Further along “Disruptive Innovation”: Revisiting the Innovator’s Dilemma

In a quality obsessed work culture, continuous improvement thrived but many firms globally missed out on the discontinuous improvement where major leaps took place technologically as well as in creating new customer experiences. Older and bigger organizations begin to miss the bus or rather infected with a corporate myopia that distorted the sight of advanced disruptions on sight. This gave space to smaller companies which began to emerge as watch dogs of disruptions and many innovations in general. Consequently innovation took the role of a ‘creative destructor’ destroying large enterprises where many contemporary businesses, product, service or system went obsolete by the introduction of something every one called as ‘out of the box’ and out of the world concepts or disruptions.

Throughout history we have witnessed these quantum leaps in innovation. The advent of electric bulbs replaced candles, type writer to computer and chemical base photography to digital photography etc. These innovations took place in the open space of endless possibilities of imagination, perseverance and the human will to think differently and act promptly. As a result several disruptions emerged replacing the old and innovating the new.

Whenever technology makes a leapfrog attempt to obsolesce the previous technology; the creative destruction happens, and we can call them mildly as disruptive innovations.  Innovations are also highly disruptive in nature that it discontinues an existing model and introducing new ones. For example the advent of personal computers was the disruption of mainframes and now the handhelds are replacing PCs.  Semiconductors disrupted vacuum tubes and steamships disrupted sailing ships. Telephone disrupted the telegraph even though telephone initially did not compete with telegraph in the first innings. It was the non consumers of telegraph who liked the telephone idea first. Generally speaking, the nature of a disruption is to spread to a new group and then spreads to other consumer groups. For example in the beginning of mobile cellular revolution, mobile phone was not a direct competition to land phones.  Mobile was personal, it replaced pagers and public pay phones first. (Even now land phones are still used for business purposes). Mobile phone entered a new market first with people who wanted mobility and when the call charges were dropped a wider disruption occurred making it more accessible and affordable to the majority of the population in most countries-making it a common phenomenon.

Disruptions have wider and broader implications. It moves from technology to every stratum of human enterprise, culture and living. It alters social practices, and changes the very essence of how we live each day. Innovations like telephone, satellite television, copier, automobile, computers, internet, email, ATM banking have changed the way we live and conduct our day to day businesses. Overall, disruptions have changed the way we live today. Disruptions also gave rise to several enterprises and turned once perceived luxuries into common necessities of the day. Disruptions gave the power to do things better, faster, easier and more than what preceded them. The Guttenberg press was a disruption of printing faster and Ford’s Model T car was the first mass produced car in the market in 1906 making it affordable to wide majority of people even though there were more than 600 car manufacturers existed worldwide at the same time.

While many may assume that disruption is more of an advancement of a technology; the broader concept of disruption in innovation tells another fact. The technology does not drive the disruption but it only enables the disruption. Technology plays only a part in the disruption but the business model that surrounds the technology makes the innovation happen. A disruptive technology or disruptive innovation is an innovation that helps create a new market and value network, and eventually goes on to disrupt an existing market and value network. The vital message is to spread through or spread across a domain established or new. It all boils down to the fact that the success of a disruptive innovation lies is in how well we put a disruptive technology into greater use.

For example, ‘Cisco’s router uses packet-switching technology to direct the flow of information over the telecommunications system, compared to the circuit-switching technology of the established industry leaders such as Lucent, Siemens and Nortel.  The technology divides information into virtual ‘envelopes’ called packets, and sends them out over the Internet.  Each packet might take a different route to the addressed destination; and when they arrive, the packets are put in the right order and ‘opened’ for the recipient to see.  Because this process entailed a few seconds’ latency delay, packet switching could not be used for voice telecommunications.  But it was good enough to enable a new market to emerge – data networks.

