Nothing quite has the power to disrupt a market, a way of doing things, a culture or a generation even, than technology. But how much of this ‘disruption’ really impacts, or really innovates?
If you believed everything coming out of Silicon Valley, and the burgeoning tech hubs in Europe too for that matter, you can barely move for tech disruption these days.
At TechCrunch disrupt NY 2015 finalists included a living cell 3D printer, a new way to store and release energy for battery power, and a water-purification filter to provide clean water for everyone. These don’t just shout potential market disruption; these can change the world man!
Yet it has become a cliché we hear too often in our sector. So much of a cliché, it’s been parodied in HBO’s Silicon Valley. And I think we could all do with noting the wise words of its star CEO, Gavin Belson of Hooli:
“I don’t know about you people, but I don’t want to live in a world where someone else is making the world a better place better than we are”
And there it is laid bare: the drive to disrupt – even with all the altruism in the world – is still about battering the competition and making a tidy profit. How much margin, and how you do that is the sticking point…
Enter Clayton M. Christensen. Christensen coined the term ‘disruptive innovation’ in his seminal book ‘The Innovator’s Dilemma’ first published in 1997. Despite approaching 20 years old, the theory is still going strong today.
He suggests a ‘disruptive innovation’ improves an existing product or service by providing…
1. A more streamlined, simpler solution
2. That’s more convenient to (buy and) use
3. That’s cheaper to buy (and use).
Catch Christensen on the detail in this short video…
It’s easy to see why ‘disruptive innovations’, based on Christensen’s definition, are the dream of every tech start-up. They seek to build something that’s more accessible, convenient and ultimately a better option for a wider customer base, so disrupting an existing market and value network.
These start-ups displace the established technology and product/service providers, move up the value-chain and in doing so create space for the next disruptive innovation. And so it continues. Unless that is, the disrupted choose to take action. When they eventually see it coming or admit it is happening (often it is rather late in the game) the existing established players are presented with a decision – Christensen’s ‘Innovator’s Dilemma’. Essentially they can stick, or twist.
Those that choose to stick let the inevitable disruption happen lower down the value chain, and work to make more margin – and add more value – with their existing demographic. Apple could be considered a great case in point today when it comes to the handset market. They’re experts in carefully exploring the needs of existing customers within an existing market and simply focus in on providing a better, more streamlined and convenient solution, and then they charge their customer’s more for the privilege.
Or you can weigh up the odds and twist. In the early 2000s, the BBC watched as the music business was turned on its head – or brought to its knees – by downloading of pirated MP3s. Simple extrapolation of trends suggested that TV and film would be next. As a prolific content creator and rights holder, the BBC could have tried to ‘pull up the ladder’, creating better content and premium channels to air it. Instead it created iPlayer, effectively making all of its content freely available to anyone with a broadband connection and a UK IP address. No licence (the BBC’s equivalent of a subscription) required.
But this isn’t easy or common. Choosing to compete at the lower end, potentially jeopardising your own premium offerings with a freemium service, is a difficult path to steer. Were it not for its public service mandate would the BBC have gone this route? It’s hard to say. Christensen suggests that existing businesses only dare to twist – to create a ‘disruptive innovation’ – if they treat the venture as a project completely isolated from the mainstay of their business operations. Which is why you’ll find so many established companies buying up small tech enterprises but doing little to integrate them into their own operations or seek to control them from the outset.
Lately, we’ve seen more evidence of a third way: the creation of the greater-than-just-Google, Alphabet. And this is where, for the non-purist, things get interesting. You may think that Google is a big data search business; whereas in fact, it’s an advertising business that happens to employ a lot of data scientists. Finding better ways to serve paid ads isn’t much of a career choice for CalTech and MIT computing grads. In theory by folding the add/search business – Google – into an innovation conglomerate (…our title) of its own creation, it removes lots of contradictions and conflicts from its operations. It creates space for disruptive innovations, whilst not impacting the core, margin-making product, and with data not ads as the shared foundation for success.
Now you may think that that is all bit hooli.xyz. But not a bit of it. Whether Google’s strategy works at an operational level over the long term or not, over the short term it has already paid marketing dividends. By behaving as a disruptor should, by thinking like a challenger rather than the champion, and by publicly committing itself to innovation, Google has netted a 20% increase its market capitalization, whether the strategy works in the long term or not. And where Google goes, upstarts can go too: and we’d hope with as-much-if-not-more conviction, quite a bit faster, with a lot more agility.
So this is our message to our clients: don’t be limited by a Christensen-like definition of disruption. Be disruptive in your actions and your intent. Be innovative in your posture and your go-to-market. You may not change the world, but you could change the scale of your opportunity and transform the value of your company.