[MUSIC]

So we're going to start Lesson 1-1 now.

And what this lesson is about is about the evolution of new technologies and

markets, and the challenges that that evolution poses.

Understanding how the technology and the market develops over time is

kind of half of the problem we're trying to solve in this course as a whole.

The other half is how organizations behave, and

how they evolve when they're faced with new technologies and markets.

But this lesson is about that first half, and

it's going to particularly focus on the technology side.

Now, you may have seen this from a market perspective

if you went through our predecessor course, and

some of the things we're going to talk about are going to be quite familiar.

But you'll also see that we're taking a different perspective.

That perspective is, we're trying to think of ourselves as managers,

as leaders, and think about the kinds of decisions we're going to need to make and

how we're going to enable our organization to address this situation effectively.

So this is a different perspective, and so as we think about how that market evolves,

the way that we're going to be looking at it is just a little different.

So to start, let's take a look at a couple of quotes.

So both of them were written on the same day, October 9, 1903.

In the New York Times, it was written that the flying

machine which might really fly might be evolved by the combined and

continuous effort of mathematicians and

mechanicians in from one million to ten million years.

One million to ten million years.

That was in the New York Times.

And on the very same day, on Kill Devil Hill the outer banks of North Carolina,

in his diary, there was a bicycle mechanic, his name was Orville Wright.

And what he wrote was, we unpacked the rest of the goods for the new machine.

We unpacked rest of goods for the new machine.

So I think you know where this is going.

There's the iconic picture, right?

December 17th, 1903.

That machine that Orville and

Wilbur were unpacking was the machine in that photo.

It was the machine that flew four times that day,

the longest flight lasting almost a minute.

This was the dawn of flight, the dream of thousands of years realized.

A major success, perhaps the most notable punctuation point in a technology

that's one of the most impactful that we've seen over the past 100 years.

Now that was December 17th,

less than three months after that October 9th quote in The New York Times.

Now, in fairness to The New York Times, there had just been a major failure.

The Wrights were not the only people who were pursuing flight.

Samuel Langley was one of the others, very well funded.

Here's a picture of the barge which he launched his air craft from

on October 7th, two days before the quote.

It crashed.

Very embarrassing, humiliating, he was well funded.

A scandal.

And so the point is that you're getting different data

as you look at a new technology early on.

There's a great deal of uncertainty, really fundamental uncertainty about how

it's going to evolve and whether it's going to work.

This is what we saw when we looked at those two quotes from that same day.

Now, once the Wrights showed that you could fly, though,

the cat was kind out of the bag.

And there was a flowering of

efforts across different continents of pioneers to fly.

The Wrights unleashed, in a sense, a storm of innovative aircraft designs.

Now, let's look at a few of these.

Here's one patterned after a seagull.

People often look to nature, right.

Here's an interesting one.

This one actually flew for a little bit, in Chicago.

It's called the umbrella plane, by a fellow named Chance Vought.

Here's another, this one didn't fly.

Tried to launch off the river Seine, Louis Blériot.

Now, Louis Blériot tried again.

Here's another one of his aircraft, the Butterfly, it was called.

That one got up 60 feet, then crashed.

He escaped serious injury.

Now what I want you to notice is these airplanes look a lot different

than each other.

They're very different designs.

We've come to a period of rapid experimentation.

Now also when you see these, you might laugh, right?

I mean, you've gotta laugh at that umbrella plane, right?

And you've got to laugh at the butterfly.

Well what about Louis Bleriot?

Some of you may know he was actually the first person

to fly across the English Channel just a few years later.

Here's a photo of him in his airplane, which looks a little bit more like

the airplanes we see now, as he's about to take off on that adventure.

Maybe you laughed at the umbrella plane, right?

Chance Vought.

Well, turns out, Chance Vought became a major and

successful aircraft manufacturer.

Here's one of the aircraft from 1957, the F8U Crusader,

a Navy fighter plane launched off carriers, fought over Vietnam.

I don't know that you would laugh at this airplane.

So the point is, some of these early pioneers who made laughable efforts,

in fact, were key pioneers later on and had major success.

So you want to get a sense from this example of aircraft that once you had

that initial success, there was rapid development,

a great deal of experimentation, many different designs, a fast pace of change.

That’s what was going on.

So what happened with aircraft is actually pretty normal.

One of the fundamental concepts when we think about

how technology's evolved is the S-curve.

See a picture.

What this shows is that over time,

you start with a technology at a relatively low level of performance.

At a certain point it starts to accelerate.

Then you get a period of rapid increase in performance.

And this is also, typically, the time when the markets really were growing.

And this is when you're crossing the chasm and so on and so forth.

And then, improvement levels off.

That's when the markets mature.

That's when it's a large market, can be very profitable.

