Paradigm shifts result in new businesses that transform or
destroy old ones. According to Utterback
(Figure 1), when an invading technology first appears (t1), the established
technology generally offers better performance or cost than the challenger,
which is still unperfected. Eventually, as
the performance characteristics of the challenger reaches the point where it
matches that of established technology (t2), incumbent leaders perceive the
threat and invest heavily to sustain their business models and leadership. Their resulting innovations cause them to rocket
past the invader with rapid innovations and improvements. Eventually, by time t3, the challenging
technology continues to improve and equals existing industry performance, on
this path to ultimate leadership.
Figure 1: Competition between existing and established products
Source:
Utterback, J.M., Patterns of Radical Innovations. Harvard
Business School
Press, 1996. p. 160.
The introduction of new nanotechnologies also has the
potential of shifting paradigms with new materials that are 10 times stronger
than steel and one-tenth the weight. In
addition to new materials that increase life and resist wear and damage, new
product concepts and component architectures will likely create whole new
business models in the future. What will
be the competitive priorities for these new paradigms? Will existing management practices fit the
needs of these future paradigms? In the discussion that ensues, we discuss the
relationship between paradigm shifts and competitive priorities.
While management practices have evolved to meet the changing
needs of markets and competitive environments, will these practices apply to new
paradigms? Competitive priorities change
as markets grow, mature and decline. Successful strategies require firms to
operational capabilities to achieve their competitive priorities. Christiansen
et al. found that a firm’s strategy affected its competitive priorities, and
that it performed best on those activities that supported its competitive priorities.
In his seminal work, Skinner identified the need for a
“manufacturing mission” that defines the manufacturing capabilities needed to
enhance the competitive strategy of the company?
Skinner's early conceptual work
developed two basic concepts: (1) the focused factory and (2) focused
manufacturing. Whereas Skinner's focused factory concept limited product mix,
the focused manufacturing concept targeted a specific manufacturing task that
supported the corporation’s strategy. Skinner
contended that the facility cannot perform well on multiple manufacturing tasks
simultaneously, and that tradeoffs must be made. Examples of trade-offs include
cost versus quality, and short delivery times versus low inventory investments.
This is now referred to as a “trade-off” model. Generic manufacturing
capabilities frequently cited by Skinner and others relate to cost, quality,
dependability (delivery), and flexibility.
According to trade-off theory, any improvement in one generic
capability will come at the expense of others: a company operating close to
what economists call “the efficient frontier” cannot be expected to improve two
or more capabilities simultaneously. For example, a company which opts for production
flexibility would likely lose some cost efficiency or dependability in other
areas. Multiple capabilities can be improved simultaneously only when a firm
operates well below the efficient frontier, e.g. its operations have a poor
layout, obsolete machinery, poor suppliers, wrong production scale, etc.
Other researchers have also stressed the
necessity for capabilities to be prioritized to achieve “competitive
priorities”. For example, Hill advocated
focusing on process and infrastructural requirements that address order-winning
criteria.
While Porter argues that tradeoffs must
either reduce costs or differentiate one’s offerings, he also argues that more
complex strategies with a multiplicity of integrated activities provide a
broader range of competitive advantage and are more sustainable.
In the automotive
industry, the entry of new competitors has resulted in differing strategies with
differing competitive priorities. For example, Japanese competitors, such as Toyota and Honda, focused
on quality and cost priorities. While
Porter argues that multiple priorities only make sense when firms operate below
the productivity frontier
Nakane asserts
that Japanese quality and dependability improvements were preconditions to improved
cost efficiency; that cost efficiency results from quality and dependability
improvements. Furthermore, some have argued that flexibility can only be
obtained if a company has its quality, dependability and cost efficiencies
under control. The
sequential model of competitive priorities has been supported by several researchers.
Ferdows and De Meyer argued that for sustainable
advantage, manufacturers must sequentially build capabilities in the following
order: first, quality; then dependability, then flexibility (speed), and
lastly, cost efficiency.
While several prescriptions have been proposed regarding the
appropriate sequence in which these capabilities should be developed, it is not
the sequence that is the key. Instead, the fundamental insight lies in the theory
that a capability need not necessarily come at the expense of other capabilities.
We assert that such a cumulative capabilities development perspective is
necessary to both transcend from one paradigm to the other and to succeed
within a paradigm. One might argue,
following Porter, that the productivity
frontiers of new and old paradigms are not equal.
While not yet proven, the sequential or cumulative capability
development model provides a coordinated and sustainable strategy for achieving
competitive priorities and the building of higher-order competitive capabilities.
In contrast, the trade-off model addresses shorter term goals, and is reactive,
rather than proactive, to changing market pressures.
