Tag Archives: josh linkner

Which to Choose: Innovation, Disruption?

Most executives are averse to risks but, ironically, create the risk of being leapfrogged by unforeseen competitors. Executives focus on innovation but only look for a new idea, device or methodology that incrementally provides greater efficiency or effectiveness, like the fifth blade in a razor or higher-resolution HDTVs.

This sort of innovation, sometimes referred to as a sustaining innovation, is not the same as out-of-the-box thinking that leads to disruption.

To be sure, sustaining innovation can sometimes produce great success. Google displaced Yahoo as the de facto search engine and web mail provider through incremental, in-house innovations, not through a disruptive strategy.

Nevertheless, most companies, including insurers, are now being forced to change their products, service models or delivery systems because of threats from outside the mainstream in the industry.

Management and marketing efforts have traditionally touted incremental, continuous improvements — using words like “faster,” “bigger,” “better” or “more efficient” — as a reason why clientele should remain loyal and why business should even expand. The incumbent mature market leaders, no matter how visionary they think they are, often ignore opportunities to invest in disruptive business strategies. Netflix beat Blockbuster in the consumer video market starting in 1997 by coming up with a new business model for DVDs  by mail and by investing in the nascent technology of on-demand, downloading of video content while Blockbuster stayed with its traditional business model of renting DVDs in stores and kiosks.

See also: Does Your Culture Embrace Innovation?

Disruption is created through inventions or processes that transform and overturn the way we think, behave, buy products, communicate, travel and go about our daily business. It doesn’t have to be based on new technology. Disruption, unlike incremental innovation, displaces an existing market, industry or technology by reimagining something more efficient and wildly better. Disruption looks at the underlying principles and values of a product or service, then rethinks solutions.

Disruption is aimed at a set of consumers whose needs are largely ignored by industry leaders. A disruptive innovation trades off performance along one dimension for performance along another, such as simplicity, convenience, values, ability to customize and transparent pricing.

Initially, some disruptive models from a niche market (like Uber or Lyft) may appear unattractive to consumers or inconsequential to industry incumbents, but eventually many of these disruptive or enlightened approaches to business opportunities completely redefine the industry. New brands have turned their industries upside down. In fact, smaller companies with fewer resources have knocked many brand name incumbents out of business. Once mainstream customers start adopting an entrepreneurial entrant’s offerings in volume, disruption has occurred.

Shilen Patel, founder of business accelerator Independents United, says: “Simply put, innovation is rational whereas disruption is irrational.”

Most outrageous business ideas have had loud critics. Not disruption. Companies like Google (Alphabet) thrive by taking crazy ideas called moonshots at a devastating pace and seeing if they can make them believable, deliverable and profitable, knowing that just a small percentage of the ideas will work.

So how does a business decide if it needs to innovate or reinvent itself to remain competitive?

Corporate executives must ask themselves if their industry is facing unpredictable changes, then decide how much control they have over that change. As Mark Zuckerberg once said: “If we don’t create the thing that kills Facebook, someone else will.”

Companies now run the risk of cross-industry disruption, where a high-tech company takes over autonomous transportation or even an industry like insurance. Amazon did just that with retail and is now considering its own drone delivery system, its own shipping fleet and 3D printing to disrupt certain supply industries.

See also: 6 Key Ways to Drive Innovation

The University of Southern California in 2014 began offering a program for entrepreneurs referred to as “a Degree in Disruption.” Venture capitalist Josh Linkner’s book, The Road to Reinvention, argues that “fickle consumer trends, friction-free markets and political unrest…along with mind-numbing technology advances,” mean that “the time has come to panic as you’ve never panicked before.” Twenty years ago, the disruption in manufacturing was offshoring. Now, the disruptions are technologies like 3D printing, artificial intelligence, transportation innovations and robotics — and are bringing manufacturing jobs back to home markets. 

Investments in sustaining innovations obviously make sense for most companies, but some may choose to strengthen their ultimate market position by investing in enterprises that don’t necessarily align themselves with their core business strategies.

Partly because of disruptive innovation, the average job tenure for the CEO of a Fortune 500 company has halved from ten years in 2000 to less than five years today. Eventually, foothold market companies may have to decide on the strategic choice of taking a sustaining, traditional path versus a disruptive one. The same forces that lead incumbent industries to ignore early-stage disruptions also compel disrupters to ultimately disrupt.

But if a company’s innovations do change consumer behaviors and force a redrawing and expansion of market boundaries that separate its new business from the culture and processes of old ones – then you really have something.

Digital Disruption: Coming to P&C Soon?

