How to move to the beat of less disruptive innovation
The amount of attention paid to the loud beat of disruptive innovation may just be at the expense of the quieter, less appreciated tune of something more incremental that lends itself to resilience…
Pre-Covid-19, it was almost impossible to attend an innovation event, conference or seminar without hearing the word ‘disruption’. Futurists tell stories from the past to predict changes in the future. Academics focus on the transformational power of disruption. Start-ups pitch the disruptive potential of their ideas. Consultants and thought leaders position their keynotes and webinars around ‘disrupt-or-die’ messages.
This focus and fascination are understandable. Disruption — neatly defined by Harvard Professor and author Gary Pisano as ‘innovation that fundamentally transforms the way value gets created and distributed in an industry’ — is both hugely promising and menacing at the same time. Pre-pandemic innovation conferences typically drew on infamous disruption examples such as Kodak — the company that invented the digital camera but were too attached to selling film to see the value in the idea and understand that their entire business model was at risk. (Not surprisingly, digital cameras have in turn been disrupted by smart phones and we can only expect that this cycle will continue).
Common examples of disruptive innovation (and I am not picking favourites) include Airbnb in the travel accommodation sector, Uber, Didi and Ola’s disruption of the taxi industry, LinkedIn and its impact on recruitment and, of course, online retailer Amazon which has changed the way we shop.
In some cases, entire sectors are at risk. I was delivering a workshop for convenience stores and as I prepared for the session, I started to wonder, where won’t this segment be disrupted!? In addition to the anti-sugar movement, electric cars (for the stores tied to petrol pumps) and campaigns against soft drinks, the very notion of ‘convenience’ has been redefined: customers now expect everything to be one click or just a few words away. We used to focus on the overall customer journey — that’s now fractured into hundreds of personalised micro-moments; each one critical to shaping our preferences.
Industries which have not been disrupted no doubt will be.
Businesses which have not effectively adopted technology will struggle to survive.
Value chains reliant on ‘middlemen’ will not survive in their current form.
Services such as insurance are likely to be undone in their current form by our preference for ‘on demand’ and ‘ideality’ (whereby we only enjoy the upside of a product or service). Who wants to pay for something we are not using?
WHAT ARE WE MISSING?
The first widespread use of the term disruptive innovation stems from Clayton Christensen’s 1997 book The Innovator’s Dilemma: When new technologies cause great firms to fail. His theory attempted to explain how small companies with minimal resources were able to enter a market and displace the established system or incumbent — often with a new technology.
But the contemporary popularity of disruptive innovation often obscures an equally powerful and far more commonly practiced form of innovation identified and named by Christensen as ‘sustaining’ or ‘incremental innovation.
“The vast majority of profit from innovation does not come from the initial disruption; it comes from the stream of routine or sustaining innovations that accumulate for years (sometimes decades) afterward. An innovation strategy has to include both,” writes Pisano.
While disruptive innovation replaces the status quo, sustaining innovation gradually adapts the status quo to slow moving changes in customer preference and technological capability. Disruptive innovation leads to discontinuity. Sustaining or incremental innovation fosters continuity. Both may be abrupt.
If done correctly, sustaining innovation can often prevent the gap between a company’s offerings and the needs of its customers from becoming wide enough for disruption to take hold. Microsoft, Intel and Apple have been cited as being excellent at sustaining innovation.
Where companies or sectors neglect sustaining innovation, disruption can take hold. Taxi companies had the same access to technology that Uber did to improve their customer experience and lower their cost base but they didn’t take advantage of the smartphone revolution. It would be years before the taxi companies launched their own apps and even today most taxi operators have separate apps that lack the convenience and price advantages of Uber’s offering.
Amongst those who do come up with disruptive innovations, there are also situations where the impact of the innovation did not last because the company wasn’t able to sustain it through rapid improvement based on market response and demands.
So why don’t more companies practice sustaining innovation? They short answer is that they do. Most businesses incorporate new technological developments and changing customer preferences into the products, it just happens so slowly and incrementally that we tend not to notice in the moment.
The development of the music industry over the past century provides examples of the successes and failures of both sustaining and disruptive innovations.
WHEN INCREMENTAL CHANGES ADD UP
When I bought my first record (Elton John’s Goodbye Yellow Brick Road) in the early 1970s, vinyl records had been around for nearly 100 years. They were big and fragile, and the playback equipment was sensitive to vibration. The immediate popularity of transistor radios suggested that there was a market for portable music players. Phillips invented the compact cassette to accommodate the unmet market need to listen to your own music while on the go. Cassettes added not only the benefit of portability but also the ability to make mixtapes which did double duty as teenage declarations of affection in the 80s. I may have nostalgically kept one or two of those…
While tapes slowly replaced records throughout the 80s, portable CD players temporarily traded the ability to record for better sound quality in the 1990s. Both features returned with the launch of MP3 players and the iPod in the early 2000s, with the added ability of holding vastly more music in a smaller form. From a technical point of view, today’s wirelessly delivered digital streaming music could not be more different from the mechanical gramophone records of the 1800s, but the needs these two products fulfil has largely remained the same throughout the ages.
