Succeeding at disruptive innovation (2/2)

Make no mistake: disruptive innovation is no magic box. It’s not a question of sudden enlightment or mystical union with nature, but a question of understanding. Understanding disruptive innovation will dramatically improve one’s ability to be successful at it. Assessing whether a given innovation is disruptive or not may be done by asking three questions. The first two deal with consumers. The third, and the subject of this post, deals with competition.

The third question one should ask in order to assess the disruptive potential of an innovation is: is this innovation disruptive to every single company in the market or is it disruptive to some companies and sustaining to others? This is a critically important question and, in many ways it’s the most complex. It’s critically important because research has shown that if one is to penetrate a market with a sustaining innovation against existing industry incumbents, the new entrant is highly likely to fail. As Michael Porter shows in Competitive Strategy, as industry incumbents are fighting to maintain their business with their existing customers, they traditionally pour in all their resources to maintain their competitive position. This may lead to a price war and any market share gain comes at a very high cost especially because what is won must be won at the expense of another player.

This question is also complex because it unveils the fact that a disruptive innovation is a relative term. In other words an innovation may be disruptive relative to one company and sustaining relative to another company. For example, before the advent of the Internet, Dell had already built its business model around selling directly to consumers, thereby circumventing retailers. When the Internet became technically reliable, Dell started using the Internet as a way to communicate and sell through its consumers, rather than selling to its consumers on the phone, as it had done previously. In this respect, the Internet is a sustaining innovation for Dell in the sense that it helped Dell improve what it was already doing previously. But, for other computer manufacturers, such as Compaq, selling directly to customers over the Internet was a disruptive innovation. They had based their business model and their cost structure on in-store retail distribution. So this example shows that the Internet may be a sustaining innovation for some companies and a disruptive innovation for other companies.

To summarize, succeeding at disruptive innovation means answering three questions:

• whether the innovation will help target a larger audience which is unable to do something that they would really want to do
• whether the innovation may attract low-end consumers who would be interested in paying a lower price for a lower performing product
• whether the innovation is disruptive to every single company and not disruptive only to a few.

My sense is that if these three conditions are met, then one has a much higher chance at succeeding at disruptive innovation. How about you ? How would you assess whether an innovation is disruptive in nature or not? What questions would you ask?

Please feel free to share your ideas !

Further readings:

• For a clear discussion on how to succeed at disruptive innovation please refer to Clayton Christensen’s Innovator’s Solution. The book outlines nine challenges to address in order to succeed at disruptive innovation; one of these challenges includes how to beat competition.
• For a discussion on what questions need to be addressed when assessing whether or not to enter a new business, please refer to Michael Porter’s Competitive Strategy, chapter 16
• Finally, for a discussion on how we tend to see innovation as being something difficult to explain, please refer to Scott Anthony’s Little Black Book of Innovation; also refer to this post
• For a presentation on how to think like a disruptor, please refer to this article.
• For a discussion on how the theory of disruption can predict success, please refer to Deloitte’s analysis, here.
• Finally, for advice on how to create new markets, please refer to this article.
• For a basic presentation of what disruptive innovation means, please refer to this video.