My wife is a project manager who is responsible for business operations at our local high school. She hired some people this summer to process and distribute new textbooks within the school, but they hadn’t finished the job and school was about to open, so she needed someone to come in at the last minute and help get the work done. More specifically, someone who would follow her instructions and would not expect to get paid. . .  so I spent a long Saturday with her at the school, schlepping pallets and boxes of new textbooks to the classrooms, getting everything in place in time for the start of the new school year.

I wasn’t happy with the work (the school was hot, the textbooks heavy) and more than once I thought wistfully about Steve Jobs, who according to biographer Walter Isaacson had targeted the school textbook business as an “$8 billion a year industry ripe for digital destruction.” Targeting textbooks seemed like a good idea to me, because not only are they big and heavy and expensive — they don’t update easily, either.

Unfortunately, Jobs didn’t live long enough to disrupt the textbook industry, but others are on the same path and, selfishly, I wish them well! Check out The Object Formerly Known as the Textbook for an interesting look at how textbook publishers and software companies and educational institutions are jockeying for position as textbooks evolve into courseware. Also, As More Schools Embrace Tablets, Do Textbooks Have a Fighting Chance? takes a look at how the Los Angeles Unified School District — second largest school district in the country — is equipping students with iPads and delivering textbooks digitally in a partnership with giant book publisher Pearson.

Harvard professor Clayton Christensen, author of The Innovator’s Dilemma, is credited with coming up with the term “disruptive innovation,” which he defined as: “a process by which a product or service takes root initially in simple applications at the bottom of a market and then relentlessly moves up market, eventually displacing established competitors.”

These days, we tend to associate disruptive innovation with a new or improved product or service that surprises the market, especially established, industry-leading competitors and increases customer accessibility while lowering costs.The notion is appealing, and it makes for exciting business adventure tales featuring scrappy, innovative underdogs overcoming entrenched, clueless market leaders. Of course, disruptive innovation has been happening for a long time, even if it was called something else, but lately technology has made it easier and cheaper for upstart firms to take on industries they think are “ripe for digital destruction.”

There are some who think we’ve gone too far in adopting the disruption mantra. In her recent article The Disruption Machine, Harvard professor and New Yorker staff writer Jill Lepore squinted hard at disruption theory: “Ever since The Innovator’s Dilemma, everyone is either disrupting or being disrupted. There are disruption consultants, disruption conferences, and disruption seminars. This fall, the University of Southern California is opening a new program: ‘The degree is in disruption,’ the university announced.”

By the way, USC’s Jimmy Iovine and Andre Young Academy for Arts, Technology and the Business of Innovation is, in fact, opening this year and will focus on critical thinking with plans, according to the academy website, to “…empower the next generation of disruptors and professional thought leaders who will ply their skills in a global area.” And, yes, that is Dr. Dre’s name on the academy!

But there are others who believe we have now entered a decidedly more treacherous innovation environment, one that Josh Linkner in The Road to Reinvention says is forcing companies to systematically and continually challenge and reinvent themselves to survive. His fundamental question is this: “Will you disrupt, or be disrupted?” And Paul Nunes and Larry Downes, who wrote an article for the Harvard Business Review Magazine in 2013 titled Big Bang Disruption (they have a book on the same topic, summarized by Accenture here), warn of a new type of innovation that is more than disruptive — it’s devastating: “A Big Bang Disruptor is both better and cheaper from the moment of creation. Using new technologies…Big Bang Disruptors can destabilize mature industries in record time, leaving incumbents and their supply-chain partners dazed and devastated.”

Should CEOs be worried? When Mikhail Gorbachev visited Harvard in 2007 and said, “If you don’t move forward, sooner or later you begin to move backward,” he was talking about politics and multilateral nuclear treaties, not companies, but the warning certainly could have been directed at CEOs. That message, refreshed to incorporate the disruptive innovation threats that have emerged since then, seems a bit unsettling: If you run a company and you aren’t dedicating resources to continually scanning the marketplace for threats and improving and reinventing your business, if you are instead taking a “business as usual” approach, you are at risk of being marginalized or supplanted by competitors who will bring new products, services, experiences, efficiencies, cost structures and insights to your customers.

Maybe not this year, or next year, but sometime soon.  It’s not a question of whether it will happen, but when. Thus Linkner’s question, restated:  Will you disrupt yourself, or be disrupted by someone else?

Of course, some industries, like property casualty insurance, may not be high on anyone’s “ripe for digital destruction” list, so maybe there’s no need for insurance company CEOs to worry. Except perhaps about Google and Amazon. I keep thinking back to Blockbuster CEO Jim Keyes’ comments to The Motley Fool in 2008:  “Neither RedBox nor Netflix are even on the radar screen in terms of competition.” You know the rest of the story, which illustrates the real-life consequences of an incumbent underestimating and then becoming “dazed and devastated” by a competitor.