Disruptive innovation- Have you got it wrong?

Disruptive innovation- Have you got it wrong?

4 years ago 0 0 1492

The idea of disruptive change is very ‘hot’ in business and innovation circles at the moment. There are conferences dedicated to it, books written about it, people who have ‘disruption’ on their business cards or Linkedin profiles. However, my guess is that 90% of people in innovation and business are missing the real point about disruption. In this article I take a look at the idea of disruption, and what businesses can really do to understand it and apply it to their business situation.

The source of ‘disruptive innovation’

In 1997, Clayton Christensen published a book called ‘The Innovator’s Dilemma’, in which he coined the term ‘disruptive innovation’ to describe what he saw in some case studies in the computer industry. The term has gained prominence since then, but I believe that it has now ‘jumped the shark’ – and it is time to really understand ‘disruption’ for what it really is.

What is disruption?

Disruption, in the way it is talked about in business, has a positive tone involving controlled significant change that delivers a step-change competitive advantage. Disruption implies things cannot carry on in the normal way and when something is ‘disrupted’, it suffers an event which creates disorder, from where a new order has to be developed.

Disruptive innovation in business is often used to suggest a conscious change to revolutionise (rather than evolve) behaviours or offerings. This change leads to a ‘rupture’ of the status quo – so much so that the old status quo cannot return, as it is no longer relevant or competitive. If an organisation can develop ‘disruptive innovations’ it can gain an unprecedented market advantage.

Why everyone is jumping on board:

We live in a time where there are significant changes and uncertainties in our workplaces and our lives. At times like this, there is a sense of unpredictability, fear (even outright panic) as individuals, teams and organisations feel more and more out of control, and victims of circumstance. Under such conditions, it is not surprising that people seek an explanation or theory to help them make sense of the chaos. It is also no wonder that they want to feel in control of the chaos (be the disruptor, rather than being disrupted!). Enter an idea that large scale change can be predicted and ‘controlled’ – that with the right help, we can gain a feeling of control, success and longevity in a challenging and difficult world. Hello ‘disruptive innovation’!

There are several serious issues with the concept of disruptive innovation, and the ability to cause disruption. Amongst all of the polish and glitter, there is a deeper truth about disruption that is important for businesses to be aware of. Amongst the hype, most people have missed the real point about disruption. Understanding this can be critical in ensuring sustainability in your business.

Disruption is not a type of innovation, but a function of it.

We hear a lot about ‘disruption’ – most of the time is ‘marketing speak’ for innovation. There is nothing wrong with innovation – in fact it is a critical business process. Innovation suggests that we progressively improve what we offer the market, and potentially how we offer it. Some of these innovations may be small, others large. None of these are ‘disruptions’, rather progressive and resilient steps forward to a sustainable business. If we do not innovate, the likelihood is that we will be left behind.

Disruption is something that happens as a function of the innovation. When an innovation causes a significant change in the market or the business process, this leads to a ‘disruption’ in the status quo which requires responses from others to adapt to the new normal. The disruption can only describe the impact of innovation on a market – it cannot describe the innovation before it is taken up by the market. In fact, the innovator will never be able to determine if the innovation will be ‘disruptive’ – it is completely up to the customers and the market.

Disruption can occur at an industry level (deregulation as an example) a category level (change in consumer sentiment to sugar levels in soft drinks), at a consumer preference level (what, flares are no longer in fashion?) or a brand/product level (smart phones enter the market).

The disruption that is created by an innovation or change often leads to a disruptive response, either from the market or competitors. For example, if someone innovates and it disrupts the current market with a new patented innovation, opposition companies may respond with pricing strategies, or regulators may change the market rules (add import duties) in response. Sometimes the response will be direct (pricing) or indirect (the response by church organisations to the release of the contraceptive pill, for example). Each of these responses may be ‘disruptive’ in their own right.

As disruption occurs, it can be really valuable to consider what the disruptive response may be of others in the market, as you consider your own strategy. One disruption may, as the market realigns, present a number of disruptions (something like aftershocks after an earthquake) as things find a new equilibrium position.

Is disruption necessary for success?

Disruptive innovations create change in markets – however the companies that disrupt often have a ‘flare’ of success – then go out of business. They are able to get a ‘head start’ into a newly emerging market situation, which can be immediately rewarding. However, other firms learn from this, and if they have the capacity to adapt, will use the disruption as a starting point for progressive innovations on the disruptive idea. Long term success is more likely in organisations that can progressively innovate and respond to disruption, rather than organisations that can only disrupt. (Many disruptors are bought out by bigger players, or are out innovated by them and become obsolete).

Many large organisations are simply not geared for disruption. They are constrained to do what they do effectively and efficiently, and to preserve their own status quo. Most of the time it is a small player who disrupts the industry, and in particular disrupts the bigger players in the market, as what they bring to market to meet an emerging need tips the current big player offerings into the waste basket of obsolescence. It is then up to the large incumbents how they choose to respond. Buy-out? License? Copy? Innovate from the disruption? Ignore? Each of these is a strategic choice, which each organisation has to decide on its own. Organisations that fail to respond to disruption strategically often get left behind. Recognising that a market has been disrupted, and acting strategically, is critical. Responding not to maintain the status quo that suited you before, but adapting to the new reality and customer centred view of the market allows organisations to survive – and thrive – in disruption.

