All Rights Reserved Blockbuster Summary Economic Incentives Blockbuster was

All rights reserved blockbuster summary economic

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© Copyright National University of Singapore. All Rights Reserved. Blockbuster: Summary Economic Incentives: Blockbuster was highly profitable; a lot of money in the bank Organizational Inertia Top management did not want to change; did not believe in the new technology and the Netflix model Value networks The company was too entrenched in the “rental” business ( franchising rental stores, cooperation with studios, etc.)
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© Copyright National University of Singapore. All Rights Reserved. So, what the firm can do to overcome? Understand the barriers Provide right structures for CE initiatives o Remember that we talk about the two dimensions to consider: operational relatedness & strategic importance
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© Copyright National University of Singapore. All Rights Reserved. Additional slides
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© Copyright National University of Singapore. All Rights Reserved. Why established companies often fail to capture disruptive innovation? Economic Incentives: 1) Simpler disruptive products promise lower margins, not greater profits. 2) Established companies are focused on defending their position and market power. They have a required profit margin and growth rate. They feel that the disruptive innovation may capture a too small market for them to be interested in. The potential revenues from the discernible markets are small, and it is often difficult to project how big the markets for the technology will be over the long term. As a result, managers typically conclude that the technology cannot make a meaningful contribution to corporate growth and therefore that it is not worth the management effort required to develop it. In addition, established companies have often installed higher cost structures to serve sustaining technologies than those required by disruptive technologies. Because a company’s stock price represents the discounted present value of its projected earnings stream, most managers feel compelled not just to maintain growth but to maintain a constant rate of growth. For a $40 million company to grow 25%, for instance, it needs to find $10 million in new business the next year. But a $40 billion company needs to find $10 billion in new business the next year to grow at the same rate. It follows that an opportunity that excites a small company isn’t big enough to be interesting to a large company. As companies become large, they lose the ability to enter small, emerging markets.
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© Copyright National University of Singapore. All Rights Reserved. Why established companies often fail to capture disruptive innovation? Organizational Inertia (resistance to changes in the status quo): 1) Path dependency: Established companies rely on formalized business processes and structures.
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  • Fall '18
  • Copyright National University of Singapore

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