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.

Filed Under: disruption, innovator's dilemma, project disco