HOW CAN BIG BUSINESS EMBRACE THE DYNAMICS OF DISRUPTIVE INNOVATION?

  • by Phil Drew, Associate Director, Fishburn Hedges
  • Sep 24, 2013
  • 0 comments

View it through whichever lens you want – social, environmental, economic. One thing is certain: the era of business-as-usual is coming to an end.

The factors contributing to this are so familiar they trip off the tongue – rising population, declining resources, worsening climate, widening social divisions.

 

Companies face a choice. Disrupt the market or be disrupted by it.

A number of new business models are emerging that do precisely this. Mike Barry identifies seven new ways of connecting people with what they need, when they need it – whether that’s cash (Zopa/peer to peer lending), cars (Blablacar/car sharing) or accommodation (Airbnb/house sharing).

 

But put to one side what Mike sees as admirable “experiments” by large businesses, the likes of Shwopping at M&S; Street Club at B&Q.

 

The most disruptive of these new business models – concepts that don’t just improve upon existing technology but create entirely new markets – are being driven and defined by a set of relatively young companies hell bent on disintermediating the old business establishment.

 

There are two good reasons why large businesses struggle to respond to the threat of disruptive innovation.

 

First, though established market leaders might be aware of new emerging models (they have well-resourced R&D departments after all!), the market segments they serve are not initially profitable enough to prioritise.

 

Second, the status quo is plenty competitive enough. Established leaders are therefore naturally preoccupied with improving their game, not fundamentally changing the rules.

 

So where does this leave large business when it comes to disruptive market innovation?

 

Let’s accept as our premise that the social and environmental challenges we face cannot be adequately answered by incremental innovation and percentage point improvements.

 

Putting it provocatively, does this then mean big businesses simply lack the innovation latitude that the scale of sustainability challenges demand? Can their embrace of collaborative consumption, access vs ownership, or whatever else, be ever anything more than an “experiment” on the side?

 

I would argue it doesn’t have to be that way. But if established companies are to flip from being the disrupted to the disrupter, they need to do three things:

1) Better understand the company’s current business model.

 

Research by Clayton Christensen, the Harvard Business School professor who coined the phrase “disruptive innovation”, has shown that few companies understand their existing business model well enough— the premise behind its development, its interdependencies, its strengths and constraints. And as a result: “they don’t know when they can leverage their core business and when success requires a new business model.”

2) Define the social purpose behind the customer value proposition.

Businesses often mistake the value they create for the way they create it. More rarely still, do they stand back and ask why they create it at all.

 

It is no coincidence that so many disruptive market innovations put consumer (and by extension, social) utility at the heart of their value proposition – whether that’s enabling access to funding (Kickstarter, Zopa, Funding Circle), access to mobility (Zipcar/Blabacar), or even access to new ideas (OpenIDEO).

 

The innovativeness of their business model is driven out of the clarity of their social purpose.

 

And this is something large businesses can and are doing too. Food companies such as Nestlé, Unilever, and Danone are redefining themselves as health, wellness and nutrition companies. Technology companies such as Intel, IBM, and GE are repositioning themselves as enables of smarter, more sustainable cities. And carmakers such as Nissan and Toyota are making low-emissions mobility part of their central mission.

 

3) Create an innovation environment that supports disruptive thinking.

 

Companies that are serious about pioneering new ways of ‘doing’, need to shield new ways of thinking from the normal requirements for R&D.

 

To create the world’s cheapest car (the Nano), Tata Motors built a special team of young engineers, who unlike the company’s more experienced designers, would be unconstrained in their approach by the carmaker’s existing profit formulas. As a result of its low cost, the "Nano" has given some of India's lowest income families access to safe, affordable mobility for the first time.

 

Novartis applied a similar approach when developing Arogya Parivar, a plan to give millions of people in the poorest parts of the world access to heathcare for the first time. Because of the high level of investment and low prices required, it set up a semi-autonomous development unit after estimating that it would take longer to break even than typically expected of new ventures. Arogya Parviar became profitable after 31 months, faster than anticipated and is now serving over 40 million people in India.

 

Market disruption is coming. That’s not an opinion or a prediction, but an inevitable corollary. Markets exist within society. And our society is braced for unprecedented change. The question for businesses, large and small, is whether to define the market or be defined by it. Choose the latter and accept that survival (not success) may be the only outcome.

 

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