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.

 

Disruptive
Innovations

 

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.

 

Fellow
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.

 

There
are 2 types of disruptive innovations : Either lower
priced or designed
for non-consumers.
The term was first coined by Clayton Christensen in his book, The
Innovator’s Dilemma as disruptive technology and later modified to
disruptive innovation.

 

To
quote Christensen “Disruptions
often don’t involve big technological breakthroughs. Rather,
they involve mastering the intricate art of the simple solution. “

 

 

 

In
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.

 

“New market
disruption” occurs when a product or service creates a new
market ; Either this market was not identified or was not considered
worth targeting.

 

To
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.

 

Disruptive Innovation	Displaced/Marginalized Technology	Type	Notes
Digital photography	Film photography	Low-end disruption	Early digital 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 disruption	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 disruption	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.

 

ZipCar Vs
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
  daily.

 

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
Zipsters.

 

• 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
  live.
• 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.
• “kill”
  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
existing market.

Hertz and
Enterprise have launched copy cat services ; time will tell if they
can displace the pretender to the throne.

 

Technology
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.

 

Business
Implications/Defense Strategy

 

Disruptive
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.

 

Christensen
recommends that existing
firms

 

Watch
for these innovations,

 

Invest
in small firms that might adopt these innovations,

 

and
continue
to push technological demands in their core market

 

so that
performance stays above what disruptive technologies can achieve.

 

CISCO has
adopted this defense strategy very successfully and thus have
retained their edge in networking products.

 

Can
Established Companies Disrupt?

 

Yes,

 

• Customer
  – Put the customer, and their important, unsatisfied , often
  unstated needs at the center of innovation. Think like the customer.
• KISCA
  – Keep
  it simple(easy to use), convenient (available) and affordable(not
  pricey)
• Create
  organizational space for disruptive growth businesses – think
  like a start-up
• Look
  beyond features and function – create a differentiated
  service.
• be
  World
  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.

 

To
sum up, adopt agile business practices and models. Agility is key.

 

 

Some
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!

 

Why should
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.

 

Implications for
Developing Countries

 

The US
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
temporarily.

 

Developing
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.

 

Conclusion

 

Disruptive
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,
Toastmaster!