[MUSIC]. Here's one more thing I want to say about industry constraints is that, in industry constraints or what I think of them as external constraints. The things we talked about before, individual group and organizations are what I call internal constraints, those are ones that you have a little bit of control over. You know, you have control over yourself, and there are things you can do to make groups behave a certain way, and even organizations. However, when we get to the industry level, there are all these other outside entities involved, and so they becomes much more difficult to do that kind of control. So therefore, I'm going to call out the external constraint as I am going to be calling the external the societal and technical constraints we have in the next week, and the following week after that. So again, these external, external constraints are ones that we can't necessarily control, but if we understand how they operate, we can actually get to a place where we can still do our innovation process mindfully. And understanding that there are constraint, constraints present, and that we just need to understand how they operate and how it is we can become strategic about it getting around them. So, the first of the industry constraints we're going to talk about is competition. So competition is when two organizations are trying to satisfy the same need in a market and so they both try to do it in different ways. We're going to talk about rivals, and rivalry, and how two organizations or more actually try to compete to satisfy a need, and what the implications are of that for innovation. We're going to talk about capital intensiveness, to what extent that we have to put capital in, and how that forms a barrier to innovation, a barrier to the entry of new things, but also sets up other interesting dynamics. Then we're going to talk about maturity and how organizations in an industry, as the industry matures, how their behavior begins to change in ways that actually pushes back or pushes down innovation? So the competitive environment is such that, if you, if there's highly, things are highly competitive, we say oh, we have to build a new product, because they built a new product, we have to go back and forth. However, if an organization has monopoly power, for example, the way Kodak did, they become a little bit more slow, they become a little bit less interested in innovation. Because innovation is work and innovation is risk and innovation can represent even experiments that fail. And so, why would you spend effort doing that if you don't have to? The other thing that will happen is, is, is, as the speed of competition speeds up, it could be that competition speeding up actually helps innovation, because we'll do something and they'll respond, and they'll respond, and they'll respond back and forth. But it could be also that that, that speed of response as it gets too fast, we sort of aren't able to address it. So we may decide, let's, let's sit back and wait, let's become followers instead of leaders in the organization, in the, in the industry. So let's sit back and wait because it just changes too fast. And that can actually cause us to become a little bit out of touch. Let's call it out of touch with what's going on in the industry, because we sort of stayed back and we're trying to be a follower. The intensity of competition, it can, you know, it can increase innovation like I just said, it can, the speed of response there's a push for lower costs, and those lower costs will actually cause us to we have to innovate to achieve them. Alright, we have to become more efficient, we have to become more quickly. However, some ways that we respond can also constrain innovation. Because, as an organization in the industry, we'd like to stabilize the market, we'd like to keep pricing at a certain level, and we can do that in many different ways. So, one way is to form alliances in order to form partnerships as we connect to other organizations. And those organizations will allow us to address the market, but do it without having to actually, run the risk of innovation. To give you a concrete example, at one point recently, AT&T, the, the mobile phone service in the United States was going to acquire T-Mobile the T-Mobile, because T-Mobile had this 4G network that AT&T didn't have. So AT&T was in a situation where they could actually build a new 4G network or they could just buy it, because someone already had one. And by forming of that alliance would actually allow AT&T to get to a new place, right, a more innovative place, but without actually doing the work of innovation. Unfortunately, for those two companies, that deal was killed by the FTC, the Federal Trade Commission, because it was deemed as anti-competitive. And so, that kind innovation of, of, through alliances and partnerships or the kind of squelching of innovation, the pushing down of innovation that would happen that way was called out and said, you can't do it that way. And so, there is something about this competition and about how it can cause us to be more innovative, but at the same time cause us to not want to seek competition. Think about it. Perfect competition. In the, if you've taken an economics class, perfect competition is what will lead to zero profits. Competition can also be very distracting. That is, as we're fighting with someone, as this, we're rivals in this, in this industry trying to get, to, to fill this need that others may pop up and may come in from somewhere else. Let me talk about new entrants into markets. So there's one thing to have the existing rivalries, so that's, these are organizations that we, we compete with, that are already there. But what drives new entrants? What drives new competitors to come into a market? Well, one thing in mature markets, we have, let me just describe for a second, we have these performance standards. So in a, in a mature market, we have an understanding of what price is, what kind of performance we get for that certain price. So these kinds of standards are what people have. So if you're going to buy a computer, you know about how much it's going to cost, because it, you know, they're all sort of the same, that what, what we call a mature market. Mature markets also end up with professional standards, right, they try to keep things so that, where, they're are able to, to address the market, so the needs, the understanding what a need is, like what does a person need in a phone, there's a very common understanding of that. And so it's almost towards a performance standing, but as a professional, we understand what those, as a professional in that industry, we understand what the needs are. We also have controls on knowledge, of how people can move knowledge around in our industry. our value chains, our value chains are really focused on derive, deriving high values of efficiency. As, as we're mature, we become more efficient, we take waste out, we're able to drive the price down. drive the cost down in that way, because price will slowly erode also, but we'll be able to drive the cost down. And then also, what we'll see then is new entrants