Thoughts

Answering your questions on disruptive innovation

March 6, 2020

1. Do C-suite executives truly understand what disruptive innovation is and how it can affect incumbents?

‘Disruptive innovation’ has become shorthand for new competition. Not all innovation is disruptive, and not all executives understand that. Disruptive innovation really means a shifting of customer demand, normally toward lower quality, more accessible, new entrants. But other forms of innovation can have a similar effect, including bundling/unbundling models, and innovations which simply make the need for you obsolete.

The level of executive understanding is correlated to the level of risk. I’d be worried if intermediary or ‘bundled’ businesses weren’t wary of the disruptive potential of disintermediation and unbundling of their propositions. Whereas businesses with higher barriers to entry can be afford to slightly less aware - like those protected by regulation or physical infrastructure. 

In general, it is good practice to ask yourself whether your business model would still stand if you were starting your business today. If the answer is no, then beware of disruption.

2. Can a lack of understanding and awareness of the risks from disruptive innovators lead to a situation where business turnaround becomes impossible?

The myth surrounding disruptive innovation is that it’s a singular, apocalyptic moment in a company’s life. That it’s something that sneaks up on you in the night. In reality, the ‘Blockbuster’ moment wasn’t a ‘moment’ at all and is a rare example of an explosive total industry shift. A more likely pattern for disruption is a death by a thousand cuts, where a whole set of new challengers erode value bit by bit, from a number of angles. 

A refusal to reinvent and institutional arrogance is risky in any business, of any size. It is good practice to understand your domain, and it is good practice to know your customers. By regularly understanding and measuring how customers feel and what competitors are up to, you can get an early read on the vulnerabilities of your proposition. The greatest business failures of recent years has come from a fundamental misunderstanding of customers and value - just compare Kodak and Fujifilm - the former burying their heads in the sand when faced with the threat of digitisation, the latter reinventing themselves to carry on solving customer problems. One is bust, one is more valuable than it was in the first place. The difference? One invested in understanding consumer behaviour, the other didn’t. 

3. How can organisations identify emerging disruptive innovators, and how should they respond to them?

Emerging disruptive innovators will rarely call themselves disruptive, or innovators. Most disruption comes from finding new ways to serve customers in cheaper, simpler or more convenient ways. What distinguishes them is their focus on the customer’s underlying need, rather than existing category truths. Regular programmes of customer research can catch these trending disruptors at an early stage of their evolution by taking a broader approach to industry definition to understand how your core customer’s needs may be being served in completely different ways. You’re trying to capture how customer demand is shifting across categories, rather than solely within your own. Responding to them requires a similar mindset - specifically a willingness to align your investment with shifting customer and category demand, rather than historic sales.

4. Can a lack of focus on disruptive innovation hamper broader digital transformation efforts?

Quite the opposite. Ignoring blockbuster innovation can be good for digital transformation efforts. Digital transformation is about realigning an organisation’s capabilities around value. So many innovation efforts fail to understand value or capability, and end up creating new products or services that add very little, at a considerable cost. Take JLR for example, investing in the ‘future of mobility’. To them, this meant building digital ride sharing initiatives, not on realigning their supply chain to prepare for the inevitability of electric cars.