Not all innovation can be called disruption
Disruption is the new normal. Disruption is creation. Disrupt or be disrupted.
Disruption and disruptive innovation have become buzzwords, and have lost their meaning in the process. If we describe all innovation as disruptive, the corresponding sense of urgency declines. This is adding oil to the fire of those conservative forces within organisations that wish to halt or postpone change, whereas the disruptive impact of countless new technologies demands radical business transformation.
The concept of disruptive innovation was put on the map by Harvard professor and management guru Clayton M. Christensen in the mid-1990s. In his famous book The Innovator’s Dilemma, he describes how even the most successful companies with the best people and processes fail, precisely because they do everything right. His reasoning is that new technology is often rejected by existing consumers, which for companies focusing on a strong customer relationship is sufficient reason to put such innovation on hold. They therefore omit to create new markets, or find new customers for future propositions. Where these mature companies miss opportunities, there is a market gap for newcomers – the disruptors.
Non-disruptive innovation is also known as sustaining innovation. These are new solutions within existing markets. You can pinpoint these by asking customers how to further improve existing products and services. Mature organisations are especially good at identifying and rolling out these sustaining innovations, and realise short term growth. For market leaders, disruptive innovations are much more difficult. New markets always start small, are unpredictable and can lead to cannibalization of existing business. This is not easy to explain to shareholders.
The question is whether or not things used to be different. Are developments really picking up the pace? The answer is yes if we look at the average period of time a company is listed on the S&P 500 – the stock index of the 500 largest US companies. Mid-nineteenth century companies spent an average of 60 years on the S&P 500. In 1990, this had shrunk to 20 years, whereas now this average has dwindled to approximately 15 years. If this trend continues, in 10 years’ time the index will largely consist of companies that we do not yet know; such a trend is not only fuelled by newcomers and bankruptcies, but also by mergers and acquisitions.
We live in a demand economy in which consumers have the say. All markets showing inefficiency, poor customer service and high prices are of interest to disruptive newcomers. We can question whether iTunes and Spotify were the cause of the transformation of the music industry, or whether this was due to an outdated business model which forced customers to buy an entire album when they only really wanted to listen to three songs. Have mobile texts almost disappeared because of WhatsApp, or is this because of their excessively high prices and limited functionality? And did the taxi industry not make things very easy for the newcomer Uber when all it could offer the customer were long waiting times, vague costs and poor service?
In strategy setting, both disruptive and sustaining innovations are important. In our Strategic Foresight consulting practice, we work with organisations to formulate a future-proof strategy. What does the future look like? How do we get there? Disruptive innovations are accompanied by both a new business model, and a new way of working. Sustaining innovations defend existing market positions and ensure the existing system continues to run during the process of transformation. By explicitly distinguishing both innovation types, we can analyse – and solve – The Innovator’s Dilemma.