Disruptive innovation is the best type, isn’t it? New, exciting and the Rolls Royce of the innovation showroom? The one to aim for? Well, not quite….
I’ve read some interesting articles lately which all seem to point to one key conclusion, which is that disruptive innovation is actually what happens to large companies, not something they can plan to do to others. It’s like shareholder value – a dumb idea if that is what drives you.
While on a long flight last month, I read Tim Harford’s excellent book, Adapt. Many of you may also have read Soren Kaplan’s excellent article on why disruptive innovation is not a strategy. I agree with the sentiment of Soren’s article, and much of what is in Tim’s book, namely this – planning to develop disruptive innovation won’t work. Focusing on really good innovation that meets and builds new markets might just get you there.
WHAT IS DISRUPTIVE INNOVATION?
First, a definition – a disruptive innovation is “a process by which a product or service takes root initially in simple applications at the bottom of a market and then relentlessly moves up market, eventually displacing established competitors” (Clayton Christensen). Or as Wikipedia puts it “disruptive innovation helps create a new market and value network, and eventually disrupts an existing market and value network (over a few years or decades), displacing an earlier technology”.
As Greg Satell pointed out, much disruptive innovation starts out really crappy. Or as the title of Tim Harford’s book states – “Adapt, why success always starts with failure”. Early digital cameras weren’t very good; early mobile phones were like carrying a house brick in terms of both weight and functionality; Netflix’s business took a while to take off because the bandwidth wasn’t there. The key thing is that those early innovators learnt a lot themselves, and taught those coming up behind them.
In the oft-quoted examples, large companies don’t disrupt, they are disrupted. The battle stories are written from the perspective of the disrupted such as Kodak and Smith Corona. There’s also an element of failing to see the writing on the wall. As Greg puts it - disrupted companies fail not because they get worse, but that they continue to get better and better at things people care less and less about.
It’s not about technology; it’s usually about things that make a user’s life better or easier, or a product or service becoming less and less relevant to people’s lives; where technology is the enabler for the new entrant.
These thoughts struck me again when I read about the recent fortunes of Mattel. Is it an issue of company performance or is it a market disruption under way? Are some toys less relevant in an age where kids can have hours of play using tablets and consoles using cheap apps? It seems that the best CEO in the world would find the role challenging if we are seeing real disruption.
HOW MARKETS ARE DISRUPTED
Many different things need to happen before a market is disrupted by innovation.
1. The insight must be seen. This doesn’t mean that the opportunity for disruption is seen. I doubt that the leaders in digital photography started off with the idea that they would destroy Kodak. Indeed, Kodak was one of the technology leaders for a time. No, the insight is that consumers would be interested in an offering that works better, is more convenient or significantly reduces cost.
2. The advantage gap between the new and existing offerings becomes significant in key parameters, in favour of the new.
3. The technology and performance supporting the innovation moves beyond the “crappy” stage.
4. Market leading incumbents are reluctant to adapt. Tim Harford exemplifies this in a different setting. He quotes one senior military officer reputed to have said about fighting guerilla warfare in Vietnam, “I’ll be damned if I permit the Unites States army, its institutions, its doctrine, and its traditions to be destroyed just to win this lousy war.” This exemplifies the inertia and often lack of leadership that allows disruption to happen.
WHAT TO DO ABOUT IT?
First, the phrase “disruptive innovation” should be removed from any strategy documents and project portfolio definitions, unless it describes an external threat. Ironically the best way to achieve it is not to aim for it. Choose a different term for your innovation on the edge. Which leads on to…
Second, focus on the right portfolio mix of innovation. Clayton Christensen has a good approach for the classification of innovation types:
- Performance Improving – replace old products with new;
- Efficiency – improve cost and performance;
- Market creating – transform products radically to create a new class of consumers or a new market.
The mix is key; you will remain a potential disruptee if you don’t have any market creating projects.
Third, take the right approach to developing and testing. Tim’s book quotes the Russian engineer, Peter Palchinsky, who developed some key principles for innovation and new ventures in the early years of Stalin’s rule back in the 1920s:
1. First, seek out new ideas and try new things.
2. When trying something new, do it on a scale where failure is survivable.
3. Seek out feedback and learn from your mistakes as you go along.
There is eminent common sense in these Palchinsky rules. Unfortunately for Peter, his rational approach and willingness to tell the truth often produced data and recommendations that went against the prejudices of the communist dictator. You won’t be surprised what happened to him.
image credit: Deloitte