Disruptive innovation does not destroy all value
This is a summary of the article Surviving Disruption published in the December 2012 edition of Harvard Business Review.
Successful entrepreneurs identify what jobs people need done and how they could be done more easily, conveniently or affordably.
All disruptive innovations stem from technological or business advantages that can scale as disruptive businesses move upmarket in search of more demanding customers.
A disruptor can maintain lower prices while it improves its performance (i.e. computer chips get faster and cheaper).
Disruptors may be able to successfully disrupt an aspect of a business but not others. The extent of the disruption is dependent by the intrinsic value that the incumbent provides, as well as by the barriers that are overcome by the disruptor.
The following examples illustrate how some aspects of a business can be disrupted and how some other aspects of the same business can remain dominated by the incumbents:
- Grocery stores vs. online grocery stores. Customers will always prefer to go to the grocery store to buy emergency items (tonight’s dinner). Online grocers are better at canned food that can be bought at any time and stored. For online grocers to deliver goods to customers as quickly as grocery stores, they would have to adopt the stores’ cost structure.
- Cargo ships vs. air shipping. The existing infrastructure surrounding container shipping using cargo ships makes it hard to disrupt: from ship to crane to tracks to trucks. Changing this infrastructure is expensive.
- Railroads vs. cars, trucks and planes. The cheaper costs offered by railroads make it the best choice for businesses needed to ship goods.
- Ivy League universities vs. eLearning. Hard to disrupt. Ivy League universities confer status that eLearning just can’t provide.
- Movie theatres vs. streaming. Hard to disrupt. Teenagers and dating couples still go to the movies to get out of the house.
- Handheld GPS vs. cellphone GPS. Easy to disrupt. The only advantages of a handheld GPS (it’s durability, ruggedness and long battery life) can be overcome by cellphone GPS.
- Auto sales vs. car sharing services. Buying a car is still a better choice for frequent drivers of long distances.
Barriers to Disruption
From easiest to overcome to hardest-to-overcome:
- Momentum. Requires change in customer habits.
- Tech-implementation. Requires new implementations of existing technologies.
- Ecosystem. Requires changes to the ecosystem or business environment.
- New technology. Requires new technology.
- Business model. Requires new cost structure.