2.4 Disruptive innovation
When companies have to name their most daunting competitor, they often point to the leading incumbent in their market-place. Thirty years ago, General Motors would point to Ford Motor Corp. [. . .] Harvard Business School would point to Stanford Business School.
These are all sustaining rivals, where companies are fighting for existing customers in existing markets. These battles are important, but companies also need to watch for disruptive innovations incubating outside of the core market.(Anthony and Christensen, 1995, p. 41)
The term ‘disruptive innovation’ was coined by Clayton Christensen in a seminal article for the Harvard Business Review (Bower and Christensen,1995). The premise is plausible: large companies, significant players in their field, may be quite good at innovation that fits within their existing paradigm, but are often vulnerable in the face of radical changes that challenge their worldview. (It would be unfair to give Christensen all the credit for this concept. For example, something quite similar was advanced by Michael Tushman and Philip Anderson (1986) in ‘Technological discontinuities and organisational environments’, which introduced the concept of competence-enhancing developments and competence-destroying breakthroughs.)
Box 2.1 Big company vulnerability
The list of potential candidates that support Bower and Christensen’s contention is immense. IBM dominated the market for mainframe computers in the 1960s and 70s and yet are now viewed more as a ‘business solutions’ company than a computer company. After the mainframe came the minicomputer, with Digital Equipment the dominant player. They failed totally to adapt to the era of the personal computer (PC), and were eventually subsumed into Compaq, a very successful PC company, who were themselves eventually merged into Hewlett Packard. More recently, Hewlett Packard has experienced problems making significant job cuts (Arthur, 2012).
Xerox made a name for itself with an innovative photocopying process, but the company’s worldview comprised large, centralised copiers. They recognised Kodak’s similar machines as competition, but failed to appreciate the threat posed by much smaller machines from Canon. Xerox’s policy of concentrating on copy volume at the expense of photocopier machine placements left it vulnerable to competitors like Canon. Xerox is now seen more as a systems integrator (i.e. building semi-bespoke ‘solutions’ from largely off-the-shelf components – hardware or software – for individual customers). Kodak made its name on the strength of the silver-halide photographic process. Polaroid was recognised as being in a similar business, but the implications of solid-state photo-sensors and digital cameras were not really understood until it was too late. Kodak the organisationprotection in January 2012 (Smith and Yousuf, 2012).
No one is really going to offer management any form of reliable crystal ball, but there is merit in examining innovation history in an attempt to avoid repeating the same mistakes. Many critical failures arise because a management team has been to some extent ‘blind-sided’ by developments that lie outside their previous experience. Therein lies the peril of organisational orthodoxy; the ‘way we do things around here’ may be a key ingredient in current success. However, it can lead to blinkered vision (concerning what might be possible, or what might be just around the corner) – core competencies are often inextricably linked with ‘core rigidities’ (Leonard-Barton, 1993; Tushman and O’Reilly, 1996).
When innovations do emerge from major players in an industry, their value may not always be recognised. For example, Xerox’s world-famous research facility in Palo Alto (PARC) was responsible for many wonderful ideas, including the invention of the Ethernet and also the WIMP (windows, icons, mouse, pull-downs) operating system that still informs your personal computer today. How much profit this finally accrued to Xerox is a separate question.
Smaller, younger, and more agile organisations often have, as yet, few traditions to define the ‘right way to do things’. The lack of conventional wisdom often makes it easier for a smaller organisation to create something radically new; in Christensen’s terms, to produce disruptive innovations.
Large organisations sometimes set up skunkworks (groups of innovators charged with developing a new product outside standard systems) to get around the potentially inhibiting effect of standard reporting procedures. These groups often report directly to top management. The term ‘skunkworks’ was originally coined to describe an initiative at Lockheed Aerospace where key staff were deliberately isolated from the day-to-day constraints of company bureaucracy in order to foster innovation (Rich and Janos, 1994).
Activity 9 Current and potential competitors
Who does your organisation currently recognise as its major competitor(s)?
You may like to consult your colleagues too. When most of us are asked about our own organisation, it can be very difficult to ‘step outside’ the conventional wisdom. Intelligent folk who have no intimate knowledge of your sector or industry are often able to ask all sorts of ‘silly’ questions, not least ‘Why does it have to be like that?’.
Try this: explain the organisation's activity, say who you think your competitors might be, and ask other people who they might see as your competitors, both current and potential.
Seeing disruptive innovation coming is never easy. Many organisations use the concept of the enabling technology advance (ETA) – (i.e. something that we don’t currently know how to do) in their processes for evaluating potential new products. The key question in this regard is usually ‘how many ETAs are required for this thing to fly?’. The more ETAs, the higher the perceived risk. This concept can also be applied to scanning the environment for competition; given a particular ETA that you might be able to imagine (for example, batteries that held twice as much power for twice as long), how would that change the ‘industry’ you are in?
What ETAs would radically change the nature of your organisation’s business? (Again, you may like to canvass opinion from others.)
Responses are likely to be industry specific, but the ability to understand that such things might come to pass generally help an organisation deal with them if they do.