Disruptive Innovation Is Not An Orderly Process

from the it's-dirty dept

Brian Kahin, over at Project DisCo has a good post that goes over the basics of disruptive innovation, covering the innovator's dilemma -- and why it's rarely big companies who are able to truly innovate. But the bigger issue is how much people judge innovation by the incremental look at how things have been done before, not how the new thing totally shakes up and disrupts the market.
Disruption makes big demands now – in terms of learning and immediate costs – while offering only speculative benefits in the long term. Large companies with successful business models and dominant positions are especially wary of cannibalizing existing revenue streams – the cash cows that insulate them from the extremes of market competition. At a behavioral level, this inertia is compounded by the “endowment effect,” the demonstrated human tendency to overvalue what you already own.
All too often we hear companies, industry reps or politicians insist that it's crazy to think that Legacy Industry X must change and adapt to new market conditions until someone shows them how to make as much money as they were making in the past. There's just one problem: if you wait until that answer is clear, you're too late. The disruption has already won. Disruptive innovation is disruptive because it takes the legacy industries by surprise. It's disruptive because it happens in a way where the path isn't clear to the legacy players.

And it happens both more slowly and more quickly than most observers acknowledge.

It happens "more slowly," because there are always ways to paint that initial innovation as being "worse" than what exists today, and thus something not worth paying attention to. This is a key point in Clayton Christensen's Innovator's Dilemma. The disruptive innovation is dismissed because based on the old objective measures, it almost always appears demonstrably "worse" than existing offerings. And it does take some time to "catch up." So when these things first appear, they're dismissed as being too little/slow/ineffective/etc. for the market at hand.

But what people miss is how the rate of change happens much more quickly -- and the advancement comes at a surprising pace and/or in surprising ways. Usually the rate of advance is on metrics that the legacy industry never thought were that important, and thus they totally miss it when customers start shifting in droves, because it just doesn't make sense.

Unfortunately, however, one of the true killers of disruptive innovation is the political process. If it were just true that legacy companies totally missed the boat and disruptive innovators did their disruption and killed off those dinosaurs, that would be one thing. But that ignores the political process:
Large companies have the resources and accumulated expertise to influence policymakers and regulators against disruption of their business models. They have many arguments in their arsenal: preserving jobs, justifying past investments, incentivizing investments that they might make in the future, subsidies to politically important constituencies, supply chains dependent on the status quo, etc. By contrast, disruptive innovation doesn’t have much of a presence in Washington. Existing innovators are too busy. Future innovators don’t exist yet.

Yet even if policymakers are sensitized to the fact that disruptive innovation has few friends and many opponents, that information is difficult to operationalize. Future innovation is hard to predict, and advocates within government probably won’t be around long enough to take credit for it. Instead, innovation policy is framed in terms of past success. Thus, a linear or “pipeline” model of innovation in particular still dominates despite much criticism, academic and otherwise. The linear model explains innovation in an intuitively simple way and serves well-established interests along the way. Research goes in the front end, investments in commercialization are secured by patent, and new products emerge from the pipe. It suggests a simple policy agenda: ”More of the same.”
But that's not the way disruption actually works. Nor has it ever worked that way. But nearly all of the policy that comes out of the government acts as if this is the case.

Disruptive innovation is not an orderly process. It sneaks up on companies, and if they wait too long, it will bite them. But, at the same time, bad policies can lead to massive unintended consequences that don't necessarily stop the innovation from happening, but pervert it so that it is less useful or efficient or (most likely) that it simply happens somewhere else, leaving our own economy behind.

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  • icon
    jupiterkansas (profile), 18 Jun 2012 @ 3:38pm

    I suspect the main reason disruptive technologies have few friends is that the majority of potentially disruptive technologies fail to disrupt. There are a thousand or more failures for every one thing that catches on and actually disrupts the marketplace. It would be foolish to befriend such endeavors.

    reply to this | link to this | view in chronology ]

  • identicon
    Anonymous Coward, 18 Jun 2012 @ 3:39pm

    Hate crimes

    "[Disruptive innovation] sneaks up on companies, and if they wait too long, it will bite them."

    Companies are people; they are a minority.

    This "Disruptive innovation" targets companies, specifically? He's a racist.