We contend that not only is the
cumulative and continuous capability development relevant within a paradigm, but it becomes the challenge for successfully
managing paradigm shifts. In the next section, we provide a detailed discussion
of the importance of such cumulative capability development in transcending the
chasm between paradigms. By using the
example of paradigm shifts in automotive industry, we provide one possible
approach for building cumulative capabilities during paradigm shifts.
Competitive priorities when paradigms shift
Even though a new paradigm may not
have open competition, competitive priorities are still relevant for strategies
to cross the chasm between paradigms. In fact, competitive strategies exist
across technological paradigms, since existing strategies are being threatened
by the new technological paradigms. As discussed earlier, each paradigm has its
own life cycle of development, with a continuing sequence of competitive
priorities leading to continuous improvements. The performance of existing competitors
impacts on the ability of firms with new paradigms from bridging the competitive market chasm, i.e., developing a strategy and
capabilities for the paradigm that outperforms existing paradigms. Hence, in the context of paradigm shifts, it
is important to understand that competitive priorities are critical in bridging the chasm.
To cross the chasm, a paradigm’s success strongly depends on
its existing capabilities and competitive performance. This means that quality and cost metrics
must first provide the new paradigm with a significant advantage over incumbent
paradigms. This
is akin to advancing the price/performance frontier.
Accordingly, the need to focus on basic
competitive performance suggests that quality, dependability, and cost may be critical
in bridging the chasm. Flexibility
appears to be a priority for maturing markets with more standardized
technologies, such as Dell applies to computers. Such flexibility is seldom a competitive
factor in new business. Quality remains
the most important priority and reliability remain entry level priorities. Cost
then sets the new paradigm on a growth vector.
Figure 2 provides a conceptual model of paradigm shifts and their
competitive priorities. We hypothesize that competitive priorities between
paradigms must be addressed in the same fashion as competitive priorities within
established paradigms. Initially, the success of a new product-market strategy
will depend on its competitive value, based on its quality and reliability
characteristics first, and then its cost.
Once a new paradigm becomes accepted, its competitive success hinges on a
steady stream of innovation that sequentially and cumulatively improves competitive
quality, dependability, cost and flexibility.
Figure 2: Competitive Priorities for Paradigms
Consider the automotive industry as a case in point. Ford’s initial success with the Model T had
nothing to do with flexibility. However,
flexibility had everything to do with GM’s ability to take industry
leadership. While early computer makers
offered little variety in achieving leadership, Dell’s flexible fulfillment
system has given it industry leadership.
While fuel cells may become the dominant paradigm for future vehicle
powertrains, they must first achieve competitive quality, dependability, and
cost with internal combustion engines.
For GM’s Sequel car to become a feasible entry into the market, platform
must prove itself as a viable family car.
Toyota
believes that will take until 2030. GM’s
goal was 2010.
Subsequently, fuel cell powertrains will require a new
infrastructure, as with the automobile industry of the early 1900s, to ensure the
availability of fuel and services. With a basic infrastructure in place,
competitive priorities for operational capabilities will be driven by increased
competition over quality, dependability, cost and flexibility. Within the new fuel
cell paradigm, these competitive priorities will develop and grow in multiple
market segments.
Akin to the sand cone model proposed by Ferdows and De Meyer,
in this cumulative capabilities development approach quality acts as an initial
competitive priority for strategies to cross the chasm between new and
established paradigms. Specifically, quality investments lead to improvement in
product and process quality which reduces rework and failures. Meanwhile,
quality improvements reduce inspection costs and improve delivery
dependability. These cost savings can then be channeled into innovation
activities that proactively support competitive priorities as well as improved
flexibility and variety as markets mature.
Managing in a world of shifting paradigms
Managing competitive priorities and capabilities
across and within paradigms will be the challenge of tomorrow’s executives. Christensen’s
S-curve strategy (figure 3) explains how product performance evolves over time. We contend that firms must drive product performance up the S-curve by addressing
competitive priorities in the sequence of quality, dependability, cost, and
flexibility in both existing and new paradigms. Each priority becomes the foundation for the
next priority, and any neglect in established priorities will only weaken the
sand cone. Beginning with quality
improvement, a firm can then improve delivery dependability, cost, and
flexibility. Meanwhile, the resources
resulting from quality-driven cost savings can further support activities that
move new or existing technologies up the S-curve. Competition between S-curves in
established paradigms and S-curves in new paradigms determine whether a firm can
cross the chasm of market acceptance.
Subsequently, new paradigms will continue to address the competitive priorities
to higher levels of performance (figure 3).
Figure 3: Integrating Competitive Priorities and Technology S-Curves
Source: Boulton, W. and Nair, A. 2005. Crossing Chasms: Barriers to Radical Paradigm Shifts.