As part of my Innovation and Corporate Entrepreneurship course at the Opus School of Business, we discussed the concept of Disruptive Innovation. We chatted briefly about what it is and why it’s difficult for large companies to actually disrupt a market. What was most interesting, though, was that most people’s conception of Disruptive Innovation is far different than that of business writer Clayton Christensen. In his text ‘Foundations for Growth: How to Identify and Build Disruptive New Businesses’, he explains that at it’s core disruptive innovations create “entirely new markets and business models.”
Growing up in an Apple = Innovation time frame, many Gen-Xers likely believe that true breakthrough innovation requires fancy new [digital] products. The seemingly obvious disruptive innovations of our time would then be the iPod/iPhone/iPad, Hybrid Car, and the Segway (yes, it's true - but disruptive innovation doesn't mean market success). However, if we look at what Christensen’s rules for innovation, one might argue that each of the iDevices aren’t actually disruptive. His rules apply to two scenarios: (1) creation of a new market that can serve as a base for disruption and (2) disrupting prevailing business models from the low-end.
Creating a new market requires that you pass these three tests
- Does the innovation target customers who in the past haven’t been able to “do it themselves” for lack of money or skills?
- Is the innovation aimed at customers who will welcome a simple product?
- Will the innovation help customers do more easily and effectively what they are already trying to do?
If we consider how iDevices stack up to these tests, it should be pretty clear that they pass the 2nd and 3rd tests with flying colors. Jobs’ products are simple, elegant, and incredibly user friendly. Imagine the MP3 players at that time that Apple was up against. There were way to many buttons, and they required convoluted software to move and manage music. Not only that, but users were already trying to listen to music using personal devices – the Walkman came out in 1979 and the first MP3 players were on the scene in 1997. When was the iPod introduced? Oh yeah, that was in 2001 – four years after users had gotten used to the concept.
That brings us back to rule #1. This is where I struggle to decide if they passed the test. Christensen provides the example of how computers in the 1970s required specialists to do any sort of processing, but the personal computer market disrupted that status quo. Another more recent example is e-trading. Up until WealthWEB came on the scene in 1994, people who wanted to try their luck at the market, had to work through stockbrokers on the phone or [gasp] in person. So with that framework, did Apple actually disrupt the market? Okay, no. They didn’t – they were an early entrant who had a great product, but didn’t provide a new capability for the masses.
On to Christensen’s second scenario: disrupting a prevailing business model from the low end. This one will be quick.
The tests iDevices have to pass are:
- Are prevailing products more than good enough?
- Can you create a different business model?
One might argue that the prevailing devices in 2000 and 2001 were not good enough. Users were forced to use large devices, many with disks or separate media, tiny LCD displays, and awkward user controls. The rule in even more detail is “if companies can sustain price increases in a given tier when they introduce an improvement in one of these areas (functionality, reliability, or convenience), customers are not yet overserved and that tier cannot be disrupted.” Okay, now we’re on to something. We saw that prices were in fact climbing as new features came in the door from large competitors. Test failed.
Finally, did the iDevice create a different business model? Aha! Now we have to span the Apple portfolio of offerings and recognize that selling a product like the iPod didn’t create a new business model, but the iTunes store may have. Apple was able to work with music labels and build out one of the most successful online stores at a time when piracy was a growing concern. I’d still argue that this was not actually a new business model, as other competitors were already in existence (Ritmoteca.com – 1994; pressplay – 2002). Along came the iTunes Music store in 2003, again a few years behind the curve, but with a far better user experience.
Thus, we can now definitely say that the iDevices are not a disruptive innovation. But, before we end, I should touch one one last nugget of information. Christensen pointed out in his article. It relates to the question: Why can’t big companies innovate? Well, for one, we can see that while Apple can’t necessarily call themselves disruptive innovators, they are wildly successful.
The key is that at big companies, the pressure for innovation fails to outweigh the pressure for stability. You need a strong sense of urgency to be successful and incentives that support thinking up big ideas. Also, when times are good, and the core is improving it seems unnecessary to chase new ventures; when times are bad, and you’re under attack from competition, investing in new growth doesn’t feed the bottom line fast enough. A new idea is formed at corporate giant ABC and it’s handed off to middle-manager John Doe to implement. Doe feels fears failure so morphs the wild idea into the stable archetype of success already developed.
What you can do
So what’s the trick? Christensen would argue that you should look to attack markets from the low end (scenario 2) or from an outside-the-box solution that creates a new market opportunity. I say, you need to find the best and brightest in your organization, provide the opportunity for challenges, and a development system that allows you to build, measure, and learn. Establish success, and then let your middle-managers implement what’s proven.