The speaker is
an IT professional with more than 11 years software development
experience. From cultivating a healthy skepticism of management
practices in the workplace, he has now come full circle with an MBA
from the Cyprus International Institute of Management. The speech is
about Disruptive Innovations and is culled from varied sources such
as the now definitive source of knowledge, the online Wikipedia,
articles by Clayton Christensen and Scott Anthony and a NYTIMES
article on ZipCar.
How many of
you own or use a digital camera? Quite a few! And yet not less than a
decade ago, we were using mostly film cameras.
Toastmasters and guests, what I just described is a wonderful example
of a disruptive innovation. What is a disruptive innovation? A
disruptive innovation is firstly a technological innovation; it
improves a product or service in ways that the market
does not expect. It ignores the current definition of quality in a
product or service and creates a brand new definition.
are 2 types of disruptive innovations : Either lower
priced or designed
The term was first coined by Clayton Christensen in his book, The
Innovator’s Dilemma as disruptive technology and later modified to
quote Christensen “Disruptions
often don’t involve big technological breakthroughs. Rather,
they involve mastering the intricate art of the simple solution. “
low -end disruption, the innovator targets the lower -end of the
market I.e. The customer who is least profitable. The innovator
offers a product that is good enough to meet this segment’s needs;
and is able to keep its costs down and enjoy higher margins than the
incumbents. As time goes by, the innovator improves his service and
product and moves up in the value chain , now targeting the more
demanding customers. He is able to do this and at the same time
maintain a higher profit margin than the existing players. Finally,
the innovator closes out his sale to the most demanding segment and
thus drives the existing incumbents out of the market. This is how a
low-end disruption strategy works.
disruption” occurs when a product or service creates a new
market ; Either this market was not identified or was not considered
quote Christensen again, Disruption is not just about technology.
Successful disruptors have the ability to make money at low price
points. Or they have low overheads that allow them to start small and
adapt. Or they play in a very different value chain, with new
partners, suppliers, and channels to market. It is these business
model differences, and not technological prowess, that so often throw
incumbents off balance. Disruption
is about trade-offs
that the customer can live with.
cameras suffered from low picture quality, low resolution and
long shutter lag. But as the technology improved, quality and
resolution were no longer major issues and shutter lag has
reduced. In addition, memory cards and portable hard drives helped
drive the growth in adoption.
|Google Docs/Zoho||Microsoft Office||Low-end
|MS Office is now
being revamped into a web ‘avatar’. Or at least, that’s what they
keep promising. I , for one, don’t really know since I now make do
with Open Office. However, Google and Zoho have targeted the cost
conscious customer such as schools, universities, colleges, home
and SMEs with their redefinition of a good enough Office Suite.
I.e it is good enough for low end use.
|Easy Jet||British Airways||New market
|Easy Jet with
their low cost, no-frills approach was able to cater to
cost-conscious European customers. And flying out of smaller
airports was a key part of their strategy. They targeted a segment
that would previously travel by car, bus,sea or rail. BA attempted
to compete with a low-cost airline of their own but were unable to
build a cost-conscious culture and ultimately sold the business.
Hertz,Avis and Enterprise [New Market Disruption]
- Another more contemporary
example of a New Market Disruption is ZipCar. Some salient features
of their offering are as follows:
- membership-based car-sharing company
- Billing hourly or
- This is a change
from the existing incumbents who charged for a minimum of a day,
irrespective of the hours actually used by the customer.
- view available cars and reserve them
either by internet or phone for the no. of hours you wish to use the
vehicle. You pay only for the time you reserve.
- For instance,
you could reserve a car for 2 hours over the weekend and do all your
grocery shopping within that time for a month. Much cheaper than
hiring a taxi and more flexible too! Now you see why it is a new
market disruption; some of the cab riders are now converted to
- For your
convenience, each vehicle has a home location: a reserved parking
space located on a street, driveway, or neighborhood parking lot in
the member’s area, usually within walking distance from where you
- access card, called a “Zipcard”,
which will open the vehicle they have reserved only at the time they
have reserved it.
- Each vehicle
records hours of usage and mileage, which is uploaded to a central
computer via a wireless data link.
function that allows the company to prevent the car from starting in
the event of theft.
- reserve and use a
Zipcar in any Zipcar city.
- Now this service
is the result of an innovative use of technology to disrupt the
- Hertz and
Enterprise have launched copy cat services ; time will tell if they
can displace the pretender to the throne.
acts as an enabler.
It is the identification of the customer need and market segment,
creation of a sustainable business model and the flawless execution
of strategy that completes the success story.
technologies are not always disruptive to customers, in fact, I
consider them a boon to consumers, because if you will have noted
from the examples, Quality is provided at a lower price. Disruptive
innovations are often ignored by existing players because they are
stuck with the Entrenched Player’s mentality; that is, they have made
a significant investment in a technological approach that is
currently paying them rich dividends, they have grown big and fat,
the flab makes it hard for them to move quickly and challenge the
innovator, also they are reluctant to cannibalize their existing
product lines and make way for the disruptive technology.
recommends that existing
for these innovations,
in small firms that might adopt these innovations,
to push technological demands in their core market
performance stays above what disruptive technologies can achieve.
adopted this defense strategy very successfully and thus have
retained their edge in networking products.
Established Companies Disrupt?
– Put the customer, and their important, unsatisfied , often
unstated needs at the center of innovation. Think like the customer.
it simple(easy to use), convenient (available) and affordable(not
organizational space for disruptive growth businesses – think
like a start-up
beyond features and function – create a differentiated
class at testing, iterating and adapting – don’t try to be
perfect,just good-enough ; get it out there, the customer will
perfect it for you.
sum up, adopt agile business practices and models. Agility is key.
examples of established companies innovating in this generation
include Tata with its Nano, Apple with Ipod and Iphone. In fact, 35%
of disruptive innovations in this generation (2001 – ) have come from
established companies. So
elephants can dance too!
established companies disrupt?
To create new growth businesses
, period. That is a good enough reason , by itself.
GE has invested in new growth
businesses. Time will tell if it succeeds.
government takes disruptive innovations very seriously so much so
that it defines it as something that has the potential to
significantly degrade or increase US national power, even if only
countries can accelerate their development by skipping more
expensive, more polluting, less expensive technologies and adopting
disruptive technologies. This has the potential to change the balance
in the competitive advantage of nations.
India for one has
leveraged IT to be one of the pioneers of e-governance in the world.
African nations have skipped landline telephony and embraced mobile
phones as the main modes of communication.
innovations are here to stay. For customers, the market has never
been better. For businesses, change drives disruptions , so
adaptability and agility is key to continue in the game.
Over to you,