What has divided the companies that survived this development from those who did not was the ability to constantly update their product offerings as technology and customer preference changed. Sony didn’t see themselves as a transistor radio company, but rather as an entertainment company and so was willing and able to move from making radios and cassette players to Walkmans and MP3 players.
WHEN THE GAP BECOMES UNBRIDGEABLE
Apple is often cited as a company which has successfully grown through sustaining innovation but, sometimes, sustaining innovation is not enough and the emergence of a new technology or customer behaviour can mean that a company’s only choice is to disrupt itself lest it be disrupted.
In the portable music player market, Apple had a runaway hit with their iPod range of digital music players in the early to mid-2000s. When they launched the first iPhone in 2007 they included an iPod app that essentially eliminated the need to buy a separate music player. Within a few short years, the inclusion of music playback apps on smartphones decimated the market for standalone MP3 players. It would be difficult to argue that Apple could have prevented the disruption of the iPod by refusing to ship a music player app with its iPhone. If Apple didn’t ship it, the competition would have, and Apple’s iPhone would have been at a disadvantage when viewed against competitors’ products.
Such forced disruption events are rare, but it is important to be able to recognise them when they occur. The decision to disrupt your current revenue stream in return for an uncertain bet on a future revenue stream is a difficult argument to make, but it may help to remember that your competition may have less to lose from the disruption than you do.
When Spotify launched their music streaming service in 2008, they did not have a music business to lose. If they could make $1 of profit per month per subscriber, that was $1 more on their ledger. Apple already had a healthy business selling songs and albums on the iTunes store, so for them the choice was between keeping the higher revenue they were making from iTunes music sales, or disrupting that revenue stream with a lower profit flat-rate all-you-can eat service to compete with Spotify. As it happened, Apple ceded the market for streaming music to Spotify from 2008 to 2015, when they belatedly launched Apple music. By that time, the gap between what Apple offered with iTunes (the ability to buy single songs or albums and digitally add them to your collection) and what users wanted (access to an unlimited collection for a low fixed price) had been wide enough for long enough that Spotify was able to establish a successful position in the market. Spotify has since successfully disrupted iTunes, a model which once seemed invincible.
TOWARDS A MORE RESILIENT INNOVATION
My intention is not to diminish or dismiss disruption. But there is far more to the innovation game than disruption. If you disrupt and can’t sustain, you don’t win.
— Gary Pisano
Here some thoughts on how we can both obsess about disruption — as we should — but also stay focused on sustaining innovation. What is important is to manage both disruptive and incremental innovation concurrently. Neither should be abandoned for the other.
i) Constantly challenge your business model
The results of business model innovation could be sustaining and allow for continuity in the same business model just as they could be disruptive and break away from it.
Every aspect of the business model can be challenged: activities, partnerships, supply chain, segments, cost structure and the way we capture value. We all need to be looking for ways of ensuring multiple revenue streams and smart ways of generating recurring revenues from one-time sales.
One innovative and highly customer-centred model which has been enabled by digital technologies and connected sensors is the Outcome Economy business model. What if farmers explored how to sell their product based on freshness not variety? What if pharmaceutical companies looked at capturing value based on each cure rather than per pill? What if jet engine customers were paying for reliability not the product? Rolls-Royce’s TotalCare provides a suite of predictive maintenance and repair services for its jet engines, including monitoring engine health and modifying engines to increase reliability and durability. Customers pay for product reliability. As the product-service provider, Rolls-Royce assumes the entire risk of time-on-wing and shop visit cost.
What if a comedy theatre didn’t sell tickets but had patrons paying per laugh? Triggered by taxes on theatre tickets, a comedy club in Barcelona is experimenting with charging users per laugh, using facial-recognition technology to track how much they enjoyed the show. The software is installed on iPads attached to the back of each seat at the Teatreneu club. Each laugh is charged at 0.30 euros with a cap of 24 euros.
As someone who believes deeply in the value of drawing on patterns of excellence for creative inspiration, I was delighted to see that the team at Strategyzer has created a reference library in The Invincible Company of nine different business model ‘Invent Patterns’ which they believe make a business as invincible as possible. This is a brilliant resource and both new and established companies should seek inspiration and challenge their models against ‘Visionaries’ such as Tesla, ‘Repurposers’ such as M-Pesa who created a reliable money transfer solution for the masses by repurposing its telecom network or ‘IP Castles’ such as Dyson who have put the emphasis on R&D and patents.
ii) Know what your product or service is ‘hired to do’
Invite feedback on your brand and offering often. Use technology such as listening posts on social media to know what is being said about your products and services specif ically and about your sector, needs and pain points, more generally. Learn what customers are looking for in the services you offer.
