My previous post has triggered a number of interesting, often negative, comments in various LinkedIn Groups. My opponents criticized my suggestion that the current state of innovation wasn’t as bad (“broken”) as a few recent articles I referred to were implying. They argued that the corporate innovation process was indeed fundamentally broken because the majority of companies were pursuing mostly incremental improvements of their core offerings, instead of going after completely new, “disruptive”, products.
The idea that companies should stop wasting time and resources on incremental innovation and focus entirely on disruption–interpreted as the creation of products and services generating completely new markets–has become so popular that some clarification seems to be in order.
Let me first go back to the roots of the term “disruptive innovation.” As originally described by Clayton Christensen, disruptive innovation represents a process by which a product initially appears at the bottom end of a market, usually as a simpler and cheaper version of the current product. Then, by accumulating improvements–often by steps completely incremental in nature–the new product gradually moves up the market, eventually displacing (“disrupting”) the existing incumbent product. Importantly, at the initial stages of the disruptive process, its products are often characterized by lower gross margins and smaller target markets; they also have less attractive features than the dominating (incumbent) products.
From this perspective, I can see why startups or early-stage companies would become obsessed with disruption. Usually having no products on the market–and therefore nothing to improve–their only chance at survival is to come with a product or business model that would “disrupt” the business of an incumbent, usually a large company dominating the existing market. In doing so, they can live, at least in the short-term, with low margins, small market share and even somewhat inferior product.
But why would large companies pursue disruptive innovation? What are they going to disrupt? An incumbent? They are incumbents! The very term “disruptive innovation” is completely meaningless when applied to large and established companies. I hate saying that, but I suspect that many folks who call “disruptive” every product or technology that looks exiting are simply unfamiliar with Christensen’s work.
Sure, in order to stay ahead of the competition and to improve the bottom line–and, of course, in order not to be disrupted themselves–large companies must always look beyond incremental improvement of their core offerings. To describe this “higher-level” type of innovation, the largely interchangeable terms “radical”, “breakthrough” or “transformational” have long been proposed. So why use the term that has completely different meaning? Because we love how energetic and optimistic the word “disruption” sounds? Dis-r-r-r-uption!
Of course, I don’t want to be a terminology cop and although I do believe that precisely defined terminology is vitally important for any substantive discussion, I’m ready to concede to my critics and agree to call any innovation above incremental “disruptive.” I’m doing so with the only goal: to address the very nature of their assertion that companies must pursue nothing but disruption.
First of all, the innovation process is laden with risk–a lot of it!–and the higher level of innovation, the heavier the risk. To mitigate this risk, companies adopt the 3-Horizon Model of Innovation Management. According to this model, as much as 70% of all innovation resources should be spent on the improvement of the company’s core products and only 10% on highly risky projects aimed at breakthrough (“disruptive”) products or technologies.
Now, I assume that when my critics make investments within their own retirement portfolios, they spread the money over various investment options; they don’t put all of it in one speculative stock. Why then do they expect a fiscally responsible company putting all 100% of its innovation resources in a number of projects with the highest probability of failure? Does it make any sense?
Second, let me tell the fans of disruption a little secret: innovation is difficult, and the higher level of innovation, the more difficult it is. If companies could come up with a “revolutionary” product or technology every quarter, they would. But they can’t, and blaming them for that is about the same as blaming Usain Bolt for not breaking the world record every time he hits the track.
So let’s relax and give to incremental innovation the respect it deserves. Inc-r-r-r-emental!
Image credit: https://en.wikipedia.org/wiki/Demolition