risk. A case study is provided.
Customer Management Processes
by Robert S. Kaplan David P. NortonCustomer management reflects much of what's new in modern business strategy. Whereas innovation and operations management processes remain important to strategic success, the evolution of computer and communications technology has shifted the balance of power from producers to customers. This chapter explores why understanding customers and the value proposition that attracts and retains them is fundamental to any strategy. A case study is included.
Innovation Processes
by Robert S. Kaplan David P. NortonSustaining competitive advantage requires that organizations continually innovate to create new products, services, and processes. Exceptional innovation capabilities determine industry leaders. This chapter identifies high-level objectives and associated measures for four innovation processes, including identifying opportunities for new products and services, and bringing new products and services to market. A case study follows the chapter.
Birch Paper Co.
by Neil E. Harlan William RotchInvolves transfer pricing among three divisions of a company.
Regulatory and Social Processes
by Robert S. Kaplan David P. NortonMany companies today recognize that achieving excellence in environmental, safety, health, employment, and community practices are part of long-term, value-creating strategies. Companies that excel in critical regulatory and social processes can enhance their reputation among customers and investors, and also help to attract and retain valuable employees who take pride in their companies. This chapter provides examples of how companies manage and report their regulatory and social performance along several dimensions, including environmental performance and employee practices.
Aligning Intangible Assets to Enterprise Strategy
by Robert S. Kaplan David P. NortonThe learning and growth perspective of the Balanced Scorecard highlights the role for aligning the organization's intangible assets to its strategy. The three components of intangible assets (human capital, information capital, and organization capital) must be aligned with the objectives for internal processes and integrated with each other. This chapter describes how the strategy map and Balanced Scorecard enable organizations to describe intangible assets, align and integrate intangible assets to strategy, and measure intangible assets and their alignment.
Human Capital Readiness
by Robert S. Kaplan David P. NortonHow do organizations develop a measure of human capital (HC) readiness? This measure represents the availability of employee skills, talent, and know-how to perform the internal processes critical to the strategy's success. This chapter introduces a framework that enables organizations to identify HC requirements for the strategy, estimate the gap between the HC requirements and current employee readiness, and build programs to close that gap.
Information Capital Readiness
by Robert S. Kaplan David P. NortonInformation capital is the raw material for creating value in the new economy. Information capital, consisting of systems, databases, libraries, and networks, makes information and knowledge available to the organization. This chapter focuses on evaluation of information capital based on strategic alignment, measuring how it contributes to the organization's strategic objectives.
Organization Capital Readiness
by Robert S. Kaplan David P. NortonTo complement alignment of competencies and technologies, executives must also develop organization capital, defined as the ability of the organization to mobilize and sustain the process of change required to execute the strategy. Organization capital provides the capability for integration so that individual intangible human and information capital assets, as well as tangible physical and financial assets, are not only aligned to the strategy, but are integrated and working together to achieve the organization's strategic objectives. This chapter provides a framework for describing and measuring organization capital.
Customizing Your Strategy Map to Your Strategy
by Robert S. Kaplan David P. NortonA well-constructed strategy map should show the interrelationships among the organization's internal processes and intangible assets that create sustainable competitive advantage. The value proposition in the customer perspective, the critical internal processes, and the intangible assets in the learning and growth perspective of a strategy map will be completely different for companies following different strategies. While every organization must adapt and customize its strategy map to its unique situation, in this chapter the authors sketch templates for four generic strategies: low cost, product leadership, customer solutions, and system lock-in.