How really disruptive is "disruptive innovation"?
by Miki SaxonBy Wes Ball. Wes is a strategic innovation consultant and author of The Alpha Factor – a revolutionary new look at what really creates market dominance and self-sustaining success (Westlyn Publishing, 2008) and writes for Leadership turn every Tuesday. See all his posts here. Wes can be reached at www.theballgroup.com.
I was reading Miki’s postings on Saturday about “disruptive innovation” as described in IBM’s Enterprise of the Future, so I downloaded my free copy. I walked away with a nagging concern that these 1000+ CEOs are still chasing their tails, because they seem to be looking for the answers to long-term growth in places that require the highest investment and the highest risk. Instead, there are much greater sustainable profit and growth opportunities sitting right in front of most of them.
The point of looking for “disruptive” innovation is that it is believed such innovation will drive a long-term, sustainable competitive edge for the innovator. The trouble is that such innovation models typically require technology development or other innovation into untried areas that more often than not fail to deliver either long-term or sustainable growth. It is often too easy to “one-up” such innovations, so the investment often never quite pays off as hoped. Not everyone can deliver an iPhone or a Blackberry. Too often the technology “breakthrough” only offers a short window of opportunity until someone else improves upon it.
This drive to find ”new” places or ways to sell is usually driven more by frustration at the failure of marketing and sales to provide sustainable growth opportunities than it is by a real lack of opportunity in existing markets and business models. The fact is that customer satisfaction and fulfillment is very low in most product and service categories, which leaves a readily addressable opportunity for growth to the organization that can understand what to look for.
When we do research in most product and service categories, I am almost always surprised at how low customer expectations are compared to how high their dreams and aspirations are. That gap represents a significant opportunity that can often be addressed without large investment.
What it takes is a willingness to open up the focus of innovation to go beyond product improvement, process refinement, or other functional innovation (including technology breakthroughs). The real focus to create really disruptive innovation should be upon those dreams and aspirations, not functional improvement.
Innovation that focuses upon these dreams and aspirations (the Alpha model shown in my book refers to these as “self-satisfaction” and “personal significance”) can drive growth that catches competitors flat-footed and often unbelieving that success could come so simply. We’ve had many examples where an organization used this kind of innovation, created dramatic growth, and their competitors doggedly proclaimed that “there must have been something else that happened to create that growth.” In many cases, competitors never figure out what the real ego-satisfaction innovation was that drove success, so they waste time and money unsuccessfully trying to “compete” by copying other things they see happening that they think must be the true cause for the success.
Apple’s iPhone just experienced this. The success of the iPhone put several competitors on a panicked innovation track to try to at least get “in the game.” None have succeeded, because all of their efforts have been on the product improvement and functional innovation side, while the real success of the iPhone is far more on the ego-satisfaction side of the equation.
I own one of the original iPhones. Functionally, it’s pretty darn good, but so was the Blackberry to which I compared it. In some ways the Blackberry was better; in others the iPhone was better. But on the ego-satisfaction side, there was no comparison. Like the iPod or the MacBook Air or just about any of the other Apple products available right now, all you have to do is touch an Apple product and you feel that you’ve been transported to a planet where companies suddenly know how to make customers “happy.”
Who can describe what happens or why? It’s so emotional that it’s beyond description. But it is real enough that people are buying them like crazy despite the “economic downturn” we find ourselves in. Address a person’s ego-satisfaction needs well and every competitive product pales by comparison.
We did that with so many products throughout our Alpha Factor Project that it’s hard to recall them all. The funny part about each one was, however, that competitors seldom figured out what was really going on. That was truly disruptive. Often we would wait, expecting competitors to catch on, only to see them blindly fall into the product improvement trap trying to copy what we had done without addressing the core ego-satisfaction needs that had actually created the success.
The point is: if you absolutely have to change business models or find new markets, because you’re selling in a way or to a market that is a dead-end, then by all means change. But if you’re just frustrated with your lack of success at getting enough out of your current model and markets, then make sure you aren’t focusing upon product improvement and functional innovation, when the real need is on the ego-satisfaction side.
Do your products/services address ego-satisfaction?
Your comments—priceless
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Image credit: Unofficial England Rugby CC license
September 1st, 2008 at 10:14 am
The implication of this article’s headline is simply dumb. If an innovation doesn’t disrupt, then by definition it isn’t disruptive. “Disruptive innovation” isn’t some abstract process, or type of innovation based on breakthrough technology, or radical change — it describes a result.