This is a clear example of how technology can drive disruptions but the right strategic application of the technology makes the innovation disruptive in a market place. To illustrate this idea with another example; the engineers at Intel corporation developed the Celeron processor that was a low end processor, and at first it was a reject by the Corporation itself. But Intel saw the birth of a bottom market developed by the AMD processor which was competing on cost. Understanding the true meaning of disruption in the market place rather than technology Intel brought out the Celeron chip, a cheap product to hit the bottom of the market that was ideal for the new low-end PCs, and within a year it had captured thirty-five per cent of the market. To Intel’s advantage at that time, the CEO of Intel; Mr. Andy Grove knew the ideas of disruptions from the Harvard Business School Professor Clayton Christenson who suggested the disruption model to Mr. Andy Grove in a brief meeting. Intel absorbed the real meaning of disruption and what it meant for Intel. The dilemma to whether to serve only to the existing market through value addition and neglect the bottom market was resolved by the introduction of Celeron chip in the market.

Christenson released the book ‘The Innovator’s Dilemma’ later in1997and it went on to become a colossal best seller among the management crowd. The term ‘disruptive innovation’ is also coined by Christenson who formulated his theories and observations from a study he conducted on disk drives. He saw that the companies that made fourteen-inch drives for mainframe computers thwarted off the  business by companies that made eight-inch drives for mini computers and the eight inch drives were driven out of business by companies that made 5.25-inch drives for PCs. The quizzical irony of the observation was that the eight-inch drives weren’t as good as the fourteen-inch drives and the 5.25-inch drives were inferior to the eight-inch drives. Christensen later discovered that the new technologies that had brought the big, established companies to their knees weren’t better or more advanced companies but simplified applications. The companies who were enjoying their new found market success was actually successful due to the introduction of products that were easy to use and cheaper compared to what is previously offered in the marketplace. New disruptions emerged to serve a broader market more like democratizing technology that were once was only a privilege of the rich and sophisticated people. Christensen began to call these low-end products “disruptive technologies,” because, rather than sustaining technological progress toward better performance, they disrupted it.

In his own words Clayton Christenson describes disruptive innovation as “An innovation that transforms an existing market or creates a new market, typically by trading off raw performance in the name of simplicity, convenience, accessibility, or affordability.” He understood the force of disruption progressively changing the industry landscape and transforming businesses from complexities to simplicity garnering more value to customers in its offerings.

Even though disruptions are mostly technology enabled but if the technology is not accessible and affordable to wide majority of consumers through a business model, the disruption won’t succeed. Disruption must be supported by a business model that allows the disruption to spread and obliterate the market place whether it is niche or general. For example the disruption of iPod had the simplicity of design and application with a high degree of accessibility (through iStore), convenience (iTunes), affordability (Rs.2500 onwards) and superior performance (digital) etc to make it a market success in a new category (Mp3 player). From this classic example we can derive at a fact that to create a mass acceptance of a disruptive product or service (iPod sold in millions), the model must have these following features:

1. Simplicity:

Clayton Christensen’s points out that “Disruptions often don’t involve big technological breakthroughs. Rather, they involve mastering the intricate art of the simple solution”.  Disruption is a simplification of a complex solution that existed before them. Disruptions help customers do more easily and effectively. The simplicity factor enables consumers to easily adapt to new behavioral changes that technology brings about. For example the simplicity of iPad and the advent of smart phones in its design and application make it easier for a majority of new users (including kids) in their browsing experience (single button applications) and thus embrace the technology better.

2. Affordability:

The disruption makes product or services widely available to people at affordable prices. This enables customers to purchase products and services that were once enjoyed by some exclusive groups.  For example General Electric introduced several healthcare revolutionary products like a Rs 50,000 priced handheld electrocardiogram (EKG) device and a portable, PC-based Ultrasound machine priced at rupees seven and a half lakhs for Indian and Chinese markets. The affordability (low price) and the minimized size of the offering in comparison to their expensive counterparts made it a great success in many countries. Even though the company originally intended this innovation for the emerging markets, they are now being sold in the United States, calling the phenomenon as a ‘reverse innovation’ (a theory developed by  Vijay Govindarajan, Professor of International Business at the Tuck School) process rather than glocalyzation (giving a local flavor to a global product or service) attempt by GE.

