A product architecture determines its constituent components and subsystems and defines how they must interact – fit and work together – in order to achieve targeted functionality. The place where any two components fit together is called an interface. Interfaces exist within a product, as well as between stages in the value chain.
An architecture is interdependent at an interface if one part cannot be created independently of the other part – if the way one is designed and made depends on the way the other is being designed and made. When there is an interface across which there are unpredictable interdependencies, then the same organization must simultaneously develop both of the components if it hopes to develop either component.
In contrast, a modular interface is a clean one in which there are no unpredictable interdependencies across components or stages of the value chain. Modular architectures optimize flexibility, but because they require tight specification, the give engineers fewer degrees of freedom in design.
When the functionality and reliability of a product are not good enough to meet customers’ needs, then the companies that will enjoy significant competitive advantage are those whose product architectures are proprietary and that are integrated across the performance limiting interfaces in the value chain.
When functionality and reliability become more than adequate, so that speed and responsiveness are the dimensions of competition that are not now good enough, then the opposite is true. A population of nonintegrated specialized companies whose rules of interaction are defined by modular architectures and industry standards holds the upper hand.
At the beginning of a wave of new-market disruption, the companies that initially will be the most successful will be integrated firms whose architectures are proprietary because the product isn’t yet good enough. After a few years of success in performance improvement, those disruptive pioneers themselves become susceptible to hybrid disruption by a faster and more flexible population of nonintegrated companies whose focus gives them lower overhead costs.
Source: Innovators Solution
Executives must answer three sets of questions to determine whether an idea has disruptive potential. The first set explores whether the idea can become a new-market disruption. For this to happen, answers to at least one and generally both of two questions must be positive:
- Is there a large population of people who historically have not had the money, equipment, or skill to do this thing for themselves, and as a result have gone without it altogether or have needed to pay someone with more expertise to do it for them?
- To use the product or service, do customers need to go to an inconvenient, centralized location?
If the technology can be developed so that a large population of less skilled or less affluent people can begin owning and using, in a more convenient context, something that historically was available only to more skilled or more affluent people in a centralized, inconvenient location, then there is potential for converting the idea into a new market disruption.
The second set of questions explores the potential for a low-end disruption. This is possible if the answer is yes to two questions:
- Are there customers at the low end of the market who would be happy to purchase a product with less performance if they could get it at a lower price?
- Can we create a business model that enables us to earn attractive profits at the discount prices required to win the business of these overserved customers at the low end?
Often, the innovations that enable low-end disruption are improvements that reduce overhead costs, enabling a company to earn attractive returns on lower gross margins, coupled with improvements in manufacturing or business processes that turn assets faster.
Once an innovation passes the new-market or low-end test, there is still a third critical question:
- Is the innovation disruptive to all of the significant incumbent firms in the industry? If it appears to be sustaining to one or more significant players in the industry, then the odds will be stacked in that firm’s favour, and the entrant is unlikely to win.
If an idea fails what Christensen and Raynor refer to as these litmus tests, then it cannot be shaped into a disruption.
Source: Innovator’s Solution