coming in to our market. And so, if you said, well, if there are all these things in place, all these kinds of performance standards professional standards, value chains in place. How are new entrants going to come in? Well, they're going to come into places where there's low capital needs. So think about it this way, that if there's a industry that's being addressed, so for example Kodak, right? Kodak was, had this, this photography industry in order to compete on Kodak's terms you would have to have a lot of capital, right? You need all these machines all around, you need all this chemistry all around, you need all these chemical companies, you need all this knowledge, you need all these things in order to compete with them head on. So, you're not going to do that, what you're going to do is you're going to come in in a way that allows you to have very low capital, means you're going to come in from the bottom, you're going to come in the slow way. And that's going to be the pattern of disruptive technology that we're going to talk about a little bit later, but for now, let's just think about this as a competition issue. So, for Kodak, they really had no competition. They had these super efficient systems they had that which drove them to not really push on any kind of platform innovation. They would had something going on in the lab, they really didn't push to commercialize it. And what they were using was basically using old tests for new ideas. And so, when this digital camera came out, they were saying, well, does it have the same quality, does it have the same price, does it have the same performance, does it have the same output? No. And so the tests showed this new technology to be suboptimal. However, Sony, what they did, breaking into a new market, was they broke, they came in and they tried to, ended up, not tried, they ended up redefining the basis of competition. They didn't build the entire system. They had other people building parts of the system. We're going to talk about processors and the hard disks and all those different pieces that came together. And what's more, Sony had intense competition from others, Pentax was working on a camera, Hitachi was working on one, Canon was working on one as well. And so, Kodak had no competition, Sony had a very intense competition, and so we can see who had more incentive to innovate in a way into this market. So, if we have this kind of competition constraints what can we do? How can we overcome them? One thing is finding new ways to compete. There are multiple kinds of innovations. I'm going to talk about int a moment. different, we think about what are the different kinds of innovations that we're going to apply. There's different approaches of these multiple types of innovations, I'll show you one here. This is ten types of innovation. This is a a way of looking at innovation at the kinds of innovation that was first done by Larry Keeley at the Doblin Group in Chicago. What they did is they begin to look at, across in industry, what are the different ways that people might actually compete? What are the different types of competition, competition in term of the business model, in terms of the brand, in terms of product performance, and all these different, ten different ways that they have here. And what Gilly found was that interestingly, organizations, most organizations tended to try to go to the product performance, right? To the basically make mine goes to 3 megahertz, yours goes to 4 megahertz, mine goes at 5 megahertz, mine goes at 6 megahertz. All that product performance, and people paid much less attention, organization did much less innovating sort of at the outside edges at the brand, brand in terms of the business model and places like that. Also, what they did was they began to say, let me look over time here, and began to see where innovation is happening in the industry, in the different kinds of innovation, innovation. And so, in a picture like this, you might start looking and say, well, how could I use some innovation in this area where there hasn't been very much innovation? And so, the idea here is that it doesn't tell you what to do, but it certainly tells you how to look at different aspects of your operations. And say, if I were to innovate in this area, that might actually create a competitive advantage for me compared to other people. Also, if you took, put together a set of these in an industry. And so in this case, maybe the health care industry can begin to see patterns across them and pull together solutions that might actually span across many of these different places. And you can say, well, if I have a brand in one area, how does that translate to a brand in another area and how can I use that as a basis for competitive innovation? So these multiple kinds of innovation, like these ten types of innovation, well, it can show us new ways of competing. Another thing we can do is in our partnerships and alliances. Often, organizations form partnerships in order to kill innovation. That is, like I, explained the T-Mobile and the AT&T merger, was really about AT&T not having to go through the work of innovating by creating their own 4G network. And so, but if we partner to learn and not to kill innovation, I think, that's where we're going to get to a better place. We don't want to act like a monopoly, but we actually want to learn how to change, how to change things in the fundamental way. Another thing that happens in organizations and industries under competition, competitive pressure is they begin to over invest in efficiency. Well, if I make mine a little bit cheaper, make yours a little bit cheaper, make mine a little bit cheaper, cheaper, that we try to make it super efficient in order to achieve those cost reductions. However, what that does, it sets up other organizations, other firms other new entrants in a way that they're going to come into the market, they're going to have to do it at such an advantage, cost advantage, that it's, in order to compete. Let me say that differently, a little confusing there. If I have a very efficient way of addressing the market the way Kodak did, any new entrant that comes in there is not going to be able to compete on those bases, they're going to have to find some other way to do it. And so, to the extent that over invest in efficiency, we may be driving ourselves down a curve that is actually meaningless at the end, because someone else is going to come in from a different direction. Next thing we know that we have to do is develop new tests for new ideas. Kodak was using old tests for new ideas, because they had this new digital camera, and they were saying, well, how's it compare with our old product? It didn't compare very well, but it was, that was because it, it was different, right? It was comparing, it should have been compared on a different basis. And so, if we don't develop these new tests for new ideas its going to be problematic and so see think about working on that. Next, we're going to talk about supplier constraints, that is the suppliers that bring the raw material in and that provides the motive force in the industry.
