Problem is with achieving disruptive innovation in large companies because it usually contradicts their focus and DNA.
In my previous post I looked at the differences between sustaining innovation and disruptive innovation (if you didn’t read it yet better to take a look before moving down these lines). We realized they are very different yet both required.
Achieving sustainable innovation is something most large companies manage well.
Problem is with achieving disruptive innovation in large companies because it usually contradicts their focus and DNA. Having said that, the solution is not to pour piles of money on a group that would sit in a cool office, eat pizza and think “out of the box”.
A startup that disrupts a market and causes large companies to go out of business (or buy them) works in great constrains. They have limited budget and time; they must have a business model and a market they are after.
Different from a large company that would focus on a large market (large in reference to their current business), the startup would focus on a small segment of a large market, working bottom up. This would give them 3 things:
- Ability to capture this segment given their limited resources
- Stay off the radar of the large guys allowing the small startup to build the product/service and market position
- Once they capture the first segment they move up to the next layer. By the time they hit the radar of the incumbents they are strong enough to compete or expensive enough for a good acquisition
This is exactly the opposite of what innovation groups at large companies are chartered with – “take all resources you need and give me something big for a large enough market”.
The top management of these companies are all well aware of Geoffrey A. Moore’s book Crossing The Chasm theory and the Technology Adoption Lifecycle. They all know that disruptive technology starts its adoption with innovators and early adopters but they still ask for the exact opposite resulting in sequential innovation, improvements that make the product better but don’t disrupt the market and ride the next technology curve.
This boils down to the following 3 rules for disruptive innovation in large companies:
- Disrupt your competitor – Allow people who couldn’t do/own something before to do/own it tomorrow because it is simpler, cheaper, more accessible… This means that your competitors who provided a more expensive, complex, less accessible solution will be disrupted. Think airbnb vs. hotel, now I can go on vacation with my 5 kids and not pay +250USD/night for 2 rooms (no worries, I have only 2 kids but still enjoy using it)
- Must win and sense of urgency – Losing is not an option but if you do need to fail please do it now and not in 1 year after you spent 5M USD. Fail quickly and look for a new approach.
- Time is money and we have no time – Time is money and since we have little time you have little money. It is OK to buy equipment, use outsource or get that extra person you wanted but we are not going to wait a year for you to be ready to test drive this thing in the market. Come out with the MVP (Minimal Viable Product) and let’s see what the market has to say.
The comments section below is eager to get your thoughts and real life experience.
If only life was that simple. I don’t think this is sustainable 🙂
airbnb is a bad example of disrupting the competition, as it didn’t come from within the hotel industry itself. It is an exact example of disrupting the incumbents.
And the model itself misses the issue of business models. Incumbents are often challenged when it comes to business models around disruptive technologies and innovations. This is what keeps them away from said technologies. Incumbents need to first figure out how to kill off their own business models as time goes by and migrate to newer ones – without it, all disruption is bound to fail inside incumbents.
Tsahi,
Simple it isn’t, else we wouldn’t see the fall of large companies that someone disrupted.
Never said it must be in the same domain. Apple disrupted the music industry while it wasn’t part of that industry before.
It is correct that the hardest thing for large companies is to come out with something new in their domain that changes the business model. Selling products vs. service is a good example. Still, many don’t have an option not to make this move.
Many service providers and technologies related to their services do exactly the things that will not bring innovation and new revenue. Large investment, a very long time to develop and launch while others are already far ahead=RCS vs. OTT.