One of Clayton Christensen’s theories on marketing and product development is driven by the end user: “Jobs-to- be-done suggests that in order to predict how to develop, compare, and position our products, we should be driven by a fundamental understanding of what that product is hired to do.”
I have always loved Christensen’s milkshake story which I first heard told by author Scott D. Anthony at the Creative Innovation Conference in 2017. The essence of the story is that a fast-food chain was seeking to improve milkshake sales and, after failing to do so through classic market segmentation, worked with one of Christensen’s fellow researchers to deduce the ‘job’ that customers were ‘hiring’ the milkshake to do. They had identified that 40 per cent of sales were made in the morning so they opted to interview customers on the spot as they left with the milkshake in hand.
As it turned out, the job of the milkshake for most of them was to be a commute buddy. Understanding this, they were able to modify the product accordingly — making it thicker, so that it would last the whole commute. Conversely, for parents buying the milkshake after school as a treat for their children, they realised that thinner milkshakes were in order. An even simpler solution might have been to change the width of the straw according to the job-to-be-done but the point is that we may miss the mark in our innovation efforts or see ourselves disrupted if we haven’t realised the real motivation of customers for purchasing our product or service.
iii) Be very clear on your value proposition and keep it relevant
The more your value proposition resonates with the target audience, the better. So many organisations still focus on the ‘what’ (the sausage) and not the ‘so what’ (the sizzle). Invest time and thought into a strong and differentiating value proposition and then deliver on it over and over. The fascinating thing about a value proposition is that when you get it right, even the employees are inspired. For smaller ventures and young start-ups, the focus should rightly be on a disruptive strategy and highly distinctive value proposition. Nothing else will cut through.
iv) Innovate in and on the business — always
There is a consensus amongst some of the more influential thinkers in the innovation and strategy space that the way to be resilient in a world where disruption is inevitable is to foster an ambidextrous organisation. This means an ability to exploit and constantly rethink the core business while exploring more bold options outside this core. This is what I understand by Innosight’s ‘dual transformation’ — or what they used to call the ‘two-bucket’ approach. In some ways it is the ‘exploit and explore’ model of Strategyzer.
According to The Invincible Company, the latest book I bought from the Strategyzer team, innovative companies: “Manage a portfolio of existing business models that they exploit and continuously improve.
“Simultaneously, they manage a portfolio of new business models that they explore to systematically produce new growth engines.”
The key is routine innovation. Every organisation needs to know how to innovative on demand, in all departments and throughout the value chain.
I see this working best in companies where the organisation as a whole is given permission and the means to rethink everything they do. The entire organisation is given the toolset and mindset for incremental innovation. They have the skills, processes, resources, structures, partnerships and funding — the full ‘innovation mix’ to explore and rethink their processes, systems, structures and business models. Importantly, if ideas develop into something more breakthrough, there are very few obstacles to bringing these to life. If they are more transformational, they are given room to incubate away from the core business.
v) Don’t underestimate the small stuff
Sometimes the best way to maximise customer satisfaction is to make smaller-scale changes at specific points of the service cycle. Clothing retailer H&M is a good example of this. In 2013, customer satisfaction was poor due to long queues at the checkout. The result was that customers would give up and leave their items behind. To solve this, H&M trialled a very simple change to the customer journey in their Times Square, New York, store: they installed technology for customers to pay for purchases while still in the fitting room. This small change is said to have had a sizeable impact on customer satisfaction and would not have done any harm to H&M’s revenue either.
In nursing homes around the world, one of the many losses that the residents endure is a lack of agency. Many have not chosen to be there and their capacity to exercise choice is often diminished. According to Streicher Louw, at one nursing home in Copenhagen, the manager found a creative way to reintroduce some choice into her residents’ days: she decided to offer a wine list. It wasn’t anything fancy. She bought four types of cask wine and printed up a wine list on the office printer. The residents were delighted. They had a point of decision that was theirs alone.
If sustaining innovations are to make us more resilient, they need to be more than flash-in-the pan ‘hack-jobs’; they have to make a lasting impression on the customer.
vi) Don’t downplay the power of simple
Simplify. Always.
vii) Constantly break your fixedness about your business and any potential disruptions or threats to it
Scan for cognitive biases which may be inhibiting better ideas for your business. I explore a few in my book, UNBLINKERED: The quirky biases that get in the way of creative thinking…and how to bust them
We are right to obsess about disruption. All aspects of our business could be disrupted, and we may need to be open to the idea of disrupting ourselves. At the same time, we should obsess about the smaller, less spectacular things we can change, the biases we can check for, the ideas, processes, business models, designs and plans we can constantly and creatively stress-test to keep us at the top of our game and make us as resilient as possible.
Rachel Audigé is a French-Australian innovation facilitator, trainer and writer. She is passionate about helping people scan for what gets in the way of smarter, simpler, more resourceful and more inclusive solutions. Her book, UNBLINKERED, is available on her website (www.rachelaudige.com).
