Last week I wrote
about disruptive innovation as described in Clay Christensen's book The
Innovator's Solution, and lamented that, although Christensen provides
a variety of tools and techniques for innovation his methodology lacks
an approach to the lateral thinking or 'imagineering' that is needed to
apply them effectively.
Now, Nicholas Carr, author of the provocative 2003 HBR article "IT Doesn't Matter" (which I reviewed here) and a subsequent book on the same subject called Does IT Matter?, has written a supplement
to Christensen's work in Strategy + Business magazine, describing a
fourth type of innovation he calls "Top-Down Disruption". Here's a
synopsis of all four types:
- Sustaining Innovations
are valuable enhancements to products and services brought to an
existing market, a known group of customers. Large corporations, who
'have' most of those customers, have a huge advantage in introducing
such innovations. Example: HP's 'all-in-one' products, building
additional functionality into their printers to allow them to be used
as scanners, copiers and fax machines as well.
- Low-End Disruptive Innovations
entail offering a lower-cost product to existing over-served customers,
which incumbents don't care about because they're at the low-margin end
of their customer base; then as technology improves, the disruptor
gradually eats into the incumbents' primary markets from below.
Example: How steel minimills cannibalized the mainsteam steel industry
from below, starting with Rebar and moving upward to sheet steel.
- New Market Disruptive Innovations
entail developing and offering a product with benefits previously not
available at all or which are very inconvenient to customers, and hence
creating entirely new markets for entirely new groups of customers.
Example: The PC and the personal copier offered computing power to a
new group of customers who could never hope to afford mainframe or
minicomputers.
- Top-Down Disruptive Innovations
actually outperform existing products when they’re introduced, and they
sell for a premium price rather than at a discount. They’re initially
purchased by the most discriminating and least price-sensitive buyers,
and then they move steadily downward, into the mainstream, to recast
the entire market in their own image. Example: FedEx's offering of
premium overnight document delivery.
The first and fourth types are used primarily by incumbents, market
leaders in an industry, while the second and third types can be used by
new entrants to gain a foothold in an industry.
Top-Down Disruptive Innovations, Carr argues, can exploit the same
long-term trend to more powerful technologies and falling commodity
prices that low-end disrupters use, except that instead of
cannibalizing the market from the bottom-up (as increasing power/cost
allows the lowly disruption to do successively more and more for the
same price), it cannibalizes the market from the top-down (as
increasing power/cost allows it to reduce prices from premium to
mainstream and make the product affordable and valuable to all
its customers). There is some danger in doing this, of course, since
you may be obsolescing some of your own company's products, but since
you're in the driver's seat (with a market lead in the new product, and
a strong relationship with existing customers) and since you're also
cannibalizing competitors' products at the same time, the risk is usually worth it.
Carr argues that the iPod is also a top-down disruption, but I'm not so
sure. Carr himself admits that the iPod, offering more (capacity and
features) for more (money), was not initially a market success. I'm I'm
sitting here beside my Creative Nomad, which is admittedly larger but
still portable and which beat the iPod into the market by at least a
couple of years with essentially the same capacity and functionality.
And one of the most popular iPods is the mini, which actually doesn't
offer a disruptive innovation at all (its capacity is quite modest
compared to competitive offerings). No doubt there were other factors
(style, the value of the Apple brand, marketing resources, timing)
which account for the iPod mini's success and the Nomad's (relative)
failure. But much more study is needed to discover why some top-down
disruptions succeed while others fail. Christensen argues that it is
very dangerous for new entrants to try to introduce innovations that
can be co-opted by incumbents as sustaining innovations, and I think
there is an argument that the iPod was Apple's sustaining innovation
for its established customers in response to the attempted disruptive
innovations of Creative and other early entrants into hard-drive based
portable music players.
In fact, Carr argues that because of their adaptability and lack of
investment in existing products, new entrants are at a competitive
advantage compared to incumbents in introducing top-down disruptive
innovations. I don't think this is true. Many brave entrepreneurs, for
example, like Bricklin, have
tried introducing premium automobiles for high-income car-lovers, but
almost none of them have survived. They play right into the hands of
mainstream premium automakers, doing their market research for them, so
that these incumbents can build the attributes that customers liked
into their next offerings. Carr is right on identifying this as a
fourth innovation category, but I think it's strictly an incumbents'
game, especially if the incumbent does what Christensen suggests, and
have the top-down disruptions developed by a separate, autonomous
division.
