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networks strongly define and delimit what companies within them can and cannot do. This chapter closes with five propositions about the nature of technological change and the problems successful incumbent firms encounter, which the value network perspective highlights. 1. The context, or value network, in which a firm competes has a profound influence on its ability to marshal and focus the necessary resources and capabilities to overcome the technological and organizational hurdles that impede innovation. The boundaries of a value network are determined by a unique definition of product performance—a rank-ordering of the importance of various performance attributes differing markedly from that employed in other systems-of-use in a broadly defined industry. Value networks are also defined by particular cost structures inherent in addressing customers’ needs within the network. 2. A key determinant of the probability of an innovative effort’s commercial success is the degree to which it addresses the well-understood needs of known actors within the value network. Incumbent firms are likely to lead their industries in innovations of all sorts—architecture and components—that address needs within their value network, regardless of intrinsic technological character or difficulty. These are straightforward innovations; their value and application are clear. Conversely, incumbent firms are likely to lag in the development of technologies—even those in which the technology involved is intrinsically simple—that only address customers’ needs in emerging value networks. Disruptive innovations are complex because their value and application are uncertain, according to the criteria used by incumbent firms. 3. Established firms’ decisions to ignore technologies that do not address their customers’ needs become fatal when two distinct trajectories interact. The first defines the performance demanded over time within a given value network, and the second traces the performance that technologists are able to provide within a given technological paradigm. The trajectory of performance improvement that technology is able to provide may have a distinctly different slope from the trajectory of performance improvement demanded in the system-of-use by downstream customers within any given value network. When the slopes of these two trajectories are similar, we expect the technology to remain relatively contained within its initial value network. But when the slopes differ, new technologies that are initially performance-competitive only within emerging or commercially remote value networks may migrate into other networks, providing a vehicle for innovators in new networks to attack established ones. When such an attack occurs, it is because technological progress has diminished the relevance of differences in the rank-ordering of performance attributes across different value networks. For example, the disk drive attributes of size and weight were far more important in the desktop computing value network than they were in the mainframe and minicomputer value networks. When technological progress in 5.25-inch drives enabled manufacturers to satisfy the attribute prioritization in the mainframe and minicomputer networks, which prized total capacity and high speed, as well as that in the desktop network, the boundaries between the value networks ceased to be barriers to entry for 5.25-inch drive makers.

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