“I just saw our software demo,” I said to my company’s VP of sales. “I can see how its features will be valuable for our customers.” “It’s disruptive!” he replied proudly, without enlightening me about what that meant or why it mattered. But his ebullience seemed so promising at the time.
Within two years, the company churned its senior management team, the sales VP and the majority of its sales force. What went wrong? I’ll get to that in a moment.
The sales VP probably knows now that products and processes by themselves have little capacity for creating meaningful change because they are not disruptive. Strategies enable market disruption, and those strategies include product innovation. Skills play a role as well, and successful managers know that working with potentially disruptive innovations requires the economic insight of Adam Smith, the inspirational leadership skills of Martin Luther King, the communication skills of Ronald Reagan, the perseverance of Thomas A. Edison, and the entrepreneurial vision of Steve Jobs. If that sounds like a daunting combination, take solace in the fact that these individuals took risks and failed repeatedly before achieving success.
What makes an innovation disruptive, anyway? An innovation is disruptive when it affects the hegemony of the market-leading company, companies or prevailing technologies for a specific market. Among the many examples of disruptive products are digital photography technologies, which replaced photographic film. And Netflix upended complacent market leader Blockbuster through an innovative business and logistics model, which forced Blockbuster to relinquish a significant source of profits from late fee charges.
Many variables
The term, disruptive innovation, was introduced by Clayton Christensen in an article written with Joseph Bower, Disruptive Technologies: Catching the Wave. The magnitude of the disruptive impact resulting from innovation can take many years to develop because the influence of many of the variables involved is unknown at the time the innovation is introduced. Today, the amount of disruption caused by such nascent innovations as iPhone, Linux and digital media file sharing is still unknown.
What conditions must be present to create disruption?
- The market for the product or service is experiencing, or is likely to experience, an increased rate of demand. This demand might be created by social, business or regulatory change.
- The economic outcomes in providing, acquiring or adopting the new product or service must be significantly better than the prevailing offerings.
- The business model or core technology used for the innovation must be both fundamentally different from the prevailing offerings and sustainable.
Because there are many variables over long timeframes that influence whether a product or service will be disruptive, is it accurate or even useful to proclaim disruption as the sales VP did? What relationship do product innovation, market demand and marketing strategy have with market disruption? Do products that have potential to create market disruption have unique characteristics that require specialized strategies and tactics? See Elements of a Successful Disruptive Strategy below for the answers.”
So what did go wrong for the sales VP and the rest of the company? Simply put, the company couldn’t generate enough sales to cover expenses. It had scant market presence or brand recognition. The partner strategy was formulated as an afterthought to the sales program. The product’s value to its prospective customers was poorly understood, so it could not be communicated. Compound those problems with high adoption costs and unproven financial and operational outcomes for customers, and the result was a sure failure by any sales measure.
Most egregious was the company’s miscalculation that the strategic benefits its customers achieved in one successful market—electronics—would extend to other market verticals. The reason that assumption was proven wrong can be summed up with one word: Dell. No other market vertical had the adapt-or-die economics that Dell imposed in electronics. The company’s managers completely misunderstood that reality, and they made poor assumptions as a result.
Elements of a successful disruptive strategy
—Andrew Rudin |
What can you take away from my erstwhile sales VP? First, market disruption does create value for customers. Try describing to a teenager today what you did in 1980 to obtain music that you liked to listen to. He wouldn’t believe that before disruption in the music industry, consumers had to accept music in the form of complete sets (back in the day, they were called record albums) from artists that companies wanted to record, in the order they recorded them, on the media they provided, from retail channels they controlled, at the prices they wanted to charge.
But here’s the second lesson: Customers are not interested in disruptive products per se; they’re interested in the outcomes those products provide. Chasing the objective of creating a disruptive technology will almost surely divert management’s attention from achievement of more worthwhile goals. Market disruption is a byproduct of other strategies that are inherently more meaningful to define, measure and control. Those goals could be achievement of a targeted return on investment, revenue milestones or a specific customer adoption rate.
Any one of those, managed well, will garner more success for your company than chasing the elusive disruptive technology.