I've described before the ten ways in which you can innovate, using the Doblin Group taxonomy:
- Product attributes or performance: How you design your core offerings (e.g. the Mercedes Smart Car's unique and imaginative attributes)
- Product system: How you link and/or provide a platform for multiple products (e.g. the Microsoft integrated productivity suite)
- Core processes: How you create and add value to your offerings (e.g. Wal-Mart's reinvention of retailing as shelf-space leasing)
- Enabling process:
How you support the company's core processes and workers (e.g.
Starbucks' premium wage and benefits packages to attract superior staff)
- Service:
How you provide value to customers and consumers beyond and around your
products (e.g. Singapore Airlines' thoughtful and pampering extras)
- Delivery Channel: How you get your offerings to market (e.g. Martha Stewart's multi-media ways of getting her 'home' stuff to your home)
- Brand: How you communicate your offerings (e.g. Absolut vodka's "theme and variations' advertising concept)
- Customer experience: How your customers feel when they interact with your company and its offerings (e.g. the Harley Davidson owners' community)
- Networks and alliances: How
you join forces with other companies for mutual benefit (e.g. Sara Lee
sticking strictly to branding and outsourcing all manufacturing)
- Business model: How you make money (e.g. Dell's pay-in-advance for a custom-made PC model).
So if you map these ten ways of innovating (and add additional factors
that Doblin doesn't consider terribly innovative, like Price and Speed
of Service) against the four Christensen-Carr types of innovation you
have a 4 x 12 matrix of innovation opportunities.
Then you can layer on the Strategy Canvas described in Kim & Mauborgne's Blue Ocean Strategy,
which chart the value that customers place on attributes of the
products and services your industry provides (or might provide through
disruptive innovation). An example from their book is reproduced above,
showing that Southwest Airlines innovated by differentiating itself
from other airlines in three ways (friendly service, speed and frequent
departures) that customers really valued, and not attempting to compete
on price, meals, lounge service or other attributes that customers
cared less about.
Combining these three sources provides the basis for a comprehensive and intriguing methodology for innovation:
- Research and draw the Strategy Canvas for each of the
players in your industry, showing your own and each competitor's
strategy.
- Now talk to existing and especially low-end and current
non-customers, and assess for each segment what they value. When they
tell you about attributes, performance standards, platforms, process
standards, service standards, delivery options, customer experience
wishes, and other needs and wants that aren't currently on the Canvas
at all, add them to the right-hand side of the x-axis. Make a copy of
the Canvas for each significant segment of your customer base.
- Then, for each segment of your customer base (including
low-end and current non-customers) draw on the Canvas the relative
value of each of the strategy elements to that segment -- how important
that segment thinks each attribute is (or would be, if it's something
not currently available at all) when they make their buying decision.
As a reality check, if this line maps closely to that of one of the
current players in your industry, that player should be dominant with
that segment. If they aren't it's likely that the customers don't
perceive that player's strategy to be as tightly aligned to their needs
as you perceive it to be, so reconsider how you've charted that
player's strategy (remember, the customer's perception of it is
reality).
- Look for the largest gaps between what you currently, and
what your competitors currently offer, and what each segment of
customers and prospective customers value. Now you know what is needed.
- Brainstorm within your organization for each of the four
types of innovation that would allow your company to close these gaps
and meet these needs. Then decide whether the opportunities you come up
with are (a) within your capabilities and resources to deliver (and
consistent with your culture and values), (b) potentially profitable,
and (c) truly innovative (enough to overcome customers' tendency to
stay with the supplier they know).
- The opportunities that pass these tests should then be
'imagined out' -- details thought through, experiments and market tests
and protoypes developed and conducted, and obstacles to bringing to
market overcome.
Tomorrow I'll present a 'straw man' case walking through this
methodology (with the benefit of hindsight) as it might have applied in
the transformation, a generation ago, of a troubled company into an
innovation leader.
|
4:08:55 PM 
|
|
MADE IN CANADA
trust your
instincts 
