Avoiding Disruption – 7 key points
The late Clayton M. Christensen researched and wrote one of the most frequently referenced books on innovation: “The Innovator’s Dilemma – when new technologies cause great firms to fail“. In it, Christensen outlines how companies tend to do everything “right” but in doing so, fail to successfully adopt new technologies. The book’s thesis is the basis of the now widely used (and abused) term “disruptive innovation”.
Chapter 11 of the book provides a good summary that I’m going to paraphrase, mostly for my own reference. Others may find it useful. (Any errors in understanding are of course mine.) Why read it? I’d say Chapter 11 of the book is good advice for avoiding Chapter 11 :)
1. Technology moves faster than customer needs
You can’t expect your customers to lead you toward innovations that they do not (yet!) need. Empathy with Customers and Users is necessary, but not sufficient. That’s the essence of the chart below, which shows the blue and green lines increasing at a rate which is higher than customers can use it. “Overserving” is the result. “Underserving” gets ignored, but soon improves and kills you.
2. Funding & Approval for innovation is different
The focus and investment needed to keep the company going is different to the focus and investment needed to absorb and make use of new technologies. This is why you can’t run tech investments using the same portfolio approach (funding, approval and governance) as your non-tech investments. (Of course, that’s how most organisations are still doing it.) It’s a recipe for falling behind. Especially so if you require the same certainty for both. That’s just not how investment in tech works.
3. Innovation requires a different route to market
Generally a successful organisation is good at taking sustaining improvements to the same set of customers or segment – and usually with the same sort of profit margins. It’s the same, but a little better in some way.
Innovation on the other hand usually requires very different thinking about who to market and sell to and how to market and sell it. The margins are likely to be different enough that the approach needs to be quite different. Shoving it all through the same go-to-market will kill off products and services that may end up disrupting your whole business model.
4. Your current skills and processes will hold you back
Related to the previous point, new markets (which is what disruptive technologies involve) requires very different skills and capabilities, and processes most of all. Making new tech fit into “the way we do things around here” is unlikely to work. Better to think about how to do it differently. Different skills and capabilities may be needed to make it work.
5. Speed to information is crucial
Related to the second point about how resource is allocated, the expected “deliverable” for that investment is also fundamentally different. It’s not profit, or even revenue, but information. And the Cost of Delay for generating that information is super important. You’re not operating in a vacuum. If you don’t figure out how to make these new technologies work, someone else will and by then, it’ll be difficult to catch up.
The iterative learning part is also key. That’s how Product Development is done. You don’t just make a plan and “execute” it. If your org can’t handle failure or iteration, you’re likely to fail (ironic, isn’t it?). Of course, you don’t want to fail. (Platitudes like “fail fast” puts the focus on the wrong thing. Rather, you want to have high tolerance for failure in order to maximise the speed and effectiveness of your learning.)
6. Sustaining AND disrupting (you need both!)
Simple really. Don’t put all your eggs in one basket. Not all tech is disruptive, so you need to be able to do both disruptive and sustaining. Neither is “better” than the other. It would be flawed to choose one or the other. It amazes me to see orgs prematurely close down options. Especially when the cost of keeping those options open is really not a lot. False certainty abounds!
I think this is perhaps one of those false archetypes of what we think “leadership” means. That you have to be decisive. Premature narrowing of options is a great way to increase your organisational fragility.
7. Invest when it doesn’t “make sense”
Again, this is related to points 2, 5 and 6, in that it challenges what “makes sense” in organisations that have already achieved some level of success. The risk is that they overindex on what has happened previously.
The biggest advantage that new entrants have is that when they start off, the risk is ignored by the incumbents. Consequently, they get a really good head start because what the new entrant is doing just doesn’t fit into the models that incumbents have for how they make money.
By the time the new market is established those new entrants start to eat you from underneath, in a way that is really difficult for you to respond. They are chewing away at your soft underbelly, where you have little protection. All too often, by then it’s effectively too late for the incumbents to react.