Frankie, today is a really important day for us because we're going to present The Survival Model. The model that you helped me develop through various conversations for a book that I wrote a while ago. And this is important because it's going to be a model that we use throughout the course to try to analyze some of the companies and industries that we look at. So, as the lead TA for the course, it's important for you to review this so that you're familiar with it and you're going to answer questions. And so, I'm just going to ask you to sit down here and relax, and we'll go through the survivial model so that everyone will have an opportunity to understand what we're trying to do here. So what's going on? First of all, we need to talk about a disruptive technology and define it in some way. It's an innovation that provides a product and service that's so compelling that everyone rapidly abandons their current way of doing things and flocks to this new approach. Now we talk a lot about innovators and, and we should ask the question of whether or not the innovator is the inventor and the answer to that question is really no. you can innovate based on somebody else's invention. An innovator is someone who applies a new idea. If you think about Facebook, Mark Zuckerberg is an innovator. Is he an inventor? Well there's some dispute about that. If you watch the movie the Social Network, there were two characters in that movie who thought they actually had the idea for Facebook. But for us it really doesn't matter. We're interested in the role of the innovator. Now, the innovator effects one or more incumbents. Okay? And the incumbent has an organization, and that organization influences how that incumbent is able to respond. There's usually a board of directors, which tries to set overall strategy and direction. There's a Chief Executive Officer who in the United States is a very important position. And there are employees. Senior level managers, we sometimes call the C gang for Chief Financial Officer, CFO. Chief Operating Officer, CIO. Chief Information Officer. There are middle managers. And the middle manager's role is to filter information and send it up in the organization. And also to take the objectives and the strategy of the firm and to see that all workers in the organization are in tune with that. And there's a structure of some kind for any kind of organization you want to look at. For a profit making organization like a business. For a non-profit like universities. For government organizations and for non-government organizations. They all have structures, they all have various employees or staff members and they influence how an organization is able to respond to a disruptive technology. So we have here, is we have our incumbent, okay. Who is going merrily along and then we have a wave of new technology, which comes along. And that has an impact on the incumbent, and quite frankly, the incumbent is less happy than it was before because of the impact of this new technology. And it's trying to figure out what do we do. And that really is the objective of our course here. Now there have been some theories and organization studies which have tried to explain what happens when a technology comes along. one of the ones that I like is called Punctuated Equilibrium. It says that an organization is or an industry for that matter, is in sort of an equillibrium period, and then there's a big shock when some sort of new technology comes along, then you go back to a period of equillibrium. So if we look at this point, one of the examples that I'd like to use is the airline industry. In the 1960s and 1970s, The airline industry was converting from propeller driven aircraft to jet aircraft. The changes were dramatic in the sense that they were going to have more passengers, they had to develop computerized reservation systems to handle the volume, they had more flights, but it was a matter really that they scaled up, okay? They still were an airline. They still put passengers on planes. They flew them places. They flew their luggage. they, they made reservations. they did all the things that, that an airline did in those days. They even gave you food on the airplane in those days, if you can believe that. These are all competence enhancing changes for the airline. They kept on doing what they were used to doing. just with a new scale, and a new move sense of technology. If we think about a company like Kodak, which we'll use as an example alot in this course. Kodak was a film and camera business, Okay, and it was decidely not a digital business. So when digital photography came along it was competence Destroying for Kodak. Kodak really never managed to recover from that. So, what's going on today? I think that this continuities happen more frequently in the past and that the step function is steeper. So, if we use to have a situation, where, maybe an industry going along like this, with some. Does continuities in it, I think what you're seeing today is much steeper kinds of changes happening much more frequently. Look at Facebook. One million users by the time of its IPO. That's incredible growth. We have the great design of the i devices, the iPads through the iPhones. I'm not sure any of us ever knew we needed these devices. I wasn't sure I needed an iPad. Once I had one I didn't understand how I'd been able to live without it. So the devices created their own demand, an incredible story of success for Apple. So, what we