The
Innovator's Solution tells you what you need to do to cannibalize the
markets of incumbents and create entirely new markets, by focusing on
the needs of over-served customers and non-customers. But it's a lot
harder in practice than in theory, and it needs some unique skills and
hard-to-obtain knowledge.
[Posted from Orlando]
In
previous articles, I've summarized Clay Christensen's approach
to innovation (established companies focus on what he calls
'sustaining' innovations while new entrants focus on 'disruptive'
ones), and about the research approach that he suggests for
identifying and assessing innovation opportunities.
His second book, The
Innovator's Solution, looks
in greater detail at
disruptive innovation, which he breaks into two types:
- Low End Disruptive
Innovation: This entails 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.
The classic example
of this is steel minimills, which initially focused on the low-end,
low-margin rebar market (which the integrated steel makers were
pleased to vacate), but then used new technology to move upscale to the
point they have now stolen even the high-end market (sheet steel) from
the giants. To achieve this, it's essential that the innovation not be suitable to or
adaptable by the incumbents -- that they don't find the disruptor's
initial business model attractive; otherwise, the incumbents will bring
their considerable resources and strong customer relationships to bear
to make the innovation a 'sustaining' one for them, and ward off and defeat the
disruption attempt.
- New Market Disruptive
Innovation: This entails 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. The
personal computer and personal copier are examples of this. In some
cases a New Market Disruptive Innovation can later be applied to become
a Low End Disruptive Innovation as well.
The part of Innovator's Solution that most intrigued me was the section on how
to identify potential disruptions and how to identify customers for
them. To identify potential disruptions, he suggests, you should 'segment' the market by
the circumstances
of use of the product or potential product
(i.e. what the product gets 'hired to do' or
what 'job it does' that needs to be done), rather than by customer
identity
(demographics) or product attributes (category). The focus is therefore on when/why/how
it would it be used, not what
it would feature or who would
use it. This is a needs-driven
strategy, requiring a lot of
research & cultural anthropology. It means discovering who needs
'coolth', and when and how they need it, not who needs an air
conditioner.
This is hard for established, risk-averse, inflexible companies to do because:
- they have a fear of too
much focus (putting all their eggs in one basket, in case it's the wrong basket);
- their shareholders and existing line managers insist on being able to quantify outcomes in
advance;
- their existing channels are organized by product
or customer demographic, not circumstances of use; and
- their advertising and branding are
also done
by product or customer demographic.
Hence it is often best
to have the innovation in established companies done by a
new, autonomous division or group, free from the constraints,
prejudices, risk-aversion and 'why rock the boat' thinking of the
existing operations.
To identify customers for disruptive innovations, Christensen says you need to look for:
- People and companies who have a need
but lack the money or skill to meet
it with existing products;
- People and companies who have no alternative way today to do the job your product or service could help them do; and, of course,
- People and companies who are over-served, interested in a
lower-cost, simpler product without all the extraneous and rarely-used
bells and whistles of current products.
It's important that these potential customers perceive the product to
be 'foolproof': easy to use, easy to learn, easy to buy (though if the
product is for recreational use, customers may buy a product with a
steeper learning curve if the learning is fun).
Equally important is that there be available, and hungry, channel
partners (sources of supply, distributors,
retailers, marketers etc.) to help you get it to market -- if these
partners and their materials and skills are scarce, or disinterested in
you, customers may give up on you before you're able to deliver
reliably.
The rest of the book provides suggestions on the right
roles for your company in developing the
innovation, how to partner with other appropriate companies to optimize
competencies and synergy, how to find the
non-commodity, high profit points in the customer
value chain, the importance of setting up the right
people, process, values, alliances and
organizational structure for innovation, how to align your strategy to
support innovation (using an emergent,
complex system-friendly strategy), and how to address financing and risk issues in innovation ventures.
The final section addresses the role of senior management in disruptive
innovation. Leaders, he says, must exercise three key responsibilities:
(a) allocate appropriate,
patient resources; (b) establish a process to continuously generate
disruptive innovations; and (c) detect and adapt to changes in markets
and
other elements of the system. The four elements of a 'disruptive growth
engine' therefore are:
- start before you need to
(don't wait for a crisis);
- put a senior manager in charge (executive sponsorship is essential);
- create an expert
team of movers and shapers (and allow them to 'self-manage' the people,
processes, and values to keep them in sync with the commercialization
process for disruptive innovations); and
- train the troops (i.e. customer-facing people to discover and tap into emerging and
potential needs)
In these areas, Christensen is on comfortable and solid ground.
But I keep coming back in my thinking to how an organization can actually apply his earlier advice
on how to identify potential disruptive innovations and how to identify
customers for them (and which comes first anyway?) It's a lot easier
in theory than it is in practice, as I can tell you from personal
experience.
Let's take the example of a company that has expertise in the textile
industry, for example. They have an established market in specialized
blankets, and some scientific expertise in weaving and in thermal
properties of materials. If they're threatened by new low-cost Asian
competitors in this mature market space, how would they go about
becoming a disruptive innovator? They wouldn't talk to existing
customers -- that's for sustaining
innovation not disruptive innovation. They wouldn't do competitive
analysis -- except perhaps if they could identify some over-served
customers. Other than raw imagination and a lot of serendipitous
reading and lateral thinking, it's hard to imagine how such a company,
even with a separate, empowered innovation team, could begin to
identify either the unmet needs within their competency to deliver, or
the customers that have these needs.
What Christensen needs to add is a whole process to surface these needs
and customers. Who, other than established buyers of blankets, might be
interested in textiles with thermal properties? Hospitals and doctors
dealing with hypothermia? Insulation companies? Gardeners and farmers
seeking to protect crops from frost? Swimming pool cover manufacturers?
Expedition outfitters? And since good thermal properties also insulate
against heat, should we also consider cooler manufacturers,
refrigerators, umbrella makers, UV-ray protectors etc.? The
possibilities are endless. How do we effectively brainstorm and then
filter the potential customers and potential opportunities?
The answer, I think, is a discovery process, but one somewhat different
and more dependent on brainstorming, creativity, very broad
environmental scanning, research, cultural anthropology and exploratory
conversations than the one I have suggested for achieving understanding in complex situations.
How, do you think, should such a discovery process be structured? If it
were your job to develop the process to find new customers for new
products meeting new untapped needs, that are within your company's
competency to provide, how would you go about it?
This process just might be the holy grail of entrepreneurship.
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