Now the thing about these s-curves is that they tend to follow one another.

We're thinking about new technologies.

So you'll get an old technology, say sailing ships, and

then a new one will develop.

Steam powered ships.

Initially, performance of steam powered ships is relatively low, but

over time, they come to dominate the marketplace.

So let's dig a little deeper into understanding

how a new technology develops.

Initially, there's a couple things going on.

One thing is, there's a lot of competition.

Over what the design of this technology's going to be, and

think back to those aircraft.

It wasn't clear what an aircraft was going to look like.

Whereas right now, you're pretty clear when you say an airplane,

what you're thinking about.

Even the Wright brothers, their plane didn't have what we call now ailerons,

which control how the plane banks, all right?

They used something called wing warping.

Their propeller was behind the pilot and pushed the air, instead of most of what

you see in modern propeller aircraft would be ones that pull.

So the Wright brothers didn't have all the key elements of the standard design,

what's called the dominant design.

Over time what happens is that a dominant design emerges,

which defines the overall architecture.

And that's an important point because before then,

you have a lot of experimentation, a lot of innovation,

rapid change in what the technology looks like.

There's a lot of uncertainty about whether it's going to work,

whether it's going to take off.

Even whether it's going to substitute out

the old technology like sailing ships, right?

Sailing ships put up a very determined fight.

And some of the most beautiful and most capable sailing ships ever,

the clipper ships, evolved as sailing ship

designers competed against the oncoming steam technology.

Which was initially unreliable and slow, and couldn't go particularly far.

So if we go ahead and think about the message there, right?

We've got this message that young markets are uncertain and they're dynamic.

And the uncertainty raises questions like, is the technology going to work?

When will the market take off?

Let's take a couple of examples.

You think back to kind of the prototypical example,

something where it looks almost like the S curve.

You'd be thinking about something like transistors as they replaced vacuum tubes.

Look at that diagram, right?

A very smooth curve increasing every year.

Now there is some question as to when this is really going to supplant vacuum

tubes, right?

So there is a lot of uncertainty, this is a tough market.

What about though, ballpoint pens, right?

Certainly, they're ubiquitous now.

What happened when they were introduced?

Well, here's what the diagram looks like.

Look what happens initially, very rapid growth.

Okay, these were a marvel,

except it rapidly became evident that they weren't quite as marvelous as they looked.

They leaked, and the market cratered, as you see.

And that cratering lasted for several years.

So this is something that makes you think, well, what if I was a manager?

And I was thinking about whether to enter that ballpoint pen market, and

what if I had?

Well, my career might be ruined.

And what if I was just trying to decide to do it

a few years after the initial debacle?

Would I think this technology will ever work?

And then let's go back to transistors, right?

Let's say with transistors you saw that smooth curve.

And just at the right time you said, all right, we are going to jump in big,

we are going to dominate this market.

You might have ended up deciding to build a plant to make germanium based

transistors, rather than silicon based transistors.

And in fact, one major competitor did that, and of course,

germanium had a lot of advantages, but silicon was the way it ended up going.

And so that plant was worthless.

All right, so a lot of uncertainty.

Also I want to emphasize that constant pace of change, right,

lots of experimentation.

What that translates to is many product generations, and

a lot of investment that a firm has to keep throwing into the market,

even as it's quite small and uncertain.

CAT scanners went through three or four generations before they really took off,

and only the companies that stayed in were able to keep with it.

So in hindsight, right,

we know what happens in these new markets.

And this is one of the things that I want you to really get out of the video so far.

In hindsight, it's going to appear easy.

The conventional wisdom, right, when you read about Apple, or

the Wright Brothers, is that the winner was brilliant and hard working.

And the losers didn't see it coming or made stupid mistakes, right?

This is a flawed, and at most very partial perspective.

Of course the winners made good decisions, and of course the losers probably didn't.

But what we've seen is some of the reasons why these new

technologies are very challenging.

And what about that point about the losers not seeing it coming?

In fact, when you look at what firms do when a new technology emerges,

incumbent firms that are working in related technologies.

They almost always make serious and

well-intentioned efforts to evaluate and develop that technology.

A lot of the time though, they get it wrong somehow.

They get it wrong somehow, and I think you need to think back to

the fact that well this is very uncertain, it's not easy.

So it may not be too surprising that sometimes they get it wrong.

And we can start to look underneath to start to understand some of

the reasons why they don't succeed.

Let's just go underneath a little bit in terms of decisions.

Think about some of the decisions that firms need to make if they're

going to succeed in a new market.

And think about them in light of this uncertainty and dynamism.

Uncertainty and dynamism is the central theme so far.

Let's think about timing of entry.

Let's think about the magnitude of commitment.

Let's think how we link our existing capabilities to that new market,

organizationally.