3. Accessibility & Convenience

Disruptions pave way to product or service that can be easily accessible because of its convenience in application through wider acceptance. Disruptions increases accessibility to a new set of users and customers who have historically lacked the money or skills to get important jobs done. For example the GE Medical Systems Group introduced the EKG machine for rural India called MAC 400 with a built in printer that operates on batteries making the product accessible and convenient to rural regions.

4. Divergence of a new category:

Disruptive innovations have the power to develop new market. It turns non-consumers into consumers. When Tata introduced the Nano car, (the world’s low cost car) it was launched with the idea to target upon the two wheeler population of India who were the non-consumers of four wheelers.  Some disruptions are targeted at a new user group first and then it spreads to the mainstream market. Consequently a product or a service that is the result of a disruptive innovation has the following of a whole new generation of customers, who find the product or the service to be more beneficial than the existing product of the competitor in the market.

In a mainstream market where thick competition exists divergence becomes a strategy to develop a new stream of opportunity with small markets. As a result a new category is introduced where big players often tend to overlook these small markets. Competitors in mature or over-served markets can’t or won’t follow suit when something happens in a negligible small market until it expands to a large sizable market. Therefore those who disrupt in the beginning will have the first mover’s advantage of positioning as market leaders in that market.

The introduction of a new category paves ways to disruptions. For example ‘Red Bull’ is the number one selling energy drink in the world. It started in Austria in 1987 by Dietrich Mateschitz, who based his drink on ‘kating daeng’, a popular health tonic, he had encountered in Thailand during one of his visits. He made Red Bull very distinctive, packed them in smaller 200 ml cans, quite different from the cola market of 330 ml can packing and he called it ‘energy drink’. From that date a new category was born all together. The new divergence disrupted a new market- the energy drink market. Even though RedBull disrupted with a niche users like athletes and health freaks first it went on to disrupt the main stream market of soft drinks.  The nature of divergence is to introduce a new market first and then it gravitates towards a wider user group hitting the mainstream market. Disruptive innovation starts with developing a basic process, like turning ‘kating daeng’ into RedBull and takes up the market gradually but steadily.

5. Improved performance:

Disruptors create growth by redefining performance. They either bring a simple, cheap solution to the low end of an established market, or enable “nonconsumers” to solve pressing problems. In most cases the adaptation of the disruptive innovation would gradually result in increase of the performance of the product or service that has undergone the innovation. This increase in the performance would steadily result in going beyond the imagination of the mainstream market of the product. The Netscape browser was the improved version of the Mosaic, later the Internet Explorer disrupted Netscape and Google Chrome is now disrupting the Internet Explorer, all based on improved performance and accessibility.

Disruptive innovation creates and sustains value because they focus on meeting the unment needs and wants of consumers. Disruptive innovations are inspired by developing products that are simple to use and understand and make it accessible and affordable to a larger group thereby helping them to improve their performance. When people are provided with products of their choice in a user-friendly form and at lower costs, it is bound to bring about a revolution in the market.

Over all disruptive innovations are a boon to both the customers and businesses. In a technology driven innovation model , changes happens rapidly due to fast changes in technology even though the consumer is ready or not. But disruptions occur when the market is ready, or at least a part of it is ready. No disruption is mass accepted merely on the needs to have them but on the stronger wants to acquire them. Need becomes a want when disruption meets all the above mentioned criteria.

Since disruption are likely to happen in small streams rather than the mainstream, their entry into the market may be negligible in the beginning. But organizations that have failed to notice them have paid a big price historically. For example Digital Computer Company collapsed on 1999 missing the personal computer drive which began as a small disruption but went onto change the IT business landscape.

The underlying fact is that ‘present and future opportunities do not much exist in the mainstream but in streams that are yet to be found’.


Be Sociable, Share!