[MUSIC]. So what these represent are kind of disruptive innovations and disruptive substitutions that can take place. And again, in the face of industries that don't want to change, the industry wants to keep it the way it is, the industry's comfortable with the way it is, the industry likes it in a certain way. But somehow it get changes, change gets driven through. So I'm talking about disruption through substitution. So here's the basic question. If you found a version of the product that you need that's better and cheaper than the market leader, would you consider buying it? If it's better and cheaper, sure, everyone would I assume. Y'know, we got these two products here. One is at a high cost, low performance, and the other one's at high performance, low cost. It's a no-brainer. We're going to go for P2, right, the higher performance and lower cost. A traditional way of thinking about technological improvement or technological development comes rom these technological S curves. And so, for example the established technology is, is, is getting better, but is increasing at a certain rate and the later technology comes along that increases at a much greater rate and the performance gives up much, much higher performance, than we have from the initial. But, this will mask something, because, it actually doesn't only just work this way, there's more to it than that. Let me show you in this way. Let's say for any market that there is some kind of basic performance demand. We'll call this the low end of the market. So, there's a performance demand at the low end of the market. You know, the, the, the, something, the product, suits our needs, but just just barely. Then we have a product, a technological development that is improving, and improves due to learning. And so, at some point, our technol, technology is actually able to meet the low end of the market. Market and, and go beyond. Also, there's a high end of the market. And so, if you think about what the low end is, what the basic performance parameters are, and we could think about what the high end of the market is and what the performance parameters are up there. The technology, as it improves, will meet the low end and eventually meet the high end and will keep making it better and keep making it better and keep making it better. But what, what happened then is, a new technology comes in, and again, it has learning, right? So it's, it's and it even has less learning, that is, the slope is less of this thing. It, at some point is going to meet, also mee the low end of the market. And once it does that, it may be that some people who feel that the performance is too high, drop down. Or the costs for the kind of performance that they don't need is too high, so they'll drop down. So let me give you an example, a concrete example, Microsoft Excel. In 2007 there was a version that had you know, 1,000,000 rows by, you know, 16,000 columns. It was, it was, you know, 1500% and a 6300% improvement over the 2003 version. Did that make a difference to you? Probably most of us, 90 percent of the people, then make a difference, and yet still there are people in Redmond working on this and making the parameters and the solvers and making it 64 parameters and it was 128 parameters making it better and better and better. And you have to ask, are these still meaningful improvements? All right. So as that thing it's better does it for the average user[UNKNOWN] my needs. So let's take a closer look on how this disruption happens. So take the example of hard disc technology. There was a time when capacity was[UNKNOWN]. When you had a hard disc what you wanted was the bigest hard disc possible. These were the days when hard disc were big, they were gigantic things, they required cooling you had to sit them, put them in a special room by themselves. And you know, capacity was measured in kilobytes.So from this world of capacity is king a new thing developed. And what happened was physical size became the new parameter. Because of the time, I would give up a little bit of incapacity in order to have a, a hard disk that I actually had on my desk. Because remember now we have these personal computers that were starting to evolve and people were using. Personal computers in their offices. And to have a computer with the disc in your office was much better than having it three flights down and with the guys with the white coats in the computer lab. After a certain point though, size became, you know there is a one called the the Kitty Hawk, the HP, they got really, really small. And people began to say, you know what, I'll give up a little but in size if I can actually just have reliability. And so, if, if, if it, it doesn't have to be super tiny, but if it actually is reliable, because now I'm putting my tax records on there, now I'm putting, you know, really important stuff, and so I want that thing to be reliable. Interestingly, here also in each of these transitions was a different kind of technology that was in developed and involved. In the reliability may have been the kind of people who do coding, cryptographers, people like that, who understand how to put the data down in ways it's easy to get off, reliably. And then we have the current state, which I think is, the current state is basically the inverse of price. So cheaper, dollars per, per dollars per megabyte. Actually now it's pretty much dollars per terabyte. And so here it's price, it's manufacturing that is the most important thing. So at the very beginning capacity was that they were really scientific, scientific things to get capacity up was problematic. Then they started getting smaller and the smaller ones were your Connors and your C gates and those got really very small. And then reliability became the performance