Lot’s of innovations are potentially disruptive, but they must actually succeed at disrupting a market or an incumbent player to be described as “disruptive innovations”. The author seems to want to distinguish between “disruptive” and “truly disruptive”. Let’s not distort the meaning of language and misapply terms. I can’t be truly disruptive unless I’m disruptive — that’s a tautology — a definition.
If IBM is using the terms incorrectly to praise their clients or to make executives they interviewed feel good about themselves, then shame on them. No one is helped by this dilution of language, and we are all harmed by it.
Virtually none of the companies that IBM talked to for this report do anything that could be described as disruptive — in fact, most of them are operationally organized to strip disruption out of innovations before they go to market. Sorry, that’s just the way it is.
September 2nd, 2008 at 6:05 am
Bravo. You make my point. These companies imagine they are creating “disruptive” innovation, because they are working on tangible, functional innovation rather than focusing efforts on the ego-satisfaction elements that really drive disruptive innovation.
I saw in one of your articles at your website (www.anti-marketer.com) that you make the same point in another way about Starbucks. They have tried to go back to their roots through functional innovations that cannot recapture the ego-satisfaction experience that was truly the success factor for the chain.
It never was truly differentiated in the marketplace, except in markets that had never seen a San Francisco or Seattle-style coffee shop. I spent several days with a friend going through San Francisco coffee places about 15 years ago. Starbucks was the least of the competitors. They just functionally took it into places that had never experienced a coffee shop as a meeting place and cultural center. So, from the beginning, Starbucks was vulnerable to any competition that supplied similar or better experiences. They never were disruptive.
Thanks for your comment. I look forward to watching your site in the future.
September 2nd, 2008 at 7:15 am
Wes:
We’re almost on the same page here, but not all disruption is driven by ego satisfaction. I get what your book is about, and it’s an important factor, but most disruption comes from other things.
The most important factor for disruption is meeting unmet or under-served needs from the customer’s point of view. Often, especially in b2c markets, ego satisfaction is an unmet/under-served need. More often, however, convenience, accessibility or low-cost are the factors that enable disruption, even in a product/service with less capability and lower ego satisfaction. B2B markets, for example, are far more cost-driven than consumer product markets.
We could go on about Starbucks, but the key attribute that wasn’t “good enough” about coffee service (in the American market) that enabled disruption was a consistent, predictable higher quality of coffee. In fact, most coffee in the US was terrible, watery, left on the burner too long, made from crappy beans, etc. The opportunity to create a Starbucks existed because their weren’t three espresso bars per block, all offering great coffee and a great experience, as there are in Italy (and elsewhere in Europe too).
Notably, while Starbucks is still opening a lot of stores overseas, they are encountering a different growth issue and smaller margins, precisely because the average coffee quality is considerably higher already, so competition is well entrenched for a superior experience and taste. In foreign markets, all Starbucks has to offer is the consistency and scale of a chain operation, which isn’t by its nature disruptive (not for what is, in reality, a mid-level increasingly commoditized brand). And, in the US market they lost sight of what made their customers so happy, and opted for more “chain” and “operational efficiency” attributes at the expense of “personalization of experience” and “quality” attributes — the ego satisfaction things you talk about.
Starbucks scaled too fast (beyond the needs of the market), showed their competitors how to beat them, and is no longer a disruptive growth entity. There is a way they could restore disruption and put a sheen back on their stock price, but they haven’t found it yet, and it isn’t by increasing the ego satisfaction (although restoring what they had for the fanatics would be an important step in restoring their core operations to health).
All companies are vulnerable to competition that focuses on unmet or under-served needs. But, merely providing “similar” or “better” experiences is not a formula for disruption. This statement belies a lack of understanding of the dynamics of disruption. Market leader(s), who most often got that way by starting as disruptors, usually maintain their lead indefinitely by matching the incremental (and sustaining) innovations of their primary competitors. That is, until they fall on their own sword, or face a new disruptor. Starbucks was a disruptor, but they fell on their own sword.
Regarding my site, I’m working on launching a couple of new things right now, and my existing blog isn’t getting the attention it needs, but that will be changing soon. Glad to have you as a visitor — I think we’d have some healthy discussions.
September 2nd, 2008 at 11:55 pm
Hi…
I really enjoyed the back and forth in your article and posted comments and feel as though I’ve learned a great deal from each side of the discussion. We’re launching a disruptive service in the mobile messaging space with great, previously unseen features and our next generation focuses on the ego satisfaction side of the coin.
