Disruptive innovation is a term first defined by Clayton M. Christensen in his book “The Innovator’s Dilemma”. Today his concept of ‘disruptive innovation’ is present in our everyday language about innovation. It is also applied to describe many situations relating to industry changes.
“If you defer investing your time and energy until you see that you need to, chances are it will already be too late.” Clayton Christensen
Understanding disruptive business
To explain his theory, Christensen uses a comparison of Netflix and Uber. A disruptive business is able to gain a foothold in a low-end market that has been ignored by established companies.
These disruptive organizations must in their own way create an entirely new market. One that turns non-customers in customers.
Despite these theories. Uber didn’t create a new market but sought customers who were already using taxi services. If it is true also that truly disruptive businesses start with a low-quality product that covers the mainstream market by improving quality, Uber does not fit this theory either.
” You’re not that disruptive. Stop lying to yourself!” Rameet Chawla
Christensen uses Netflix as a classic example of a disruptive business. The initial Netflix mail-in subscription service wasn’t attractive to Blockbuster’s mainstream customers who rented new releases ‘on-demand’. Netflix attracted only those who didn’t care about new releases, were early adopters of DVD players or shopped online.
They targeted segments of the population previously overlooked by competitors, delivering an inferior (but tailored) alternative, at a lower price. Eventually, Netflix moved upmarket by adding the things mainstream customers wanted. Then one day, there was no reason to use Blockbuster anymore. We agree that this is a great example of true disruption.
We think Christensen’s examples help to explain what disruption is and is not. However, we also believe that there could be a better example to use than Uber because it is a business which is platform-based (rather than linear) and, at one level, we believe that Uber has caused disruption.
Networks of Disruption
Once a platform has established a strong network around its core offering. It can easily tap into that network to unlock new customer groups and create new markets. Networks are extensible in a way that traditional supply chains are not. In fact, most platforms create new markets. They succeed not by building sustainable innovations but by introducing disruptive innovations. These are the things that build new networks, communities, and marketplaces.
This is what Uber has done.
We also challenge the technology obsessed view of disruption. It might be true that new technology uproots, and eventually replaces, an existing technology. Consider the way video streaming has replaced video rentals.
However, this description still misses the point because disruption is not driven just by technology. Instead, it is driven by customers. They are the ones behind the decisions to adopt or reject new technologies or new products and services.
Let’s look at Uber again. Customers valued the convenience and value of the Uber service. The driver community valued the flexibility of hours and service delivery model. Large companies should therefore focus on the changing needs of customers to respond more effectively to digital disruption.
“Those who disrupt their industries change consumer behaviour, alter economics, and transform lives.” Heather Simmons
Innovation is an important aspect in the conversation on disruption. But it is not always the case that newer technology makes for better business. This is why we prefer to take a broader view of the topic.
The Bigger Picture
We are rapidly facing an oncoming future of colliding megatrends. From rapid urbanisation, climate change, resource scarcity, and technological breakthroughs, to shifts in economic global power. All the while, navigating the currents of demographic and social change.
We know that these shifts are reshaping societies, economies, and behavioural norms across the world and redefining whole industries at a breath-taking pace.
We also know that technology is a game changer. But business leaders cannot be sure how they should be planning for what’s to come. The past is no longer a reasonable guide to the future. There is so much hype now, so many unknowns, and such a degree of volatility in every area.
Research shows that the ‘pace of change’ and related threats from business model disruption has become the top emerging risk for CEOs, with health care, insurance and industrials fearing its consequences the most.
“Most industries experience disruption not from the sudden impact of a single force, but rather from a collision of interacting forces, and often with multiple, related consequences.” Sean Murphy
The Future is Now
The notion of an organization with a fixed structure and supply chain offering a well-defined range of products or services in a stable market with a set of known competitors is disappearing fast. Now, and in the future, organizations should ‘create their next cutting-edge’ by embracing new technologies to develop potentially disruptive ideas, in and outside of their current industry.
Secondly, they should ‘fund their future bets’ by putting more time, money and energy into innovations that can test and turn new ideas into commercial realities faster.
Third, if organizations cannot build or fund the necessary skills and resources internally, they should find partners (including third parties and suppliers) to scale new ideas and provide access to technologies and specialized talent.
Finally, organizations should ‘disrupt from the inside’ by fostering an internal culture that views innovation as a benefit and establishing an ‘innovation lab’ or ‘digital factory’ to test new ideas. Successful companies like Google and Microsoft still spend billions of dollars trying to find new ways to avoid disruption by leaning into disruptive technologies, testing new ideas and learning how to remain close to the innovation frontier.
We also believe that we will increasingly see the development of collaborative ecosystems replacing the traditional organization concept. In this every changing world, why not see how the SERVICEBRAND approach can help you navigate, innovate and disrupt the competition!