Factors That Affect Disruptive Innovation Part I of II

The general belief is that outcomes of innovation efforts are impossible to predict. But Clayton Christensen thinks that it is not so. According to him, even an undesirable outcome has a cause. Outcomes appear random because all the variables that affect successful innovation are not known. If these variables are understood and managed, innovation will be less risky. Christensen classifies that variable into four sets:  taking root in disruption, the necessary scope to succeed, leveraging the right capabilities, and disrupting competitors, not customers.

Taking Root in Disruption

Many previously successful companies that fall from their dominant position in a market are not badly managed. In fact, they are well managed. These companies listen to their best customers. They help them meet their needs. But they also commit themselves, willingly or unwillingly, to strategies that constrain their ability to unleash disruptive innovations: they concentrate on the most profitable segments of the market, and make significant investments in them.

By sticking to the principles of good management, leading firms create sustaining innovations that bring better products to established markets. These market leaders are the best in their industries at adopting sustaining innovations. However, these firms face a three from firms that create disruptive innovations.

Some new companies employ strategies to create sustaining innovations. They create better products than those offered by incumbents in the market, and sell these to the customers of the incumbent firms. But christensen’s research indicates that, this type of company is likely to succeed in only about 6 out of 100 cases. If a company creates a product meant for ignored customers, even when it is inferior in quality compared to the existing products in the market, the company is likely to be successful 33 out of 100 times. This disparity can be understood by looking at the motivation and position of leading firms. The leading firms have more resources than entrants. When new entrants try to attract their customers, incumbent firms overwhelm them with their financial muscle or other resources. When new entrants are targeting ignored customers or customers who are unattractive for leading firms, they are relatively safe. In this segment, money power and proprietary technology do not matter. Hence it is better for new entrants to take root in disruptive innovation rather than in sustaining innovation.

Degree of Integration

The degree of integration of the company’s production process determines the nature scope and success of innovation. Highly integrated companies manufacture and sell proprietary components of products. They have a wide range of product lines and are into different business. When the product functionality is less than the customer’s expectation of it, companies compete by producing better products. In such a scenario, engineers try to fix the pieces of their systems together in as efficient a way as possible. This is to ensure the best performance with the available technology. At this stage technology is the barrier. Innovations at this point are aimed at pushing back the technological barriers. Integrated firms are better placed to address this task ; they do not need to convince or force the suppliers of components to innovate as in the case of non-integrated firms. For example, it was only when IBM, Apple computers, RCA, Xerox, and AT&T become fully integrated companies, that they were able to address technological challenges systematically.

When the product’s functionality is higher than the customer’s expectation of it, standardization of interfaces occurs in the industry. Components and subsystems of the products are clearly specified. This levels less scope for innovation in overall design. At this stage, disruptive innovations come in, in the form of different ways to reach market quickly, and changes that bring simplicity and convenience to the customer, and allow for customization of the product (for small market niches). Companies respond to individual customer needs by creating customized products. In these customized products, there is upgradation of a few individual system or all components. Upgradation is not brought in across the board for all the components or all the items produced. In the case of integrated firms, when distruptive innovation occurs, all the components are upgraded to ensure the best performance. Hence, at the point when customer needs can be easily met by the available technology, firms that outsource components have an advantage over integrated firms. Outsourcing majors, Like Dell & Cisco systems, are fast, flexible, and responsive to the needs of the customer, at this stage of the market’s development.

Acknowledgement: Leadership and change management - Book by ICFAI center for management research

In case you missed it, our last post was on Entropy in the Manufacturing World

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