Improvement Strategy Dimensions
The Difficulty of Identifying Customer
Needs

Companies often have trouble identifying
customer needs because:
◦ Product developers overestimate their understanding
of customer needs
◦ Try to gather information only by asking customers
◦ Do not know which target market to ask
◦ Incorrectly project their beliefs about the value of
product attributes on customers
◦ Have structures and routines that inhibit information
gathering
◦ Fail to recognize how needs change over time
Significantly Better Benefits than Existing
Products

Because customers value losses more
highly than gains, new products must
provide benefits two to three times
better than existing products or
customers will not adopt them
Prospect Theory Diagram
Then, there is another angle….
There are Regimes of Creative Destruction
and Creative Accumulation

Some industries operate through:
◦ Dynamics of creative destruction: entrepreneurs
enter with new firms, challenge established firms on
the basis of new ideas, disrupt the old ways of
production, organization, and distribution, and replace
the old firms
◦ Dynamics of creative accumulation:
entrepreneurs enter, challenge established firms on
the basis of their new ideas. However, established
firms defend their old ways of production,
organization and distribution, and the new firms tend
to fail
Radical and Incremental Technological
Change
Most technological innovation is
incremental, and involves small
improvements to existing technologies
 Some technological innovation is radical,
and involves fundamentally new ways of
solving a problem

Technology S-Curves
Graphical representations of the development
of a new technology
 Compare some measure of performance with
some measure of effort
 The relationship between effort and
performance is typically S-shaped:

◦ Initially performance improvements per unit of effort
are small
◦ Once key drivers of performance are identified rapid
improvement follows
◦ Diminishing returns as physical limits reached
Technological improvements along an Scurve
 Tend to be incremental, building on prior
developments, and taking place within an
existing paradigm
 Usually done by established firms:
◦ they have existing technical, market, and
organizational capabilities
◦ they have an existing customer base
◦ they have access to internal cash flow to
invest
Shifting S-Curves
Happens when an existing technology
reaches the point of diminishing returns
 A new technology is often developed to
challenge the existing technology
 Initially, the new technology is usually
inferior to existing technology on key
dimensions
 But the new technology has greater
potential for performance improvement

Shifting S-curve example
Who Shifts the S-Curve?

Usually new entrants because:
◦ Incumbents have no incentive to introduce the new
technology
◦ Incumbents have investments in existing technology
◦ Products based on the new technology cannibalize
incumbents’ sales
◦ Managers at incumbent firms do not see the new
technology as a threat
◦ Incumbent firms can improve the performance of
their old technologies
◦ Incumbent firms face organizational obstacles to
changing their core technologies
Using Technology S-Curves as a
Management Tool
Incumbents can predict when to invest in a
radical new technology
 Limitations:

◦ the inability to identify when to switch technologies
◦ the failure to incorporate all of the factors that
matter to the decision to switch
◦ the need for adopters of the new technology to focus
on niche markets before tackling the mainstream of
the market
◦ the existence of alternative ways to respond to the
introduction of new technology
The Abernathy-Utterback Model
Technology evolves through periods of
incremental innovation, interrupted by periods
of radical innovation
 The development of a radical innovation leads
to a fluid phase, during which time many firms
enter and compete on the basis of different
product designs
 Eventually, the firms in the industry converge on
a dominant design, which results in the specific
phase, during which time only incremental
innovation occurs
 After a while, the cycle repeats itself

The Nature of Innovation and Competition
Product innovation: when technological
innovation involves the creation of new goods
and services sold to customers
 Process innovation: when technological
innovation involves problem solving that
improves the method of creating or delivering a
product or service
 Fluid phase dominated by product innovation
 Specific phase dominated by process innovation

The Timing of Product and Process
Innovation
Firms in an industry

New firms perform best in the fluid
phase:
◦ They are better than established firms at
product innovation
◦ Less important that they are worse at
efficient production based on scale economies

During the specific phase, a shakeout
typically occurs, with approximately half of
the firms exiting the industry; those firms
least able to fit their operations to the
dominant design tend to exit
Modifications to the Abernathy and
Utterback Model

Tushman’s model of competence
destroying and competence enhancing
innovation
Tushman’ Model: Competence-Enhancing
and Competence-Destroying Innovation
Radical new technology does not always undermine
the capabilities of incumbent firms (GE from X-Rays to
CAT Scans to MRIs)
 It is competence-enhancing if it makes use of existing
knowledge, skills, abilities structure, design, production
processes and plant and equipment
 It is competence-destroying if it undermines existing
skills, structures, etc. (from traditional printing
technology to digital printing technology)
 Established firms are able to transit to a radical
technology when that technology is competenceenhancing but fail to do so when it is competencedestroying