I’ll be watching this space! Feel free to check out our core service via the link below and let me know your thoughts.
Best,
Matt Sapero
matts@cryptopix.com
+1-917-864-6264 cell
Skype: matt.sapero
http://www.cryptopix.com
September 3rd, 2008 at 5:17 am
Paul:
Thanks for your response. I think we are still at odds on the definition of what is disruptive innovation. I first encountered this term through Christensen’s work, Innovator’s Dilemma and Innovator’s Solution. He has become the evangelist for this thinking, although he, too, failed to recognize why his price and functional “innovation” worked in the limited framework in which he was focused.
His definition of “disruptive” innovation was (paraphrased) an innovation that changes everything — one that takes an industry off on a new track, giving the innovator the controlling position. This can happen through functional innovation (such as technological breakthroughs, functional improvements, price/cost efficiency improvements, use of new materials, etc.), but these innovations are more often than not impossible for a single marketer to “own” over the long-term in a way that drives continuing, self-sustaining growth (a key element, as far as I am concerned — otherwise it represents only incremental, short-term, highly vulnerable growth). If it doesn’t create a following of competitors that then allows the original innovator to control and manage the behavior of competitors, then it really isn’t very useful. It just helps create a new “industry” for multiple entities to use as a profit center. The chaotic competitive environment continues, but in another playing field. Therefore, I include the element of sustainability in my definition.
As you rightly point out, unmet/under-served needs are indeed the stuff from which innovations are made that create growth, and most marketers are vulnerable to that. As I discovered through my research, however, there are many companies out there who have been able to overcome this vulnerability through addressing ego-satisfaction better and at higher levels than their competitors have. As you point out, functional or price focus can be the source of competitive advantage, but I would never call that “disruption” (innovation that changes everything and allows self-sustaining growth for a specific controlling marketer). Whenever I see price, convenience, or functional advantage as key drivers of buying decisions, I know that there is an absence of ego-satisfaction. Ego-satisfaction trumps everything. AS I point out in my book, even Wal-Mart (the Alpha of retailing right now, although I believe they are extremely vulnerable to any competitors who finally recognizes how to trump their ego-satisfaction) does not hold that position through lower price. That’s what they advertise, but it is certainly not the hold they have on the market. They provide an ego-satisfaction that people who shop there are smarter — this is just proven by their great selection, their advertising about lower prices (which are regularly beaten by competitors), and the amazing anti-Wal-Mart machine that keeps people believing that Wal-Mart destroys smaller retailers due to their outrageously low pricing.
Al of the Alphas I describe in my book are great examples of that. Many are premium-priced, but not all, because ego-satisfaction is not driven by price (except in the absence of any high-level “significance” fulfillment), but rather reflects the price leverage created when ego-satisfaction is addressed by a marketer at higher levels than by competitors. These companies have been able to overcome competitors’ efforts to beat them at the functional improvement game (product quality or performance improvements or cost efficiencies) not by improving functionally, but rather through maintaining higher ego-satisfaction. As soon as they lose sight of that, they “fall on their swords,” as you put it.
Harley-Davidson, one of my all-time favorite Alphas, has lost its Alpha position and is on a slow downward spiral, because it never quite understood or had control over the ego-satisfaction that was associated with their products. They have allowed other competitors to out ego-satisfy customers. H-D never needed to come up with a superior-performing bike. They were always given grace for their inferior product (although they did have to bring it up to minimum acceptable standards after the “bowling ball” years). They just needed to innovate functionally enough to prove that they still had control over the ego-satisfaction experience. But they missed that train at least ten years ago.
I look forward to seeing what you have in mind for your site. I have not even tried to make my book site a focal point, as you have with your site. Hope to have some interesting conversations.
Wes Ball
The Ball Group
Strategic Innovation Tools for Leaders
717.627.0405
w.ball@ballgroup.com
http://www.ballgroup.com
http://www.thealphafactor.com
September 3rd, 2008 at 5:22 am
Matt:
Please, let me know how things work out and what modifications you make based upon your results. I would love to hear how you take the Alpha model for truly disruptive innovation and make it work in your business.
Best of luck, and thanks for posting.
Wes Ball
The Ball Group
Strategic Innovation Tools for Leaders
717.627.0405
w.ball@ballgroup.com
http://www.ballgroup.com
http://www.thealphafactor.com