In the previous article I looked at business model innovation. The key take-out was that organisations should periodically ask questions such as “Who are our customers? What value do we offer to them? How do we do this?” If the answers are different than before, it may be time for business model innovation. Closely associated with business model innovation is “disruptive innovation”, a term coined by Clayton Christensen, referring to the occurrence where industries are basically made obsolete through an innovation that creates a new market and value network, displacing an earlier technology. Yes, we do have a smaller economy and a unique market environment, but disruptive innovation is as applicable in Namibia as in any other country, no matter the size of the economy or the market conditions.
Who is your competition?
First some terminology. The “degree” of innovation is categorized by the level of “newness” of the innovation. The spectrum ranges from incremental innovation to radical innovation. The differentiation between incremental and radical innovation is not always distinctive. Most innovations simply build on what is already there, requiring modifications to existing functions and practices, but some innovations change the entire order of things, making obsolete the old ways. This is where disruptive innovation comes into play. The term is used in business and technology literature to describe innovations that improve a product or service in ways that the market does not expect, typically first by designing for a different set of consumers in a new market and later by lowering prices in the existing market.
My good friend and innovation mentor, Jeffrey Baumgartner, refers in his monthly newsletter (Report 103) to this as “your most dangerous competitor” and he lists the following examples: In Detroit in the early 1900s, if you asked a blacksmith who his main competitors were, he would have named other blacksmiths. He would never have guessed it would be an engineer named Henry Ford who was making a cheap motorcar. Cars were expensive toys for the rich and no threat to the massive horse industry of the time. Or so he would have thought until he went bankrupt. Up until about 20-25 years ago, if you had asked the CEO of Smith Corona who his top competitors were, he probably would have said companies like Royal, Olivetti and other typewriter manufacturers. If you had said, “No, it’s actually Microsoft,” he probably would have laughed. Today, Smith Corona is a shadow of its formal corporate self. Readers under 25 have probably never seen a typewriter. Other examples include tablets replacing laptops, flat screen led technology TVs replacing tube TVs, and then a whole list of products which are being replaced by smart phones – from calculators to flashlights.
In each of these instances, the most threatening competition came not from the companies perceived as competition – but from unexpected start-ups and existing companies in completely different sectors. It could happen to you too. An unexpected competitor launches a product that is completely different to your (and your perceived competitors’) existing, established product, but which accomplish the things your customers want better than your products can do. They are, of course, disruptive innovators. Baumgartner warns that if you do not pay attention, you will not notice the threat they pose to your business until your customer base begins to evaporate and you have to go into damage control mode to save your business. The current fast pace of technology development means that game-changing products are being developed all the time. And a new generation of people who live a substantial part of their lives online means a market where virtual products are as important as real-world products.
Disruptive innovation is a harsh reality, even in our market, so next time I want to dwell more into this topic and also look at some strategies organisations can deploy to counter disruptive innovation. I conclude with a quote from Gary Hamel: “Out there in some garage somewhere is an entrepreneur who’s forging a bullet with your company’s name on it”.
Koberg, C. S., Detienne, D. R., & Heppard, K. A. 2003. An empirical test of environmental, organizational, and process factors affecting incremental and radical innovation. The Journal of High Technology Management Research, 14(1), 21-45.
Baumgartner J. Report 103. Online: http://www.jpb.com/report103