Friday, January 13, 2017

Disruptive innovation: where, not what

First, a slight diatribe.  Why is it that companies think their people can do successful innovation when they don't share a common language?  In the title I've used the word "disruptive", and by this I mean innovation in the "third horizon" - incremental, breakthrough and disruptive.  I'm defining disruptive innovation as new products, services or business models that "disrupt" existing products or markets.  For example, Apple and iTunes disrupted Tower Records.  Netflix and its rental model disrupted Blockbuster's retail store model.  But I've been in plenty of places and talked with plenty of customers who don't have a consistent language.  They toss around "breakthrough", transformative, disruptive and other language without defining it, and then are dismayed when they get at best incremental innovation.  But this is just a language problem, you'll say.  And I'll say you are correct, but if we depend on language to communicate, and to direct assets, people and risk tolerances, if our language isn't right, then nothing will be right.

Ok, diatribe over.  Thanks for letting me get that off my chest.

Now, on to the real topic:  Disruptive innovation is a where question, not a "what" question.

Again, I'm defining disruptive innovation as a structural change to a product offering, a business model or a market.  Clearly, you have to have a new and compelling offering to have that kind of impact.  That means the "what" - the outcome of the innovation activity, must be fairly interesting, compelling, valuable for customers and so on.  And you'd be surprised to learn that many companies generate viable, disruptive ideas on a fairly regular basis.  It's not as hard as it seems.

It's the "where" that matters
The difficulty is in the "where".  Too often existing business models and knowledge are very attuned to existing markets, customers and segments.  Existing products generate the revenues and profits that innovation teams depend on, and that drive wealth and bonuses for product teams.  Who wants to mess with that?  Existing firms, living in their existing markets, serving customers, can't afford to disrupt their own markets, customers or segments.  They'd put their own revenue streams out of business.  That's a no brainer.  Everyone recognizes this.

But risk enters the picture when you create a disruptive idea, then recognize that you can't afford to implement it in your existing market. Clearly it needs to be implemented and launched in an adjacent or new market, where it will impact other companies and customers, but not your own.  This becomes far more risky, however, because the existing corporate assets and knowledge don't know much about that adjacent or new market, don't think they have the rights to play in that market and don't have partners or channels to access that market.  Thus, there will be a heavy investment to enter that new segment or market, and is the idea worth the cost?

Generating is easy, implementing is hard
You see, GENERATING a disruptive idea is easy.  Implementing a disruptive idea in your own market is next to impossible, so the idea, if it will see the light of day as a product, must be implemented somewhere else.  This is when the "WHERE" question comes in.  Too often, the WHERE question is asked too late in the game.  You have an interesting idea that seems to have some market validity, but no one bothered to think about where the idea should have impact before it was developed.

If you want to do "disruptive" innovation, first, make sure that everyone shares the same definition and has the same risk tolerances.  Then, define the market, customer or segment that you want to disrupt, then create ideas, recognizing that disruptive ideas will disrupt your revenue streams if you deploy the idea within your own market or segment.  Generating disruptive ideas is easy, deploying disruptive ideas, especially in markets or segments you don't understand, is difficult.
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posted by Jeffrey Phillips at 6:55 AM


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