Academic journal article International Management Review

The Innovator: Business Model Warfare

Academic journal article International Management Review

The Innovator: Business Model Warfare

Article excerpt

The Innovator: Business Model Warfare ISBN #: 978-1530931613

They 've sent a young madman who attacks right and left, front and rear. It 's an intolerable way of waging war!

Austrian Army Officer

Complaining about Napoleon's battlefield tactics in 1796336

Established companies are being driven to death by the rate of innovation.

Alfred Chuang

Commenting about marketplace competition in 2015

Silicon Valley is a remarkable engine of innovation and economic growth. Sitting in the middle of it is Stanford University, one of the world's great centers of creative thought, where people come from all over the world to study and perhaps through it to gain admission to the booming high technology industry that surrounds it. As I mentioned in Chapter 4, two Stanford professors recently calculated the combined current revenues of existing companies whose founders had studied at Stanford at $2.7 trillion. 337 If Stanford and these companies were a nation, it would rank as the seventh or eighth largest economy in the world.

Just down the street from Stanford a pleasant walk through downtown Palo Also is where you'll find Alfred Chuang's company, Magnet Systems, which builds the infrastructure that developers use to create apps that deliver information and services to iPhones and Android. This puts him at the forefront of changes to the global economy, in which localized services delivered on mobile devices are transforming our economic lives.

This technology is of course at the very epicenter of the global economic earthquake that digitization is bringing to the economy. The combination gives him a front row seat at the festival of disruptive technologies that are coursing through the economy, and from that seat he sees clearly that the speed at which innovations are being produced presents, in and of itself, a monumental challenge to established businesses.

Established companies are being driven to death by the rate of innovation, he tells us one day, and indeed as innovation consultants, we see the impact all the time. Entrepreneurial start-ups, many of them coming from Stanford, have a huge advantage in speed contests because they know that speed is critical to their survival, and so their entire existence is built around the imperative to get to market as fast as possible. There is an extensive literature now focused around speed and how to achieve it, and many of the titles have come from the experiences of successful entrepreneurs in Silicon Valley. 338

Larger firms often have a different reality. They're accustomed to an era in which their size and scope provide competitive advantages, so they use their market muscle to protect their market share. What they often fail to realize is that these factors are no longer such useful competitive levers. Through the convergence of social media, apps, mobile computing, universal connectedness, as well as the global-digital supply chain, small start-ups have access to resources comparable to giant multi-nationals without owning any of it, which only makes the start-ups still faster and yet more nimble.

Bigger firms also tend to be more concerned with balancing the profitability of their existing operations with the pace of innovation, and they hesitate to disrupt profitable cash flows with new products and services. This allows the start-ups to gain a position in the market. And finally, the big companies are usually also burdened with a more deliberate, i.e., slower, process for making major decisions.

All of these dimensions work against large firms when their competitors are smaller, nimbler, and hungrier, which they almost always are. In the past the large firms have been able to control the pace of innovation, but they no longer have that control, and hence Alfred Chuang's astute observation that the rate of innovation is killing the big guys.

What we thus observe is that any individual business leader can attempt to speed up the rate of change in a given market or industry by investing wisely in new technologies or new go-to-market models, but no one company can prevent the market from evolving. …

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