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Understanding the S-curve
Theory
| According to the S-curve theory, the operating conditions of a company will show an S-curve growth as its business expands. When an enterprise approaches the late stage of maturity, it encounters the limit of development, and the original business will face stagnation. When the company reaches the limit of growth, 70% of the leading companies will be replaced, and only 4% of the companies can restart the growth engine (Olson & Van Bever, 2008). The original business will stall when the company encounters a limit point. Olson & Van Bever, (2008) tracked Fortune Global 500 companies and showed that only 5% maintained a growth rate exceeding the inflation rate from 1955 to 1995. This means that companies need to open the second S-curve before the original business encounters the stall point. (1)
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Answer to the problem
| The S-curve analysis implies that when enterprises encounter the innovator's dilemma the key lies in whether they can cross the discontinuity gap and successfully open the second S-curve. To deal with this, enterprises can form a closed loop of feedback iteration through insight problems, seeking solutions, and verifying solutions to explore the direction of business model transformation, and promote business model innovation in an orderly manner by implanting a “central control system” and commissioning a “radar system”. (1)
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S-curve and your Business Model
The S-curve of the business model is a continuous evolutionary process. Companies need to plan and cultivate new products (or new businesses) in advance to ensure that they can smoothly switch to the new S-curve before the previous S-curve approaches the decline period. As the new product (or new business) is not a continuation of the original product (or business), there is a discontinuity between the two S-curves. Companies encounter the innovator's dilemma if they fail to build a new S-curve. Facing the innovator's dilemma, Furr and Dyer (2014) proposed an innovator's method in which entrepreneurs can reduce uncertainty through four steps: insight, problem, solution, and BM.
- The first is insight. Cherish unexpected discoveries. Enterprises can widely seek insights into problems worth solving through behavioral skills, such as questioning, observation, communication, and experimentation (Dyer, Gregersen & Christensen, 2019).
- The second is the problem. Clarify the work to be completed. Look for functional, social, and emotional work to be done by exploring customers’ needs or problems rather than solutions.
- The third is the solution. Develop a minimum excellent product. Propose theoretical or virtual models from multiple solution dimensions instead of developing complete products. Then, entrepreneurs should develop the minimum viable product model according to each solution and finally develop the minimum excellent product.
- Fourth is the BM. Verify the market entry strategy. After determining the solution, we start to verify other parts of the BM, such as pricing strategy, customer acquisition strategy, and cost structure strategy. Each step in this method is crucial and involves a “hypothesis, test, learning” closed-loop (Ries, 2011). (1)
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Source
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Mechanism and countermeasures of “The Innovator's Dilemma” in business model - Chengbin Wang - Journal of Innovation & Knowledge - 2022
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