want to do is we want to see a disruption when it's coming, and we want to make it competence enhancing for us in some way. So I developed this model, along with Frankie[LAUGH] for a book. and, and it's trying to describe how one might go about surviving a disruptive technology. We start out with the technology and an innovator uses that to create new products, new services or a business model and we want to focus on the dilemma of the incumbent. And these are factors here that inhibit the ability of the incumbent to respond to the innovator. First factor is denial. Humans are very good at denying things. Managers[LAUGH] deny that a new product that another company is producing will affect them. they deny that economic circumstances are going to have an impact on them. it's a, it's a human trait. Now that's very difficult to overcome. There's history, Kodak filed for bankruptcy in 2012. It had been in business for 120 years; absolutely incredible. There aren't very many companies that last that long. There's resistance to change. I confess that I suffer from this just as many other people do. I will tell you that what's going on right now in the educational world is a little scary to me. I've been teaching for a long time, I've been following the model that faculty have used for 200 or 300 years or more. Now I've been teaching an online class with all classes online with students appearing in on my screen and individual windows k, using a product called Adobe Connect and we actually had class discussions this way so I could see the students and they could see me. I've been teaching a blended class in which all the lectures are on video like the one you're watching now, and we meet physically to talk about cases and current events, we call that blended or a hybrid class. And of course I've taught for many years conventional classes where we all meet physically. how is this going to affect higher education? Well, we'll talk about that. This is clearly disrupting, Coursera is disruptive to higher education. Mindset, well the people at Kodak had a chemical and analog mindset, they were orated towards film. Brand, okay, Kodak again. I can remember traveling on vacations with my family as a child And any tourist destination you went to there was always somebody selling food, a hot dog vendor. And up in the corner of the stand would be six or eight yellow boxes of Kodak film. And he was really hoping that you would buy, not only a hot dog, but you'd buy a roll of film, because that had a nice profit margin for him. So Kodak had one of the best known brands in the world. Sent costs, well, our accounting faculty would say, hey, you've got to ignore sent costs because they're gone. You've spent the money. But if you're a senior manager and you look around and you say, gee, we've got hundreds of millions of dollars of plants. That make chemicals for film. And that make paper backing for film. how do we just abandon those? How can we tell people we don't need these anymore? Profitability. Well, I'm not sure I would like to be the one to go to a CEO. And say, Madam CEO, we've got this disruptive technology. That's coming down the road at us. And I think it's going to have a serious impact on our business. And she responds, hey have you looked at our profits lately? we've got 40 consecutive quarters of profits increasing every quarter. Why should I worry about disruptive technology, we're doing great. And lastly we have a lack of imagination. All right this is tough, you know you get involved in something you're focused on it. You've got tasks to accomplish you have fires to fight you don't have time to step back and to say. Gee, I wonder what this is going to do, this new technology. You may not even have time to see the new technology is coming in the first place. And so it's hard for people to imagine the impact of things that, that are, are not certain. That are uncertain. That aren't well known, and that are going to happen in the future. Well what do you do then as a result of this dilemma? Okay. Well, one thing companies can do is to morph their business model to accommodate competition of new opportunities. This is the sort of happy outcome from it. A more difficult task by far is to abandon an existing business model and to adopt a new one. Some companies have done this, not very many. And of course the tragic outcome here is failure, where you merge with another company, somebody buys you out, you go bankrupt and are liquidated. And we're going to talk about, what I call are three amigos during the course. Kodak, Borders and Blockbuster. They are all bankrupt now as a result of disruptive technologies. Alright, why don't we take a little break right now and have a quiz to see how well you've understood some of the things we've covered up until this point. Alright, so this is a summary then of the factors that inhibit a response to a disruptive technology. And these are the things that we have to watch out for, and these are the factors we'll look at as we analyze some of the companies in the industries throughout the course. So what are the takeaways from today? Well, we've looked at the nature of disruptive technologies, and we looked at our punctuated equilibrium model, the stair steps, and we've presented the survival model which will guide us through the rest of the course. And that model emphasizes the incumbent's dilemma. And out objective here is to see a new technology coming and then to figure out how to survive it.