Category Archives: Book references

Apple, Book references, Disruption, Innovation, Uberization

[Book Review] The Innovator’s Dilemma

Share via email
 Share

The Innovator’s Dilemma is an innovation classics, having defined the term of disruption and made Clayton Christensen famous. It is not only a recommended reading, must also a recommended re-reading. A lot has happened since it was published in 1997, and although it has been heavily criticised since then, I find it still relevant in most situations. Obviously management science is no deterministic science, and no theory covers all cases flawlessly. But the disruption theory applies to many domains pro-actively, which makes it incredibly relevant. Note that I read the 1997 version, and other, more modern editions might have tried to broaden the scope of disruption — but I’ll stick to the original “Eureka” version.

In short…

There are countless summaries of their book on the Internet, so I’ll stick to my own take-aways:

  • Disruption is powerful, in that well-managed companies fall in the trap of getting trapped in a high-end niche when trying to best serve customers and optimise resource allocation.
  • Disruption happens when a cheaper alternative, albeit with lower performance, appears on the market. It first requires to look for alternative applications and customers that installed players overlook. But the performance increases faster than the customers’ needs, and ultimately the cheap alternative becomes good enough for the mainstream market. Having matured to something that the incumbent can no longer reproduce easily, they end up… well, disrupted.
  • Strategies to resist disruption require a separate organisation that grows independently: mainstream resource allocation would systematically priorize other projects for existing customers, and the disrupting products cannot initially promise significant revenue generation for a corporate behemoth.  It needs to work like a start-up.
  • Ultimately, when the disrupting product becomes good enough for the mainstream, the choice criteria change. For example, once hard drive all become reliable enough for most applications, other factors might become more important in customer choice, such as price/MB or speed.
  • There are interesting numbers about gross margins in a given “Value Network” (i.e. stakeholders of a value chain), inferring that partners’ margins are heavily structured by their other partners’ own margins. Good to know before exploring new markets (or “just follow the money”, as they say…).

Afterthoughts

Although incredibly useful, this book does not predict the future: it just explains what happens in case of disruption, and give directions on how to manage a corporation successfully to survive disruption. However, it cannot predict when a new technology is disruptive. Let’s list a few randomly-chosen examples:

  • Video streaming: once low-quality and missing content, now Netflix is disrupting TV. One can see how hard it will be for TV channels to catch up, having failed to defend their fortress.
  • Low-power wide-area Networks: LoRa or SIGFOX propose very low-bandwidth, low-power wireless networks with very low cost structure. Today, these networks are find for certain IoT use cases, but they are far from supporting e.g. a phone call,. However, with technology advances, why not imagine them suitable for mid-rate data transfer ? Then it would be disruptive for existing, more traditional networks.
  • Digital cameras: bridge cameras are becoming higher-end, lower volume products, while smartphone cameras are taking over. A clear case predicted by the theory: the lower-quality tech is getting good enough for mainstream, taking volumes away from traditional players, which are flying to quality.
  • Presentation remotes: some people spend up to $80 for a presentation remote. But there are mobile apps that allow to change slides and perform other simple tasks such as timing the presentation. While far inferior in ease of use or features than a traditional remote, these apps are… free ! Definitely a candidate for disruption, provided there is a business model for these apps.

One more thing…

As strange as it sounds, the original iPhone was not a disruption, according to this book. The iPhone was not any cheaper than then-existing smartphones, but was simply superior in term of user experience (reminder: the first version was lacking MMS or 3G, which Nokia phones had had for a long time). So, disruption is not the only way to gain market share. Blue Ocean Strategies, anyone ?

Book references, Skills, Society

[Book review] Fooled by Randomness

Share via email
 Share

I don’t usually read books about “how to see life differently”, but I liked the idea that an original-minded trader (by background) wrote about the role of randomness in life. “Fooled by randomness” is just that: a (sometimes cynical) view of our lives from the eyes of a statistician.

The Author

Nassim Nicholas Taleb is most famous for his previous work about unlikely events — “The Black Swan”. A former trader, he nows teaches at NYU and feeds trolls on Twitter. Of Mediterranean culture, seemingly extensive thereof, he excels in seeing things in their wholesomeness, not just events by events. This was the philosophy of the Black Swan, and it is still present in this book.

