Lecture 9
6th November 2012

The mood in the room felt somehow relaxed tonight as students wandered in and took their seats.  In the land of the long weekend, today was the Melbourne Cup Day holiday (yes, we get a day off for a horse race!). Not being a work day students arrived in casual dress and I wondered whether this contributed to what felt like an easy mood.

And whilst there was no speaker tonight, David had invited a guest.  Marc Harrison is an entrepreneur and investor and had been asked to sit in on the lecture to provide feedback to the student presentations.  Marc is well credentialed, having previously held the roles of Head of Equities and Executive Director of Goldman Sachs JBWere Asset Management.

The lecture opened with student presentations

Empowered Energy are proposing a solution which connects every electrical device to smart metering to enable users to understand energy consumption via a dashboard which provides real time data.

The team has developed a sophisticated financial model and have identified a preferred breakeven point which requires a modest uptake of 3.1%.  Interestingly, the team is targeting customers who are not price sensitive.  Which seems to me to be curiously at odds with an offering that I had assumed to be about managing spend.  Marc raised the same issue.  It emerges that the offering is really a technical ‘toy’ that provides control.  Which makes perfect sense now that I understand the ‘hook’.

Marc’s feedback? ‘Don’t try to convince me to invest.  Try to convince me to have a second meeting’.  Practical advice from an experienced investor.

Mr Budgeto – the Cash Management Team – has undergone a rebrand and a significant transformation.  Their research had indicated a poor understanding of the customer problem and a lack of clarity around their earlier solution.  It turns out that the real problem is anxiety as a result of not having a ‘24 x 7’ feeling of being in control.

The team presented a series of mocked up smart phone screens showing how their cash management application might work in reality.  Their research shows 100% interest if the app is free and 40% otherwise.  In the case of the free application, break even is achieved at 10% take up.

Marc’s feedback? ‘If you need it, will you have the skills to use it and if you have the skills, will you need it?’.  My personal view is that the interface of the application has an elegant simplicity to it and thus ease of use seems not to be a problem.  More importantly, its tone is advisory without being patronising.  I hope the team gets real traction.

Fast Entertainment is a new offering, as a result of an established syndicate group splitting.  The proposal is to introduce new forms of accessible, affordable family entertainment into Australia, in particular ifly (indoor skydiving) and maxflight (a flight simulator which delivers a range of virtual experiences).  I’ve included a couple of links to youtube videos so you get the idea… ifly and maxflight… it does look like fun!

The team has a very simple value proposition : to provide a unique experience at affordable prices in a very convenient location.  An equally simple hypothesis now requires testing : consumers will like this sort of entertainment and will pay for it.

An introductory presentation which stimulated a number of questions from Marc : Where is it already in use? What is the level of demand? How much do people pay and for how long?   Take a look at the exchange…

Disruptive Innovation – A Grounded Example

At the request of students, David is devoting a little more class time than previously to revising theoretical frameworks.  Tonight the focus is on Disruptive Innovation, a concept developed by leading thinker, Harvard Business School Professor Clayton Christensen.

By way of introduction, David tells a story.  Of mechanised diggers!!  The story has its origins in the British port city of Liverpool, where cable operated cranes were in widespread use moving cargo.  Hydraulic rams were in their infancy however one man noticed their potential for digging.  So he attached a hydraulic mechanism to his tractor and began digging graves and trenches.  His competition?  Humans.  And as he posed no apparent threat to the crane operators he was dismissed as something of a joke.

As the technology further developed, our man applied it to loading trucks thus beginning to compete with low end cable operators.  Ultimately of course the cable operators, who initially showed no interest in fighting, were defeated by the hydraulic operators.

Listen to David tell the story…

So how does the story illustrate Disruptive Innovation?  It is a tidy example of a technological core (hydraulics) evolving faster than the user’s capacity to take advantage of it.  In other words the hydraulic systems were applied to increasingly more sophisticated operations, each time biting off the low end of the incumbent’s market.

Disruptive Innovation – Where Else?

David throws the topic open for discussion, inviting students to identify further examples of disruptive innovation.

In Education?  The model for delivering education has remained largely unchanged for 700 years.  Many technologies have sustained the current business model (eg electronic white boards) however the internet has been truly disruptive.

In the Hotel industry?  There is currently no technological driver which would allow a new comer to enter and cause industry participants to retreat from the low end of the market.

And a little theory to round out the discussion.  Clayton Christensen describes three types of innovation.  I’ve included the lecture slide (below) in the interests of a more complete definition, but in summary…

  • sustaining innovation – an innovation (either incremental or breakthrough) that pleases high end, demanding customers;
  • low end disruption – drives growth at the low end of the market by delivering adequate performance at low cost;
  • new market disruption – drives growth along new dimensions, particularly simplicity and convenience, making the offering available to those previously unable to access.

So what’s the deal with the stage gate process?

Most of us who have been involved in project development are familiar with the concept of the stage gate process.  It’s essentially a series of decision points where the viability of a project is reviewed and a go/no go decision is made.

The slide below illustrates this process.

David provided a highly animated description of why the stage gate process can impede innovation.  Thoughtlessly applied it may tend to filter out all but small sustaining innovations.  His advice : you may need to circumvent this process if you want to make something interesting happen.

US Research indicates that innovation efforts within corporations have a success rate of around 4%.  Dismal.  However with the application of the ‘right’ processes (lean innovation, a deep ‘anti clockwise’ view of the world, and the disciplines that are being taught on this course) this can be as high as 70%.

Pushing Universities Into a Corner?

One lens on innovation is provided by Larry Keeley of Doblin. Innovation in Keeley’s model comes in ten types. These range from the Business Model, Networking, Enabling Processes through to Service, Channel, Brand and Customer Experience.

David challenged the students to consider four industries with which we all have experience – dentistry, banking, education and energy – and to envisage substantial innovations within each.  These innovations were then characterised according to the ten types and defined as either disruptive or non disruptive.

The most profitable innovations – based on a study of 30,000 innovations – tend to start in the customer experience area and are executed via a compelling business model.  I’ve included the latter part of this discussion, it’s quite interesting…

I particularly loved the discussion around education.  One team proposed an  innovative approach that would empower students to identify their best teachers in what is a lifelong learning journey.  Of course not all fields of study lend themselves to this model (surgery for example) but for those that do, the education process becomes modularised, allowing students to assemble their learning experience from the best providers anywhere in the world.

The model has the potential to deliver a superb student experience, and significantly challenges the role of the university.  Take a look…

It was an energetic discussion, and the highlight of the evening for me.  And I look back on my university education – a somewhat lack-lustre, impersonal experience that for the most part saw us ingesting and regurgitating a prescribed body of knowledge (to be fair my major was Pure Mathematics).

With the internet providing the technological platform, and institutions such as Stamford open sourcing vast amounts of content, what kind of educational experience will the next generation enjoy?  And I recall David Loader’s transformative view of education (Lecture 7),  wondering whether the stirrings of change are upon us.


2 Responses to “Lecture 09”

  1. 1 thushara (@excda) November 11, 2012 at 2:10 am

    An article on Distinguishing Sustaining From Disruptive Innovations by Clay Christensen.Foundations for Growth: How To Identify and Build Disruptive New Businesses http://www.biu.ac.il/soc/ec/students/teach/554/data/doc/christensen.pdf

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