And let's think about our strategic approach, how we're going to compete.

These are all major decisions that any firm is going to have to make when it's

addressing a new technology in a new market.

So each of these choices though, in fact, presents something of a paradox.

Something where you might think there's a conventional wisdom,

but that conventional wisdom isn't always the case.

So with timing of entry, the conventional wisdom is,

well you want to get in early, right?

Because then you are going to be there first, you're going to be able to build

a fortified, impregnable competitive position.

But early entry could be premature entry,

think about the ball point pen example, right?

And that's not the only one, diesel locomotives did the same thing.

What about magnitude of commitment, right?

You're trying to think, well, how much should we commit to that market,

that new technology?

Of course, well you're up on innovation and so you're like,

we gotta make a serious effort.

The conventional wisdom is that if a high commitment wins, well,

maybe the winner does have a high commitment.

Or maybe high commitment locks in early mistakes,

like that firm that built a plant to make germanium-based transistors as

opposed to silicon-based transistors.

What about how you link your existing capabilities in?

I mean, to some extent that's why you're here in the first place, right?

Your existing capabilities and resources, as a firm,

are why you might think you have an advantage in this new market.

You want to gain that advantage by leveraging them.

But it might turn out that they're not as valuable as you think.

And efforts to leverage them can in fact inhibit adaptation.

So if you think about calculators right, and other ubiquitous office instruments,

you might think Well, what did we have before calculators?

We had electro-mechanical calculators, right?

Ones that worked mechanically rather than electronically.

And those manufacturers thought that one of their major assets

was their service and support networks,

they thought that they would succeed by leveraging that capability.

It turns out though that electronic calculators are so

reliable that that capability wasn't very valuable.

So they ended up pushing in on the wrong strategic approach and

that's the last of these decisions.

You're thinking well, how do we compete?

You have to decide how we're going to compete, how we're going to win customers.

And there'll be pressure to go ahead and

rely on well-worn recipes for success, right?

I mean, after all, you know your customers, right?

You know their needs.

And the trouble is that new markets often require new ways of competing.

So, for example, if you think about locomotives, railroad locomotives,

when they went from steam engines to diesel electrics.

Turns out that the two major manufacturers of steam engines actually

were able to make the technological transition, and they had a fighting chance

with the locomotives, the diesel locomotives that they were building.

But a new entrant, General Motors Electro-Motive Division,

ended up dominating.

Well, why did they dominate?

Well, they competed in a new way,

they were coming out of a regime where you built things by mass production instead of

custom ordering, parts were interchangeable.

And you didn't custom-build for different railroads the way that steam engines were.

So steam locomotive manufacturers were fairly quick to recognize they

needed to be able to build a good diesel, but the basis of competition changed,

and that was one of the reasons why they didn't succeed.

So at this point, the fact that many innovation efforts fail, many,

many more innovation efforts fail than succeed.

This shouldn't be surprising to you, right?

We see high turnover of industry leaders, as new technologies emerge in

spite of their serious and well-informed efforts manage technology cycles.

That shouldn't be as surprising as perhaps it might have been when you

think about the difficulty of making those core decisions correctly.

But there's more to it than that, okay?

Remember, what we've been doing so far is to understand some

of the factors that make the decisions when you're innovating, difficult.

And so sometimes, you might say well, firms just made a bad bet,

that's why they failed.

And there's plenty of cases like that, but it also seems that firms that have been

successful, they've developed capabilities and

resources that should give them an edge, they should do better.

And yet, we find they often have great trouble even addressing the challenge.

And when you look at it, it seems like the managers just aren't up to the job,

you get the feeling that the managers not only aren't making good decisions

strategically, just the organization isn't implementing effectively.

So our task now is going to be to go and

we're go inside the organization, right?

But before we do that, we want to make sure we stay at the upper level and

say look, we want to, through this course, help you become a better manager.

You'll see the issues coming, and that's what we've been talking about so

far in this lesson, and you'll also have better ways of taking action.

So, in the next lesson, we're going to reframe the overall challenge.

Okay, the challenge is not going to be just dealing with this new technology.

When we go inside the organization,

we're going to see that the challenge is to do both the old and the new

to be able to compete in mature markets, ones that are on the top of that S curve.

Where we're focused on cost efficiencies, refinements,

incremental innovation, but still be able,

in a related market, to be able to develop new products.

Be comfortable with the radical innovation, the experimentation,

the speed, and the flexibility, and the learning that that's going to require.

And it's going to turn out that these two things

are related because they're happening in the same organization.

And to understand why organizations have such trouble, we have to not only

understand what's going on outside in the technology market space, but

also inside the organization.

And that's what we going to do next.

Challenges in the Evolution of New Technologies and Markets

Strategic Innovation: Managing Innovation Initiatives

Meet the Instructors