200 grams of disruptive, please!

“Bill, I have a great idea! We are the largest software manufacturer on the planet, but we should also make phones. Phones that run small programs that we can market worldwide through a shop. That way we can generate profits from the phones and from the programs.” It is not handed down that Microsoft co-founder Bill Gates once had such an idea presented to him, but it is certain that the firm Apple has, with this idea, sold more than one billion iPhones over the past ten years and made 655 billion dollars in sales from it. Impressive figures and an impressive, disruptive innovation, isn’t it?

What does disruptive mean?

The concept of “disruptive technologies” was introduced by Clayton Magleby Christensen in his book, “The Innovator’s Dilemma”.¹ A disruptive technology is an innovation that could completely displace an existing technology, product or service². Christensen contrasts the concepts of “disruptive” and “sustaining” and describes the mental attitude of businesses in regards to existing technologies and products. Whilst established businesses have, generally speaking, tried to exist on the market permanently, disruptive businesses think more of increased value. They question the needs and desires of customers, and recognize new paths, see chances and take risks accordingly.

Of course, even established businesses think of increased value. And many businesses do this too (here is an example from Conny Dethloff in the microTOOL blog). Most of these businesses are not related to the concept of “disruptive,” although they question existing technologies, products and services. Do businesses have to change working models just to change them? Of course not. Riding a dead horse is certainly not a good idea, but a healthy horse can be ridden well. Should businesses examine existing business models for their future capability? Of course. What is a rider without a horse?

Auf der Suche nach der disruptiven Innovation

Searching for disruptive innovations

The disruptive perspective

“What is the next big thing?” Apple is always hearing this question. The development of iPhones, iPads and so on leads to very high expectations – but of whom? Ask yourself what Apple’s next big development will be? Maybe a really smart TV? Or super cool data-glasses? This question of the next big thing is probably a question of analysts and of journalists, but customers and users can lean back, relaxed, wait it out and look at their watches. Oh – emails, text messages and fitness data are also appearing on the watch? That’s no big deal, not a disruption! It is just a watch that people wear, although they decided consciously many years ago to not wear any watches anymore.

If the iPhone is a disruption, but the smartwatch isn’t, then a disruption is not always the same disruption! The judgment depends on the viewpoint of the observer. It is subjective. And that leads to the question of who is the observer? Does it always have to be the end customer or can it be, for example, a business department? From now on, a business’s marketing department wants to use an email automatization. Logistics doesn’t want to have get new software versions by CD anymore, but rather as a download and therefore available 24 hours a day, 7 days a week, 365 days a year. And communication with customers and potential customers should be enabled with a chat function on the website of the business. Of course, you could now object that there is nothing disruptive about email automatization, software downloads and chat functions. And you might be right about it, if: a) you evaluate whether there are already working solutions for these themes on the market, b) if your business already has these themes under control and c) this theme does not bother you. In other words: a disruptive innovation can have a market relevance, a business relevance and a personal relevance.

Disruption or evolution?

If you think about a disruptive developments, then a few particular examples might occur to you: we don’t have to buy music anymore, it can be streamed into the lounge room for a monthly subscription. Books are no longer bought in print, but rather downloaded as ebooks. And healthy food doesn’t have to be picked up on the weekends from the farm of your choice, because it can be simply delivered to your office every Friday morning. A beautiful new world. But: are these new opportunities really disruptive? They change, and hopefully simplify, your life. They definitely change the market for all sellers of music, books and healthy food and offer – according to the business model – chances and risks. So they are disruptive.

The invention of the wheel was definitely a disruptive innovation. The development of the printing press, the steam engine, the light bulb, the telephone and Konrad Zuse’s Z1 mechanical computer as well. They didn’t just lead to subjective changes. They influenced life worldwide – individuals, businesses and markets. So, are many disruptive innovations from today simply evolutions in themselves? Apple didn’t develop the tablet PC, one of the first devices like this was the GRiDPad by GRiD systems in 1989, and it couldn’t achieve a large market significance³. And the idea of an iPhone as a device with a touch display came to Steve Jobs in the year 2000, at a point in time when the personal digital assistant (PDA) by the firm Palm had already successfully been on the market for a while.

The “Disruptive Model”

If you connect the relevance of an innovation – so the market relevance and the business relevance – with these thoughts on evolution and disruption, then you get a disruptive model:

The Disruptive Model with example

The Disruptive Model with example

The advantage of the model is in considering which changes businesses hope for from an innovation and in which direction an innovation should mainly have an effect:

  • Evolutionary innovation, high business relevance, no or a low market relevance
    The focus of such innovations is on businesses themselves, who are trying, for example, to simplify internal procedures, to accelerate production processes or to establish partnerships with additional suppliers. Here, it is not important if another business has already realized similar innovations.
  • Disruptive innovation, high business relevance, no or low market relevance
    In the 1990s and early 2000s businesses tried to reduce mono-structures and at the same time generate new earning opportunities in other markets (also known as lateral diversification). So car manufacturers engaged themselves in air and space travel, international hotel concerns with travel agents and car rentals. These disruptive changes caused the businesses to face great challenges, but for the markets, they had no or little relevance. Many of these investments were later ceased.
  • Disruptive innovation, high market relevance and high business relevance
    A disruptive innovation has a high market relevance if existing markets are affected by it or completely eliminated. Even entirely new businesses arise through disruptive innovations, examples of this are long distance bus travel, car-to-go and rent-a-bike models, private flat rentals or online pharmacies.
  • Evolutionary innovation, differently pronounced market and business relevance
    This form of innovation is found most often. Examples of this are entire new generations of mobile phones, cars, software products, computers, machines, robots, etc. The market relevance is different according to market and technology, product or service. And the business relevance depends on each strategic direction.

Of course, each innovation that has a market relevance also has a business relevance. Not every disruptive innovation enters the market (that is one reason why product introductions fail). And the market relevance can lessen over the course of time, whilst market sales continue to increase (the first generation iPhone generated almost complete market relevance in 2008, with sales of approximately 1.88 billion dollars, whereas in 2016 the sixth and seventh generations met a smaller market relevance of 137 billion dollars4).

From disruption to evolution

In general, all businesses try to gain customers with their technologies, products and services. If a business is successful, it tries to conserve this success. This practically always leads to a disruptive development little by little becoming an evolutionary development. Many businesses offer new versions of their best-known products each year and the weight of the innovations is less and less per innovation, at least it seems like this – a typical sign of evolution. One could almost say: “Disruption in small amounts. 200 grams of disruptive, please.” What businesses should really pay attention to is “The Innovator’s Dilemma,” as Christensen described it: through success with existing products, businesses can miss the point in time when something completely new arises and a mobile phone and a PDA become a smartphone. Those who miss this point in time will always have more difficulty in achieving similar successes with me-too-strategies. The more important it then becomes to replace existing technologies, products or services with a new, disruptive innovation.

 

Notes

[1]  “The Innovator’s Dilemma: when new technologies cause great firms to fail”, Clayton M. Christensen, Harvard Business Review Press, ISBN-13: 978-1633691780.
[2] Disruptive innovation, Wikipedia, https://en.wikipedia.org/wiki/Disruptive_innovation
[3] Tablet computer, Wikipedia, https://en.wikipedia.org/wiki/Tablet_computer
[4] Apple iPhone global market share 2007 – 2016, https://www.statista.com/statistics/216459/global-market-share-of-apple-iphone/

My name is Michael Schenkel – and I believe in tools, if they are useful. Tools that support users in their work, tools that provide a common working environment for all types of roles in a project.

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