Current affairs

Tuesday, 5 de March, 2019

EAE’s program of Alumni activities included live-streamed training sessions such as the Focused Program led by Marc Sansó, the lecturer on the Master of International Business at EAE Business School. In the session entitled "High-End & Low-End Disruption”, Sansó explained the concepts of disruption, the competitive paradigm and disruptive flows (in the high-end and low-end segments of the market).

A professor, consultant and researcher in the field of competitive strategy, Marc Sansó analysed disruption from the perspective of the changes taking place in competitive environments. While this is not a new concept, “it has changed over the last 20 years and we are now witnessing disruption at all levels: project profitability has changed, competition is faster, there are new dominant players and new kinds of professional profiles and technologies” he explained.

Within this context, he went on to discuss the increasing Competition Variability: the new digital business models based around asset and management outsourcing in the relations built between users (such as Uber or Airbnb). “The supply-based economies of scale have been transferred to new relationships based on user management and the network effect”, explained the Director of the MIB at EAE.

Disruption is accompanied by significant changes in the cost model, making it “impossible to compete from an increment perspective”, with the emergence of new asymmetrical business models based on technologies (for instance, Apple or Tesla). Disruption is an opportunity to change the way we compete, which is now multidirectional.

The competitive paradigm model uses four variables: the business model (monetization, cost structure, profits and competitive variables), customer relations (the value that the customer perceives and needs), the industry value chain (new agents, centres of gravity and roles) and the redistribution of profits (standardization, competitive dynamics and cash flows). In Sansó’s opinion, “this model is very useful for analysing whether we are really dealing with a disruption in terms of its capacity to change the way we compete, based on these four factors”.

Once he had established the foundations of the model, the specialist consultant in digital business models and competitive strategy analysed the response of the big players operating in the conventional industry: ignoring, copying, buying, crushing or embracing the change. He also discussed disruption cycles, followed by the cycles of increments and changes of approach, using the example of Skype and the evolution of its voice exchange model, moving on to data and, finally, contents (Netflix). He also focused on Ikea’s modularization concept, which monetizes the different phases of its value proposition: manufacture, assembly, transportation and customer experience.

To analyse how disruption occurs, Marc Sansó mentioned the book “The Innovator’s Dilemma” by Clayton Christensen, an expert on disruptive innovation and Associate Professor of Business Administration at Harvard Business School. In the book, Christensen asks why certain well-managed high technology companies such as Intel can fail. His analysis concludes that, by placing too much emphasis on fulfilling the customers’ needs, they stop using the technology required to fulfil their future needs and, as a result, they fall behind.

High-end and low-end disruption of the market are analysed below.

  • High-end market disruption: customers require product features and are willing to pay a higher price. In principle, this disruption is of no interest to the Big Players because they consider it of little relevance in view of the low volume and uncertain ROI. Challengers enter the playing field to cater for this unserved market and, based on the product, the use incremental innovation to reduce the cost of the technology offered, until the point that most consumers show an interest. Result: the consumers abandon the Big Players and, when they decide to react, it is already too late (for instance, the smartphone market).
  • Low-end market disruption: Challengers start operating in a segment that is little valued by the big players. Although this is just a stop on the journey, not the destination, what they really aim to achieve, in a final phase once the initial sales are consolidated and they have taken the whole segment thanks to the incremental innovation, is to improve the incremental innovation, is to improve the performance unit per cost. At this point, the product starts to become appealing and customers abandon the conventional big players to join the new challenger (Por example, domestic GPS and Google Maps).