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This is the 4th part of a series of article on innovation. You will find links to the earlier posts at the end of this blog.
The concept of disruptive technology and disruptive business concepts was defined by Assink in 2006 (Assink, M. (2006). Inhibitors of disruptive innovation capability: a conceptual model. European Journal of Innovation Management, 9(2), pp.215-233.). In his paper, Assink described disruptive technologies as being applicable to existing markets of an organization using new technology and process, while disruptive concepts are bringing in the business process and technology of industry/market to a totally new industry and disrupting the market. Real-life examples of this would be Uber bringing in new technology to disrupt the taxi-hailing business – an example of disruptive technology. However, Uber extending and adapting the same technology to the dining industry and creating Uber eats is more of a disruptive business concept – the technology and process were well established in one industry before it was quickly adapted to another one.
The most common innovation in the existing market is coming up with a much superior product than that exists. This is the dominant effort by most organizations and in a very large number of organizations, the only type of innovation. We recognize this as technology innovation and has been the backbone of industrialization for a long time.
The automotive industry has continued to swear by this approach until very recently. What this type of innovation results is a replacement of the existing products by a better performing product; a more reliable product, a more fashionable design, a safer product, a more energy-efficient device, etc. This type of innovation is largely focused on delivering superior performance attributes demanded by the most demanding customers in attributes that they most value.
A very common outcome of this approach is the product doing significantly more than what the customers need; who utilizes the full capacity of the smartphones that we have in the markets? As a result, this type of innovation can’t truly create continued growth.
By innovating beyond disruptive technology in the existing market, the organization could potentially redraw the boundaries. Innovation in the existing market can be based on three approaches. Keely describes it as 3 shifts, platform shift, business model shift and customer experience shift (Keeley, L. (2013). Ten types of innovation).
Platform Shift
Platform driven innovation is focused on combining disparate capabilities of an organization's products, processes and services to deliver new sources of value. These are most relevant when you discover your customers struggling to use the full potential of the product/service or when you see customers struggling with tasks that your product is capable of solving. This type of innovation moves the organization from a product and product performance focus to a platform and platform value focus.
Digital technologies provide tremendous possibilities for organizations to combine the product and product system an organization has with unique process and service opportunities to create platforms that deliver more value to the market. When combined with other types of innovation such as a new profit model or customer engagement models, platform shifts can deliver tremendous disruption to the existing markets.
Business Model Shift
Business model shift focusses on moving from a product and product performance focus to how the assets, partner networks, capabilities, and the organization's value chain can be reconfigured to make profits differently. Such type of innovation becomes more necessary when the opportunity to create better products and differentiation in the market is limited. The business model shift enables the organization to challenge and reframe the market in terms of how to create and capture value.
Business model shift has created a whole new concept of servitization (Neely, A., What is Servitization?. [online] Available at: http://andyneely.blogspot.com/2013/11/what-is-servitization.html) on how to break the routine sales cycle and create outcome-based value chain has emerged in the manufacturing sector. I would also recommend reading this article by Poul Skadhede on how organizations can go about building servitization capability.
Customer Experience Shift
Customer experience innovations become very important when categories become competitive and there is little to chose in terms of product offering. This type of innovation focuses on creating distinctive customer engagement through which the organizations can influence the interaction with the organization and its offerings. Combined with channel innovations, business model shift, and platform innovations, customer experience shift can ensure that customers prefer you for a positive reason; engagement rather than lock-in.
In summary, innovation in existing markets can be based on an organizations ability to
Deliver superior performance attributes demanded by the most demanding customers in attributes that they most value.
Reframe offering and deliver more comprehensive solution or change market dynamics by offering superior experience or value
Acquire new assets and capabilities on its own or by building networks that enable the organization to deliver product/solution in a very differentiated way.
On the other hand, changing the boundaries of your market can also include using your existing assets, capabilities, and processes in newer markets. It’s not so uncommon to find that business concepts from a different industry have the capability to disrupt another industry or market. There are innumerable cases where organizations have taken a leaf out of Xerox. Lubricant manufacturer adapted the Xerox model of selling outcomes to industrial customers by offering chemical management services to large industrial clients, rather than sell individual products, predominantly consumables, such as cutting oils, greases, etc. It enabled them to offer best practices based cost efficiency, while also building the ability to replace competitor products.
It is also common to find that a product or service that sells well in one market, can’t sell without innovation in another market. The mobile telecom industry is one of the best examples. Global players, attracted by the size of the Indian market made a beeline to enter the market. However, local players initially, Airtel and later Jio have disrupted the market by innovating the business model and are the dominant players.
Innovation focussed on creating newer markets with your existing assets and capabilities are also dependent on the ability to plan the 3 types of shifts described above. Managing these transformations is that much more complex as it involves not just managing the innovation process but managing a newer market as well. But one that can be extremely rewarding.
Krishnan Naganathan
Krishnan is a consultant with more than 25 years of experience. His purpose is to help India and it's entrepreneurs be global leaders in innovation