parameter. In each of these cases people are bailing from the overshoot. So they're high end of the market need. Their bailing down to what the thing that really just suits their low end needs as they have. And so this pattern, this changing pattern of performance metric is something we need to be aware of. So these changes in performance. Like how, you know, what are the definitions of those who own hybrid electric cars? What does it mean to perform? Right now people were trying to use miles per gallon on electric car. That doesn't make sense there's going to be some new basis of performance. Maybe its the amount of, of, of smog that it puts out. Maybe its the, the range that, that's the most important thing. You know personal computers. All these things, all these things here the definition of performance change. And that's what caused the disruption in that industry. And so if we say what is the new basis of performance and can we drive the change in base performance? That's where our innovation constraint or a removal of the constraint would actually do do the best work for us. Now we're at a point where we can actually combine these models. Take these disruptive technology ideas that we've just talked about and take the innovation constraints model and see how we can bring them together. So, for example at Kodak. So, let's go back to the Kodak example. So, Kodak saw in the world they were in. The film world, that analog, that is, traditional film, was ready, was, was exploitable. Was a thing that they could do. They had low cost per print, they had printing paper, they had great storage capacity. You know, 36 pictures on a roll. There was this ease of use. There was, it was scalable. Every photo shop, every drug store was able to have one of those[UNKNOWN] machines. And then we had color, customers that wanted a, they had a certain expectations of what quality was. And so you take the overlap of those things. And the constraints are met and that's where Kodak was making a lot of money. On the other side When they looked at digital, what did they see? The saw, well, there's problems with storage capacity. There's problems with cost. We haven't gotten it there yet. We don't know how to manufacture these things. It's not scalable, and it's not easy to use, yet. There's, there's no printing available. High quality printing is not there. even the, quality of the pictures is terrible. And so, there's no overlap. Performance is not there. And so, it makes sense that Kodak went to the place where they saw all the overlap, and then go to this other place here. So, for them, high quality was the performance metric that didn't meet the needs. And so, this new technology was not increasing at a rate sufficient to feel like they were actually going to get there. And if they would measure the, enters the slope of this line, they were saying basically, it's going to take 25 years for this to get to the place where it actually compete. But Sony made a different bet. Sony said, what if quality wasn't the key? What if quality is not the thing that people are after in the traditional way? They said, well there's storage capacity because they were looking at Conner's, 20 megabyte hard drives. there's some printing, bubble jet printing, ink jet printing was invented in HP in those companies around the time. They saw some costs because they were good at miniaturizing, they were good at manufacturing, there's Sony Walkmans and there's devices in that way and for them it was really about the device and not about the film. Digital picture quality. Yeah, it wasn't that great, but, you know what? It's probably good enough. scalable manufacturing, like I just said, and ease of use. They found a way to bring these things together with just enough, just a little bit enough there to be able to exploit that. And so, that kind of performance is really different than the other kind of performance, the kind of performance that Kodak had been talking about. So here, they said, we can just barely meet the low end of the market need with a new definition of performance. What is that new definition of performance? decent quality, immediate feedback, and easy sharing. And if we hit those three things, we've got it. It doesn't have to be picture quality and paper quality and archival and those things. But again, decent quality, not the best. Just good enough. Immediate feedback. I can see while I took the picture of the eyes closed are open. And then easy sharing, I can send these pictures to other people and then print them out. Or not, as well. And so the co-evolution of these technologies is the interesting story here where you have the Sony Mavica at the middle relying on the developpment of these other technologies around them, Photoshop the Intel processor, the HP printer, uh,, and the common hard drive. That those things were driven independently. Alright? Because HP was in a competitive market so they were going to make their jet printers better. Intel was in a competitive processor market so they were trying to make their product better. Connor was in a competitive market so they were trying to make their capacity bigger. And Photoshop is in a, in a software market that's also competitive. And so by letting these things develop independently, that is, not having to fund the development of those other things, Sony was able to find the overlap, the place where these different technologies through the evolution were able to add a great deal, create a great deal of value. So the kind of the things we'll think about is the killer combination here. We have technology pus, because there are these technologies made it possible, people want to try and make it do those, but they was able to do those. But they also had, mar, market call. Because they had change in