Disruption in the first degree!

“Innovation” is a woolly beast. It has many disguises and aliases; to get face-to-face and down and dirty with innovation is no mean feat. DC Strategy.

Let’s take a look at the Apple IPod. Besides being the hottest Christmas gift idea for the past few years, is the IPod best described as an incremental innovation, a sustaining innovation, a discontinuous innovation, or an evolutionary reformulated technologically earth-shattering innovation? Or is it perhaps the simplest and cleverest of all… a disruptive innovation?

A good widget will do that…

Disruptive innovation introduces to the market a “widget” that offers a key functionality that possesses a previously under-valued attribute. The market has its socks knocked off; it is disrupted. Previously dominating technologies are literally left sitting on the shelf.

The mainframe computer was completely disrupted out of the market by the lowly PC. The mainframers underestimated the importance of low price and small size to the end users, focused single-mindedly on improved top end performance: storage capacity and processing speed.

The evolution of mobile music…

The transistor radio, arguably the forefather of the IPod, burst onto the market in true disruptive style and soon became a household must-have. It didn’t offer anywhere near the high quality of sound that the vacuum tube radios of the 1950’s emitted. But the key value offerings were size, (eventual) portability and price. Vacuum tube radios were the size of a 4-cylinder car, obviously not something you could throw in your jacket pocket to take to the footy; and you didn’t need to forego a limb to afford a transistor radio.

The list goes on; what ultimately dominated the mainstream market:

• The Concorde or the Boeing 747?

• The Betamax system of the VHS VCR?

• The Apple Macintosh or Windows PC?

Every time it was the technologically superior product that most definitely lost out.

Not only techno…

The point of all this techno-focused babble is that the technologies themselves are not the drivers. The key is in understanding what existing and potential, new end users truly value.

It was an impressive disruptive assault on the airline business when the low cost airlines came into play, most notably with Ryan Air and EasyJet in Europe, and the likes of Virgin Blue in Australia. The market fell in love with the simple, low price service. The widget in this case was the new business model that had taken the market by storm; bringing to the surface the value levers of the end users that had previously gone unaddressed.

Don’t listen to your best customers!

Intimate knowledge of the market, the existing segments within it and a perception of the potential segments that do not yet exist is essential. Equally important is to reject the temptation to sycophantically listen to your biggest and best customers. These customers will demand the mainframe computer to be bigger and better, the vacuum tube radio to emit even purer sound and the Concorde to go faster. Blind following of perceived customer needs is known as “overshoot” and is a terminal business disease. Such businesses persist in highly refining products, processes and business models with ever-diminishing returns, in response to client demand.

Get outside the box and keep your eyes open. You won’t discover the next innovative business idea by staying in the mainstream and listening to what you want to hear.

Don’t write off any segment of the market; be it high or low. Low-end disruptive innovation entails the value proposition of a product or process being significantly changed and then emerging from the low end of the market.

“High end disruptive innovation” is also a real opportunity for companies to challenge their existing customers and introduce offerings from the top end of town. If you get inside your customers’ heads and focus not on what your service or product does, but rather on the value it creates for the customer, you gain a whole new perspective on what the customer actually needs (and what they will be willing to pay for). The tricky part is that the customer will not actually realise this. To enable them to see the light can be a significant challenge, to say the least.

The paradox…

Know your customer better than they know themselves, but don’t necessarily listen to their wants. It is discovering what they really need that counts.

Back to the IPod…

In the first half of 2006 market share of the Ipod slumped to less than 15%, from a high of 92% in 2004. The reason: mobile phones with MP3 capability are now dominating the market. It is informal consensus that the sound quality of the mobile phone players is not as high as the IPod. The real question is: who cares?