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.