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Jeffrey Phillips

Innovation

Disruptive Innovation: Where, Not What

Where did you say that market was?

Published: Monday, December 14, 2020 - 12:03

First, a slight diatribe. Why is it that company leaders think their people can do successful innovation when they don’t share a common language? In this article’s title I’ve used the word “disruptive,” and by this I mean innovation in the “third horizon”—incremental, breakthrough, and disruptive. I’m defining disruptive innovation as new products, services, or business models that disrupt existing products or markets. 

For example, Apple and iTunes disrupted Tower Records. Netflix and its rental model disrupted Blockbuster’s retail store model. But I’ve been in plenty of places and talked with plenty of customers who don’t have a consistent language. They toss around “breakthrough,” “transformative,” “disruptive,” and other terms without defining the language, and then are dismayed when, at best, they get incremental innovation.

But this is just a language problem, you’ll say. And I’ll say you are correct. But if we depend on language to communicate and to direct assets, people, and risk tolerances, and if our language isn’t right, then nothing will be right.

OK, diatribe over. Thanks for letting me get that off my chest.

Now, on to the real topic: Disruptive innovation is a “where” question, not a “what” question.

Again, I’m defining disruptive innovation as a structural change to a product offering, a business model, or a market. Clearly, you must have a new and compelling offering for that kind of impact. That means the what—the outcome of the innovation activity—must be fairly interesting, compelling, valuable for customers, and so on. You’d be surprised to learn that many companies generate viable, disruptive ideas on a fairly regular basis. It’s not as hard as it seems.

It’s the where that matters

The difficulty is in the where. Too often, existing business models and knowledge are very attuned to existing markets, customers, and segments. Existing products generate the revenues and profits that innovation teams depend on, and that drive wealth and bonuses for product teams. Who wants to mess with that? Existing firms, living in their existing markets, serving customers, can’t afford to disrupt their own markets, customers, or segments. They’d put their own revenue streams out of business. That’s a no-brainer. Everyone recognizes this.

But risk enters the picture when you create a disruptive idea, then recognize that you can’t afford to implement it in your existing market. Clearly it needs to be implemented and launched in an adjacent or new market, where it will impact other companies and customers but not your own. This becomes far more risky, however, because the existing corporate heads don’t know much about that adjacent or new market, don’t think they have the rights to play in that market, and don’t have partners or channels to access that market. Thus, there will be a heavy investment to enter that new segment or market, and is the idea worth the cost?

Generating is easy; implementing is hard

You see, generating disruptive ideas is easy. Implementing a disruptive idea in your own market is next to impossible, so the idea—if it will see the light of day as a product—must be implemented somewhere else. This is when the “where” question comes in. Too often, the where question is asked too late in the game. You have an interesting idea that seems to have some market validity, but no one bothered to think about where the idea should have impact before it was developed.

If you want to do disruptive innovation, first make sure that everyone shares the same definition and has the same risk tolerances. Then define the market, customer, or segment that you want to disrupt. Then create ideas, recognizing that disruptive ideas will disrupt your revenue streams if you deploy the idea within your own market or segment.

First published on the Innovate on Purpose blog.

Discuss

About The Author

Jeffrey Phillips’s picture

Jeffrey Phillips

Jeffrey Phillips is the lead innovation consultant for OVO, which offers assessments, consulting, training and team definition, change management, innovation workshops, and idea generation space and services. Phillips has led innovation projects in the United States, Western Europe, South Africa, Latin American, Malaysia, Dubai, and Turkey. He has expertise in the entire “front end of innovation” with specific focus on trend spotting and scenario planning, obtaining customer insights, defining an innovation process, and open innovation. He’s the author of Relentless Innovation (McGraw-Hill, 2011), and 20 Mistakes Innovators Make (Amazon Digital Services, 2013), and co-author of OutManeuver: OutThink—Don’t OutSpend (Xlibris, 2016).

Comments

"Disruptive" to whom? (Where?)

The article is directly relevant to a situation I am currently working on in the medical device world. The powerhouses in this field develop technologies, primarily incremental, to address identified needs in the markets that matter to them, i.e. almost exclusively the US and to a lesser extent Europe, which together represent about 65% of the value in the global medical device market. The world outside of these markets is big, representing about 87% of the global population, but the unmet needs of these "ROW" markets are not often considered as drivers when evaluating opportunities for innovation or 'disruptive' innovation. 

A product designed to meet these ROW market needs, including cost and access factors, could be very disruptive even while being only incrementally novel.

Try selling that story to the VC word though.