    You argue that companies have to change to survive "Disruptive innovation"? Do you also argue that rape victims were asking for it? Way to blame the victim, racist.


    reply to this | link to this | view in chronology ]

  • icon
    Prashanth (profile), 18 Jun 2012 @ 3:53pm

    Exponential progress

    This is why more politicians need to learn basic calculus. Not all functions of time are linear, and it's important to know when to recognize that.
    See: the exponential pace (i.e. initially very slow, but later very fast) of the Human Genome Project.

    reply to this | link to this | view in chronology ]

  • icon
    Rikuo (profile), 18 Jun 2012 @ 4:16pm

    "industry reps or politicians insist that it's crazy to think that Legacy Industry X must change and adapt to new market conditions until someone shows them how to make as much money as they were making in the past. There's just one problem: if you wait until that answer is clear, you're too late."

    Not only that, but no-one owes an answer at all in the first place to the legacy industry. We've had trolls here constantly ask why Mike doesn't think up a magic business model: why should he? Innovators exist to innovate and make a new business: they have no reason at all to tell the legacy industry how to survive.

    reply to this | link to this | view in chronology ]

  • icon
    TtfnJohn (profile), 18 Jun 2012 @ 6:33pm

    Disruptive is, well, disruption

    James Watt's steam engine distrupted the prevailing economies if the time so much the Industrial Revolution came from it. Way simplified, I know.
    Iron clad war ships disrupted how navy's operated. HMS Dreadnought disrupted that, as did the development of successful submarines.
    Powered flight disrupted, well, continues to disrupt, almost anything it touches.
    The desktop computer has disrupted almost everything that came before it. Film has died, how and with who we communicate has changed, business has been changed (often not for the better with the focus on spreadsheets these days) and our mating habits have changed. Where it was considered,once, a little odd to get a mate after a long exchange of letters by post, now we find ourselves in our most important relationship because of chat programs like MSN, Yahoo and IRC and no one bats an eye what it has already changed irrevocably, we have no idea what it may disrupt next and what that will mean.
    Along came things like high speed access to the Internet and, perhaps as importantly, the World Wide Web. Suddenly things most of us paid no attention to like copyright and patents became culturally important rather than belonging to that esoteric realm we now call "content creators".
    In many parts of the world, now, Internet access is now socially viewed as a right particularly by those who grew up with it.
    And that disruption is far from over yet.
    It'll come to as no surprise to our trolls and related critters (hi bob!) that I don't think for a microsecond that it's up to innovators to tell those who can't or won't adjust to the disruption(s) how to stay in business. It's up to those businesses.
    Innovators will continue to innovate, creators will continue to create, artists will continue to produce work as they always have. Distribution of that work will change and has changed.
    If the business entities who have made their livings being those who have distributed those works can't adjust too bad. Something or someone will come along who can and make money doing it in the new environment. That is called innovation.

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  • identicon
    Anonymous Coward, 18 Jun 2012 @ 9:40pm

    What disruption looks like?

    Ask Swiss watch makers about the Quartz Crisis :)

    reply to this | link to this | view in chronology ]

  • icon
    Hephaestus (profile), 19 Jun 2012 @ 3:37am

    Coming soon to an industry near you ... the disruption

    Big 3-4 Record Labels - Doomed and not even going into why.

    Cable - will be destroyed by cord cutting and on demand and be replaced by online time and date of show release lists.

    TV studios - will probably be destroyed by cheap cell phones and tablets with virtual set, and CGI technology. Allowing anyone to create professional grade TV series.

    Big Pharma - short term they have reached the limit on what can be done with bulk produced drugs. Since the majority of drugs are being sold to the elderly, in the long term, the reversal of the aging process will destroy 80+ percent of their profits.

    Energy Sector - bulk produced 40% efficient solar cells, with energy storage, at 50 cents a watt installed, destroys wind, nuclear, coal, natural gas, and gasoline. The cost to produce energy in the old ways becomes greater than the price it can be sold to the public at. (Note : the average 1000 sq ft house has ~50kW of solar energy hitting the roof when the sun is up)

    I do not think this is disruption, it is more akin to obsolescence, with a bit of efficiency thrown in. In most cases the efficiency comes from removing the middle man or gatekeeper. The obsolescence is just some guy saying "why in the hell are we doing it this way? when doing it this other way works better".

    From the list above the biggest disruption will come from cheap energy. Global private and public pension funds have heavily invested in the energy sector. The failure of the energy companies will bring on another global financial crisis. 40-60% of the cost of manufactured goods is the cost of energy. Reducing the cost of goods reduces profits and causes deflationary pressure on governments. 30-40% of the cost of housing manufacture is the cost of energy. With new houses costing less than existing houses this will cause the bottom to drop out of the real estate market.

    All in all, cheap energy will cause every sector of the economy to tank, governments to fail, and dogs and cats to live together.

    reply to this | link to this | view in chronology ]

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