A classic example of this occurs when deregulation hits an industry, particularly where monopoly or protected markets are opened up by deregulation. The deregulation acts as an industry-disruptive event. To stay viable, many of these previous monopoly providers have had to ‘disrupt’ their old business practices and models and break the internal inertia just to remain viable in their markets. (If you need an example, think of telcos, auto industry or energy suppliers). Often these monopoly firms struggle to disrupt themselves enough, as new entrants make more relevant and competitive offerings to the customers. They often need significant motivation (drop in revenue) and massive internal change of key personnel before enough internal disruptive change can be achieved to remain viable in the market. Their reluctance to change enough (particularly from serving themselves to serving the emerging needs of their customers) often impacts upon their performance.

Disruption is often a trigger for innovation, and requires strategic choices and focus. We can race to innovate, or farm the ruins – even when markets are disrupted, there can be significant value still remaining in the ‘ruins’ of an old market for an organisation to still deliver significant vale and profitability. This can allow funding of new innovations or strategies to deal with the changed market conditions. On the other hand, we can learn from the disruption and innovate ourselves so that we remain valuable to our customers and build from the disruption (Apple did not invent the smart watch, just out innovated and out marketed the organisations that did).

Disruption is not necessary for success. However, response to disruption and strategic, customer focused responses to disruption are.

Disruption also does not have to be a crisis – a resilient, adaptive organisation will transform accordingly to adjust to the ‘new normal’. Rigid organisations often believe they can ignore the disruption and power on as normal – and then discover that they cannot. Being sensitive to the disruption and choosing an appropriate strategic response is a critical business leadership skill.

Why your goal should never be disruption:

If you aim to disrupt, then you will most likely fail. Disruption is the side effect of an industry or organisation changing event. If you set out to create ‘disruption’, then what value are you adding?

If, however, you focus on serving the purpose and needs of your customer, then what you create is something that is valuable, but may end up being disruptive. Ideas that ‘try to disrupt’ but do not serve the customer are usually flops. Unless the market (ie, your customers) takes up your idea, it will never be disruptive. It must first serve their needs, add value and be attractive.

Sometimes organisations that are struggling look to ‘disruption’ to help them out of a hole. For them, the idea of gaining advantage through disruption seems really attractive. In reality, it is like a ‘Hail Mary’ 3-pointer shot in basketball – it is great if it goes in, but you can’t plan your championship on such shots. You plan your championship on progressively building a winning score. Progressive innovation built on high quality customer insights allows you to do this.

Disruption is a poor long term strategy. Apart from being unpredictable, alone it can only open up short term opportunities and market realignments. Without solid business practice and continuous innovation, the success will be short term.

The only thing you should disrupt is yourself

The biggest threat to an organisation that is currently successful is its status quo. When things are going well and habits and processes become entrenched, it is easy to focus on doing the things that have made them successful, and become rigid in their status quo. The ability of an organisation to continue adding value for its customers (and therefore having a license to operate) comes from being prepared to disrupt their own internal status quo. Organisations that are prepared to challenge themselves and drive adaptation and experimentation often set themselves at an advantage to their competitors.

When an organisation is intensely customer focused and acts strategically, it can utilise self- disruption for advantage. Too often the big strategic idea in an organisation fails because we cannot disrupt ourselves – or more specifically, we cannot disrupt the status quo that exists within our organisation. On the other hand, many ‘strategies’ are self-serving and offer no true additional value to the customer.

Whilst there are many ways to self-disrupt, one common example of a model which can allow a business to integrate the concept of customer focused self-disruption into strategy is to use the ‘Blue Ocean Strategy’ approach.

‘Blue Ocean Strategy’ looks at the elements of your value offer from the customer’s standpoint and asks what can be enhanced, diminished, removed or created around the dimensions that you could compete on. The whole idea is to find a dimension in your process or offering that can be significantly different to what is available currently, that offers enhanced value to the customer.

When you take the opportunity to investigate your business along its strategic dimensions, and you disrupt any one dimension in a way that adds customer value, you create a ‘blue ocean’ opportunity – but only if that dimensional shift is relevant to your customers. But unless the ideas developed through such an approach are enacted – requiring self-disruption – then neither you nor your customer will gain any benefit.

If we are afraid to disrupt ourselves, or create disruptions without a clear customer centric strategic reason, then expect to fail. However, should we continue to innovate and self-disrupt, then it just may happen that our idea becomes real, and disruption of the market based upon our actions may actually occur.

Disruption is not predictable, nor inevitable

Disruption can really only be appreciated in hindsight. Sometimes a small change which feels like a value-adding innovation hits the market actually causes all sorts of disruption. Conversely, sometimes things that are done which feel like massive revolutions simply become ‘another option’ or are seen as a small innovation by the people that count (your customers).

When what you do disrupts the status quo and creates a new benchmark, then you can consider that a disruptive change. When it is an innovation amongst competitive innovations, then no disruption has really occurred. In the end, you don’t get to decide if the change that you make is disruptive, your customers and the market do.

There has been no predictive advantage in understanding disruption. Because it stands as a descriptor of what happened in response to an event, it has no predictive power. In fact, a hedge fund set up to use ‘disruptive innovation’ as its investment strategy rapidly went into liquidation. Christensen even predicted that Apple would not succeed with the iPhone based on his ‘theory’.

As a theory goes, many of the examples cited in his book have failed – they are no longer in existence, the success was short lived, or it didn’t even occur. Some of the organisations that were singled out as being disrupted were still in business and still making handy margins from those markets.

In the end, disruption remains simply a post-hoc ‘buzzword’, not a critically tested theory. If you consider that the only thing you can realistically disrupt is yourself, then ‘disruptive innovation’ is not something you can actively create or predict in a market.

Change, innovation and transformation are critical issues in business. Understanding ‘disruptive innovation’ may help you avoid the pitfalls inherent in the attractiveness of such an idea, and instead take a customer centric, strategic approach to change and transformation in your markets and businesses – some of which may accidentally cause ‘disruption’.

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