In a global economy the business’ culture will determine what opportunities are exploited and those that are missed. In a recent article of the MIT Sloan Review, researchers King and Baartartogtokh (2015) investigated Clayton Christensen’s theory of disruptive innovation to better understand the model.
Not all of the four factors of the model were found to be equivalent in influencing market disruption (technology absorption, sustaining innovation, disruptive innovation, and customer adoption). Factors unanticipated by the model were also found to play a significant part. In particular, the business’ agility and responsiveness to targeting and serving the incumbent’s less valued customers represents an opportunity to enter the market and build from the ground up.
These findings indicate some cause of optimism for startups and new entrants who are interested in entering or creating new markets. Taking the perspective of startups in mind, the following 11-insights can be incorporated into the stages of idea generation, customer development, customer validation, and product/service launch:
#1 Not Exceeding Expectations: Focusing on customer needs may present an opportunity for a new entrant to provide a simpler product that is better matched to the target customer’s needs
#2 Exceeding Expectations: Overshooting the incumbent’s business model may also provide an opportunity to target customers currently not served well by existing products or services.
#3 Lower Level Innovation: Targeting lower innovation targets may present an opportunity to enter a market while the incumbent focuses on their more lucrative customers, leaving the incumbent exposed.
#4 Customer Development Focus: Sustained innovation is more effective for some models than disruptive innovation when the business continues to engage and map out the customer’s evolving needs to the product/services changing specifications.
#5 Technology Adoption: Keeping up with the industry’s technology, changing skill sets, and competencies presents as a challenge to incumbents dedicated to their existing business model. There are instances where adopting new technologies is essential to increasing efficiencies and providing added customer value. There are also examples where this is not true. Aligning technology acquisition with the business’ core competencies and customer needs is key. Exceeding these can be costly.
#6 Exit Planning: It is not always advantageous for incumbents to challenge disruptive innovation head on, particularly if the incumbent is unprepared to change their business model. Instead, exiting the market niche or refining the business’ target (and reallocating unused resources to other projects) may be justified.
#7 Culture: Creating a culture of change, agility, and disruptive innovation can strengthen the business’ ability to compete, challenge, and gain traction in a new market. In contrast, legacy architecture will increase exposure to being undermined by new entrants.
#8 Scaling: Business models that require a certain scale in order to be profitable can limit market entrants.
#9 Agile Business Model: When it comes to disruptive innovation, there is no one-size-fits-all explanation of where the challenges may surface. Business models that have the necessary competencies to adapt, both forwards and backwards, based on changing (or clarified) customer needs are better able to respond to market challenges. When it comes to disruptive innovation, there is no one-size-fits-all explanation of where the challenges may surface.
#10 Disruptive Elements: These change over time, and depend on understanding customer needs, industry evolution,
#11 Rate/Type of Innovation: The model of disruptive innovation recommends exceeding the customer’s expectations, which particularly makes sense as this can help engage some of the market’s most valuable customers. But alternative product/service configurations remain essential to serve the rest of the market as well; only offering product/service offerings that exceed existing needs can relinquish market control to new entrants that are willing to provide lower level product/services.
Utilizing many of the principles advocated in Steve Blank’s customer development model, and tools available in the Lean UX field, new businesses are able to disrupt incumbent’s hold on the marketplace through iterative innovation from the ground up. According to the research, incumbents have been found to be less likely to respond to attacks on lower value areas of the market and thus often miss the opportunity to protect themselves from future disruption as the new business gains stronger footing. This stronger footing can be achieved through disruptive innovation or exceeding customer’s needs; but the research finds examples where neither of these was required to undermine incumbents.
The research indicates that examples of new business’ ability to undermine an incumbent through lower innovation was enhanced when new business model characteristics were introduced; when the incumbents existing patents, trademarks, and projected intellectual property limit the incumbents ability to respond. This refers to the known but basic premise that an incumbent’s over-commitment to their business model can actually become a weaknesses that constraints their ability, and willingness, to respond to new entrants. In contrast, new technologies are not disruptive if incumbents are able and willing to respond.
As mentioned at the beginning of this article, the business’ culture will determine what opportunities are exploited and those that are missed. Business’ must continue to identify products and services that play to their strengths, while identifying changing needs, and seeking to build the technologies and competencies (both new & existing) to serve those needs. Disruptive innovation is not always about providing new product/service offerings that exceed what is currently available. It is more about understanding the market, the customers served, building upon your strengths, and exploiting your competitor’s vulnerabilities.
What other factors have I missed? Share your comments below.
Travis Barker, MPA GCPM
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