definition in what people were expecting or wanted or what the need was about pictures. This new technology was able to meet that changing need. There's a big question of whether the need drives the change, or the change drives the need, you know, in those ways, but let's say that these things evolve together along in a new way. And for Sony, Sony had a lot of competition, right? They introduced the Mavica in 1981. Yeah, it was not as good as Kodak film, but it was good enough for taking a picture. And think about the competition they had. They had the Pentax, had the Nexa that they showed a prototype in 1983. So there was a lot of competition down here that drove them up market. And so nowadays, digital cameras are better, in many ways, than film cameras, even from a optical quality prospective, and they did it by coming up through from the bottom. So, how do we overcome market constraints? Like what are the things that we can do to help us overcome these constraints? One thing is understand and redefine performance. Then once we become comfortable accepting the definitions or common definitions in our industry of what performance means, that's when we get set up for failure. We have to understand performance and we have to keep working to redefine performance. How are people thinking about it now? User-based design is a big, big tool for understanding how people define performance. We have to also tell the market what's new. As new things come out we have to keep reminding the market hey there's a new way to do this, a new way to do this, a new way to do this. Because the market is in a, left to its own devices are not necessarily looking for new things. Remember they're looking for better faster cheaper. And so we have to tell them what's new. We have to show them the new thing. Another way to overcome these constraints is to watch the market, and not the competition. What your compet, what your competition's doing is competing in the traditional current way. What you want to be thinking about is the new way, this redefined definition of performance way, and also the other thing is to start at the low end of the market. At the low end of the market where there are these customers who are a pain in our necks, people who don't want to pay, people who have really don't value the things that we value. So we put all this innovation and engineering into our product in the, in the you just don't value it. That's a sign that there's something going on at the low end of the market that we need to pay attention to. So, there are these weak signals that come off and we have to listen for those weak signals. Because things will be happening at the low end of the market. And how do we hear those? How do we actually get ourselves to where we can get that information and bring it inside of our organizations in a way that we can act upon it? So these industry we'll calls industry sector constraints, competition, we've talked about that. Suppliers and how the suppliers that bring the mode of force and also the market and what the issues are with the way that markets behave in terms of adopting new innovative things. One thing you might think about, in terms of. Industry level innovation is this idea of first mover advantage. But there are first movers and first movers when they're good they don't enter it blindly. they just, they see things happening and they act on it. As a great example, the Apple iPhone, right. So these things were happening and Apple said, okay, well if I put this and this together I can see something interesting now they have to act on it. And that's where Steve Jobs came in, was to push the company to force the company to act. And so here are some things about first movers when first movers are good when they have the advantage they have a broad view they're driven by competition alright so this competition pushes em up, they're going to build platforms for prototyping. There going to self-fund activities because want to self -fund , that is we don't want to have, use other people's money to do these things because remember as a supplier perspective that that money comes with strings attached. Ans also, first movers will invest in technology to learn. So, what we're trying to do is, we're trying to learn we're not necessarily trying to make a lot of money at first we'll try to understand this technology in a way and understand is it exploitable. Can we, in the future make money from it? Not from right now. Fast followers, on the other hand, so some people who sit back and wait and they say, well, let's, let's, let me sit back, because if I don't do it maybe no one else will and so I can sit back and wait. Well, the problem is that these value propositions, remember these changing performance metrics or the way that people define performance, are dynamic and they change. And what's going to happen is the standard's going to end up being defined and being controlled by someone else. And in, as Kodak learned that Sony set the standards around the digital camera. The big market control, the, the market control that Kodak had in that industry was no longer relevant, because the, as the performance metric changed, everything changed around it. You know, printing solutions were built by HP and Epson. Adobe became the de facto standard in software. And so there was no place left for Kodak in that market. Fast followers often underestimate the amount of work it takes to get to a new place. And say, well let me, let them do it and I'll just copy what they do. That often doesn't work. We've talked about the suppliers and getting the knowledge out. We've talked about also what the market wants and the new standards that are defined by the first people in through competition. So, that's it for industry constraints. [MUSIC].
