Tuesday, February 25, 2014

How to identify and create disruptive innovation that customer would buy?

Everyone wants to create a disruptive innovation & change the world - but there are no formulas for success. Market research does not tell us how to create disruptive products which people will buy. Research can help identify opportunities for disruption, but success needs more that.

To begin with, we need to understand what is disruptive innovation?

Disruptive innovations are innovations that disrupts the current market leaders. For example, Bicycle, or the early cars were not disruptive innovations. Back then in that era, the personal transportation market was dominated by horse drawn carriages, trains and Boats/Ships. It was Ford Model-T which disrupted the market, and hence mass production of Model-T cars was a disruptive innovation, but not the car in itself.

In general disruptive innovation must have at least one of the following traits:

1. Creates a New Market: Eg.: MySpace, Yahoo, Netscape, Napster

2. Changes the value perception: Eg.: iTunes/iPod, WhatsApp,  

By this definition, disruptive innovation is relatively easy - just know/understand the existing business models and create a new product/service that creates new markets or changes the value proposition.

For example: VIBER is disruptive for telephone service providers. iPad/Tablets is disruptive for Laptops etc. BitCoin is disrupting the global currencies etc.

But making this successfully is a different story. A successful disruptive innovation is a whole lot tougher.

Creating successful disruptive innovation has two equally important parts:

1. Creating the disruptive technology

2. Overcoming the barriers to success. 

Creating a disruptive technology is the first necessary step. But in most cases, the original inventor of the disruptive technology has failed to make is successful - because there are several business barriers which prevents widespread acceptance.

For example, Alta-Vista & Yahoo created a web search technology much before Google & yet failed. Erricsson invented a smart phone and yet failed. Motorola created a satellite phone system called as Iridium and failed.

Disruptive technologies are often characterized by the "10X Factor" i.e., the new technology is 10X better or cheaper or faster or easier to use than the current alternative. A lot has been written about disruptive technology and you can read it yourself.

In this article, I am going to concentrate on the second part - Overcoming the barriers to success.
Knowing what are the challenges and barriers to success is just as important for success.

There are several challenges one must overcome to make a successful disruptive innovation.

Some of the major challenges are:

1. Legal rules. 

Usually the rules favor the current market leader. For example take the case of AirBnB. All the current hotel rules are designed to suit current incumbents, but the rules does help individuals who want to rent out a spare room to travelers on AirBnB.

2. Business Ecosystem 

When S3 Diamond/Rio MP3 player was launched, there were no online MP3 stores to download MP3 songs. Music distributors were suing individuals who downloaded MP3 songs from Napster and created an air of fear of using MP3 music in the market. So no wonder Diamond MP3 player failed in market, while Apple created iTunes Store - which enabled iPod to succeed.

Similarly, Ford's T-Model car was successful because of Standard Oil had built all refineries and there was gas stations in all cities.

3. Consumers readiness to change

Just because one introduces a revolutionary technology, people will not readily buy a new product. Most buyers prefer to wait and watch, before opening their wallets. For example take the case of Hybrid Cars: Chevy Volt or Toyota Prius. Though these cars give 2x-3x more mileage than the regular cars, customers prefer to wait and watch to see if other people are buying it. Customers readiness to change also depends on the comfort factor with their current option. In case of hybrid cars, customers were happy with their gasoline cars and were reluctant to change their buying habit.

4. Ease of use of the new product.

New products may not be easy to use. For example, Erricson introduced a touch screen smart phone called Erricson Communicator - 10 years before Apple's iPhone. But using it was not easy, so the product failed. In general, customers do not like easy to use products.

Similarly, Nokia's Tablet - which predates iPad, or Sony Surfboard which predates Nokia Tablet - they all failed because of its complexity to use & lack of public awareness.

Another classic example is that of Electric cars. Electric cars was introduced in early 1900's = yet even in 2012, electric cars are yet to succeed - because of difficulties (and time) involved in charging the car. Also the ecosystem for electric cars does not support rapid adoption of electric cars.

5. Total cost of transition to new product

If customers have invested heavily in one technology/platform, then the cost of transistioning to a new product will be a major barrier. For example, Maglev trains failed in market - though it was mush faster and better than the current system - because of the cost of moving to the Maglev trains.

HD television took almost 80+ years to gain popular acceptance. Analog HDTV was first introduced by BBC in August 1936, but the total cost of transistioning to High Definition standard was prohibitively high till 2008!

6. Awareness on new product

Its a lot easier to develop disruptive technologies, when compared to building the awareness in the market and building the ecosystem needed for the product to succeed. In many cases, the original inventor would have exhausted all his resources building the product and will not have anything left to build market awareness.

For example, a startup in Silicon valley called Electriphy created a new technology to connect houses with high speed Internet using power lines, Which was must faster than phone lines (DSL), but it lacked the resources to make this new technology popular.  Similarly ReplayTV invented hard drive based Digital Video recorders - but did not have money for marketing it, and hence lost to TiVO.

Closing Thoughts

Everyone in business aspires to create disruptive innovation, but very few have succeeded. Companies that created the first wave of disruption have failed in their other attempts - and have been disrupted by other new entrants. The barriers to succeed are huge and is extremely difficult to overcome. There is no formula or a proven plan to create disruptive innovation.

In many cases, disruptive technologies suffer from various setbacks which has to be addressed first to make it successful - but the inventor does not have resources to eliminate these barriers.


Rick Mueller said...

Arun, clearly you mean well and are enthusiastic about what Disruptive Innovation can bring to the table. You might want to read through some of the posts at http://www.linkedin.com/groups/Disruptive-Innovation-1837479 and perhaps eventually join the group and/or the discussion once you see what it looks like and where its going. Thx!

Nilay Shrivastava said...

One more thing I believe that a company will have to identify is "paint point" . They should be able to envision what can be the next big need ?

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