Good enough at radically lower prices — disruptive innovation

I recommend reading a short article about disruptive innovation in MIT’s Technology Review magazine of Jan/Feb 2012 — “The Empires Strike Back” by Scott D. Anthony and Clayton M. Christensen. An online version is here. They define disruptive innovation as “making the complicated simple, making the expensive affordable”, and

We define disruptive technologies as those that offer “good enough” solutions to new groups of consumers, often at radically lower prices.

But “technologies” should be broadly understood here to include radical business models, such as Apple’s iTunes and App Stores, or Amazon’s e-books via Kindle.

Driving disruption requires moving beyond purely technological innovation to consider new ways of creating, capturing, and delivering value.

The big guys often focus too long on their high-end, high-margin products, as the disruptive technology steadily improves, and eventually eats their lunches. Startups are still the source of the majority of such disruptions, but the historical trend has been for more big guys to be sources of disruption themselves. The focus of the article is noticing that the trend has accelerated significantly since 2000. And the big guys are learning to see the threats from startups, too.

If you’re an entrepreneur and your strategy assumes that the market-leading incumbent will ignore you, you ought to rethink your business plan. […] Entrepreneurs who are dead set on defeating market leaders should consider novel ways to work with them instead.

A key tactic of market leaders who successfully disrupt is to search for profit in developing economies.

Winning in emerging markets often requires lower prices and different business models — two hallmarks of disruption.

That tactic works from the learning required to achieve the goal. It’s a mistake to manage the baby-steps of disruptive innovations the same way you’d manage a mature, high-margin product.

Over the last decade IBM’s Emerging Business Opportunities (EBO) program has helped the company succeed in new markets like blade servers and networked data storage. One key is not judging new technology solely on its potential financial return. Instead, IBM evaluates the success of its EBO teams primarily according to whether managers learn from early failure and make adjustments in response.

Maybe the ultimate key is to stop focusing on what you’re good at and comfortable with, your so-called “core competencies”, and start getting good at whatever customers, and potential customers, want. A great quote from Amazon’s Jeff Bezos

If you want to really continually revitalize the service you provide the customer, you can’t stop at ‘What are we good at?’ You have to ask, ‘What do our customers need and want?’ And no matter how hard it is, you better get good at those things.

Anthony and Christensen observe

Pushing boundaries helps companies spot disruptive signals early — especially if they pay attention to new competitors that serve customers who were previously ignored.

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