The Takeaways

The book is a constant reminder to check real facts against their probability of occurence, before jumping to conclusion about their cause. Several phenomenons are at work in building well-accepted-but-false theories out of observation:

  • Randomness: while people might use complicated theories to explain visible successes, they might just be the result of the number of agents at play. Then, there is always a slight probability that you are observing a small-but-visible sample of that large number set. Imagine that 10 000 traders play the casino on foreign-exchange rates. Out of this quantity, a marginal number will almost surely come up with impressive results. Their big bonuses and acclaim will make them more visible that the losers. Add cognitive biais to this, and you get a false theory that might seem to explain their success.
  • Cognitive biais: several biaises are at play, but few of them seem of particular importance:
    • survivor biais: we usually don’t talk about the losers, just about the winners. When you see a traders who “made it”, you may not see all those who got fired because of their poor performance;
    • risk/loss aversion: we may make the wrong choices by fear of losing out. As a trader specialised on unlikely events with big impact (the “black swans”), the author shares the pressure he gets while investors see minor loses on his portfolio while others (the “random fools”) are in the green. This may be the case most of the time. Until that time when he makes up in a few weeks several times what the “random fools” made in the previous years. The example that comes to mind is the one where traders make $5M every year during several years, enjoy promotions and big bonuses, until their theories turn out to malfunction and they lose $30-50M in a few weeks. Over time they clearly lost their investors’ money in hot-air theories, but investors do prefer this way, rather than to accept losing little during several years until a disproportionate reversal of fortune. Think of it next time your friend shows off how much s/he made on the stock market;
    • induction: we tend to expect the future to be a continuation of the past. We all heard that “real-estate market will never go down”. Until it does. This may be intuitively a particular case of the fact that our brains like linearity — while many things are non-linear;
    • environmental biais: we have greater chances to live in environments where people are similar to us. Therefore, our house may never seem big enough (“the neighbour has a new car”…), our fortunes never seem to be as good or bad as they actually are.
  • Laziness : the medias are particularly held responsible to spread biaises. The striking example is how they have to explain the direction of the stock market with whatever news of the day. They can’t justify their existence by just saying that we are observing noise. This makes reading news much less important. Obviously this applies to many managers in larges companies, or politicians, etc. trying to take credit for random events.

Personal opinion

If you have a background in statistics, and have read recent books about cognitive biases, you may not feel like you will learn a lot in this book. Let’s just say that it is a kind reminder. I found the writing style not particularly pleasant, but I will nevertheless keep this book as a reference when confronted to random fools. It is not often that these things are dealt with altogether in one convenient place.

The book is available here.

Book references, Digital, Disruption, Foundation

Digital is disrupting the world

Share via email
 Share

There are many blogs and publications about digital and its disruptive way to change how we live. This one is a modest effort to contribute to the community, with (hopefully) some different points of view than what can be found in mainstream media. With that said, and not least, it is also a tool for self-improvement for the author, by structuring concepts and exchanging ideas with interested parties.

Before going any further, it is worth emphasizing a few bits of context that may be useful to understand the perspective of this blog:

  • about Digital: we adhere to the vision first formalized by Carlota Perez that the world is going through the deployment phase of the technical revolution of the digital age. In short, this revolution started by the invention of the transistor, and we are now at the point where the technology is sufficiently mastered and cost-effective for it to spread across all sectors of the economy. This is the moment when institutions and legal frameworks are adapting to the situation.
  • about Disruption: we will stick to Clayton Christensen‘s definition of disruption. That is, a way by which an initially inferior product or service, albeit with a drastically lower price, takes over well established solutions and becomes the standard. You may think of the PC replacing the mainframe: the PC was less powerful, but much cheaper to own and operate. Clayton Christensen very well described how disruption happens for incumbents. There are many examples of the Innovator’s Dilemma, one most remarkable being Kodak — who invented the very technology that made it irrelevant.
  • about Innovation: we define innovation as a process aiming at generating a comparative advantage in either cost structure and/or product or service features. This is clearly not just R&D, and it may not even involve new technologies, but at the end it translates in market adoption and (let’s dare say it:) S-A-L-E-S resulting from market traction !

Together, the broad availability of digital know-how, the wide adoption of smartphones (shall we say “pocket computers”?), and the understanding by established elites of what is happening, make blue ocean strategies easier to implement, and opportunities aplenty — all of which are candidates for this blog to talk about.

We hope you enjoy reading this blog. Please do not hesitate to voice up where relevant in the comment section, or even contribute by submitting your own post!