Leadership and Change Management

Chapter 15 : Disruptive Innovation

The Rise and fall of great companies Disruptive innovation

Factors that affect disruptive innovation

Taking root in disruption Degree of integration Bringing simplicity and convenience to customers

Creating the capabilities to cope with disruptive innovation

Building a new structure in an Existing organization
Creating a spin-off, Acquiring an organization

Target Market for Disruptive Innovation

Chapter Summary

Disruptive innovations often introduce products that are not as good as those are in use in established markets. Their performance is not good enough for the mainstream markets. However, these products are simple and convenient to use and are less expensive. They target customers from new, small, and initially unattractive segments.

These products are meant for new or low-end applications. When a product creates a new growth market, it is considered a disruptive innovation. If a company is unable to bring disruptive innovations to the market, it should look at the variables which could have led to this unfavorable outcome. Different outcomes appear to occur in a random fashion because often all the variables that influence the success of an innovation are not known.

When these variables are understood and managed, attempting disruptive innovation will be less risky. The leading firms in a market have more resources than entrants. When the entrants try to attract their customers, leading firms overwhelm them with their financial muscle or other resources. When, instead, new entrants target ignored or customers who are unattractive to leading firms, the entrants are relatively safe. In this segment, the amount of cash resources or proprietary technology that the company has, does not matter.

Hence it is better for new entrants to put their roots down through disruptive innovation rather than through innovation that is of a sustaining nature. The degree of integration of the firm determines the nature, scope, and success of innovation. Highly integrated companies manufacture proprietary components or products. They have a wide range of product lines and also operate in different businesses.

When a product’s functionality is lower than the customer’s expectation of it, disruptive innovation aims to create a better product. In such a scenario, engineers try to fix the pieces of their systems together in as efficient a way as possible. In the case of integrated firms, whenever disruptive innovation occurs, all the components are upgraded to ensure best performance. But when customer needs can be easily met by the available technology, firms that outsource components (i.e. firms that are not integrated) stand at an advantage.

Disruptive innovations fail to materialize when the organization fails to create the right environment for them to emerge. If the organization has a severe resource constraint, the inadequacy of resources may disallow innovation. If the organization is limited by its processes, these unsuitable processes may hold stifle innovation. Similarly, the values held by members of the firm may be hostile to disruptive innovation. A disruptive innovation succeeds when it brings simplicity and convenience into what the customer is doing.

It must minimize the need for customer to change his life in a direction in which he/she does not wish it to change. Creating disruptive innovations needs new capabilities in terms of resources, processes and values. This does not occur by accident, but by design. New organizational space has to be created to develop these capabilities. This can be done in three ways. One, create a new organizational structure (to develop new processes) inside existing corporate boundaries. Two, create a spin-off in which new processes and values are nurtured. Or, three, acquire an organization that already has the desired resources, processes and values.