Given all the talk about disruptive innovation lately, I thought I’d dust off several posts I have written on the subject and update them.
In the book McLuhan for Managers, the authors provide a lens for managers and owners to make business decisions primarily using McLuhan’s laws of media to understand the changes that are possible with any medium. According to co-author Derrick de Kerckhove, the tetradic laws of media state that every medium (or technology in the broader sense of the word) has four major effects:
- extends a human property (the car extends the foot);
- obsolesces the previous medium by turning it into a sport or an form of art (the automobile turns horses and carriages into sports);
- retrieves a much older medium that was obsolesced before (the automobile brings back the shining armour of the chevalier);
- flips or reverses its properties into the opposite effect when pushed to its limits (the automobile, when there are too many of them, create traffic jams, that is total paralysis)
The authors suggest that it is in the ‘Retrieve’ quadrant of the probes that “… we may be able to glean valuable clues as to the effects of the new medium from more easily observed effects of the old.” Understanding retrieval can give a clearer vision of signal versus noise. Below is an example of a tetrad for a world of pervasive networks. Retrieving the notion of a handshake as one’s bond is becoming normal in a world of almost transparent social networks that let us check up on anyone.
With a different but related perspective, Frans Johansson, in The Medici Effect says that new businesses should look for reversals in order to find possibilities, especially at the intersection of fields or disciplines. These can result in order of magnitude business opportunities. He uses a restaurant as an example, saying that the assumption is that restaurants have menus, but the reversal would be a restaurant without a menu. This would be one where, “The chef informs each customer what he bought that day … the diner selects the desired food items and the chef creates a dish from them, specifically for each customer.” Johansson also states that people with lots of good ideas are also those with lots of bad ideas. The important thing is to generate many ideas, and follow through on any that show promise. Innovation is the following through part.
Clayton Christensen, author of the immensely popular The Innovator’s Dilemma and The Innovator’s Solution books, gives new business entrants and incumbents a theory-based set of tools to understand and use disruptive innovations. One of the strategies for new businesses is to target the non-core customers of the incumbents while developing skills and expertise in areas outside the core business of the incumbents.
Following up on these books, Christensen, Anthony & Roth, in Seeing What’s Next, state that new entrants to a market should identify potential customers based upon the markets of established incumbent(s). There are three types of customers:
- Undershot – willing to pay more for more functions/services
- Overshot – find current offering more than adequate
- Non-consumers – lack ability or the wealth for current service / products
For a new entrant, the best market is the non-consumer (also the least demanding) who is “below the radar” of the incumbents.
The second best target group is the Overshot Customer (specialist displacement for mainstream) who is willing to accept a more specialized product/service than the broader offering of the incumbent, or one who is looking for something cheaper and “good enough” (low end).
Usually, the products/services for the Non-consumer market are relatively simple and affordable and make it easier for the customers to do something that they could not do before, or was much too difficult or costly. For instance, open source software has made it easy for anyone to set up a website, and services like PayPal have made e-commerce simple. Previously, only large organizations could afford to sell online. Non-consumers, small & micro businesses, adopted these systems under the radar screen of some major vendors and created a new market.
Other factors include non-market conditions, such as new regulations, that change the way the market will behave. For example, the requirements for compliance training in fields such as banking and natural resources created new markets for cheap and easy training programs.
In order to address these markets of non-consumers or overshot customers, the entrant needs both Asymmetric Motivation (sword) and Asymmetric Skills (shield). The entrant must be able to do something that the incumbent firm is not capable of doing or not motivated to do.
One way of looking at this is that Upstart companies should use their asymmetrical sword & shield to focus on non-consumers and overshot customers, such as those paying too much for what they really need (think bloated office applications). By avoiding the cash cows (Undershot Customers) of the incumbents, upstart companies can develop asymmetrical skills in new fields before the incumbents know what hits them. But first of all, determining the problem that they are trying to solve is essential in order to understand who are the customers.
Here are some of the key questions when looking for signals of change in the marketplace:
- What jobs are customers trying to get done?
- Are customers not served, undershot or overshot by current offerings?
- Where are new business models emerging?
- What role do regulatory agencies play?
For further reading, look at how Dave Pollard summarized the key points of Michael Porter, Peter Drucker, and Clayton Christensen regarding their approaches to innovation research.
“I like all three models — Porter’s, Drucker’s, and Christensen’s — and if I were to be assigned to do some innovation research today, I would use a combination of all three approaches, looking at the markets, and potential markets, and the forces that drive them, from all three perspectives. That way you can actually get a ’3-D’ forecast of the future of your, or your client’s, business or industry, or the entire economy.”
Finally, when playing with these models, it’s always good to remember what George Box wrote – “essentially, all models are wrong, but some are useful”. For a good in-depth analysis of the past 20 years of disruptive innovation, read Michael Raynor: of waves and ripples.