Tuesday, January 05, 2016

Preserving and/or Disrupting

I'm reading a lot about "disruptive" innovation from firms that I think have a lot to protect and preserve.  When I read that, I become fairly suspicious, because I'm not sure it's possible to simultaneously protect what is "important" and disrupt at the same time, unless the disruption is taking place in a market or business adjacent to or distant from whatever the corporation is trying to protect.  Can you simultaneously protect and disrupt the same product, segment or market?  I think the answer is "no".  So what are all of these corporations disrupting?

Larger corporations are really, really good at preserving products, customers and industries. It is in their best interest to preserve as much of the status quo as possible, since their revenues and stock valuations rely on doing so.  For this reason, talk of disruption is uncomfortable, unless it refers to disrupting someone else's product, customers or industry.  But the further one gets from one's area of expertise or experience, the less capable and less qualified you are to innovate, let alone disrupt.  So what is everyone "disrupting"?  Or are we simply using a word to suggest that ongoing innovation is larger than it really is?

Leading or Following

Don't get me wrong, there is active disruption happening right now, and even the larger firms are admitting it.  Yesterday I wrote about GM's investment in Lyft, which validates a slow disruption of several important factors in the US economy.  GM has evolved from a metal bender to a finance organization and is now trying (desperately) to become part of the knowledge and sharing economy.  We can see convergence in two powerful factors - information technology and new business models - in this investment, leading to autonomous vehicles, that eventually you access when and where you need them, perhaps rather than owning them.  When GM recognizes and invests in a trend, you know it's well on its way to becoming reality.  But in reality GM isn't disrupting anything.  No, it's trying to get on board the train that is slowly but surely disrupting car ownership and car management.  GM is doing so to preserve its place in the value chain, rather than see its place eliminated or replaced by other automakers or new entrants.  Let's be careful to say that what GM is doing is investing in innovative concepts and business models, in order to preserve what GM is still today - a financing engine that happens to bend metal.

True Disrupters

I've become a fan of "Fight Club" and I think that what's true about Fight Club is true with disrupters.  The first rule of disruption is that you don't talk about disruption.  You just go and do it.  Disruption happens when someone, something or some trends create dramatic shifts in the existing order.  The leading IT companies, like Google, along with those who build ubiquitous networks (yikes, the cell companies) and others have created a platform that can be leveraged to pilot cars.  As autonomous cars drive us around, increasingly they'll do other things that disrupt other markets and jobs (transfer truckers, you are in the crosshairs).  But that's just technology replacing people.  The merger of this capability with the sharing and rental economy suggests that one car can be distributed across several people over the course of the day, driving one person to work, then picking up groceries for another and taking a third to an appointment, arriving back in time to drive the office worker home.  This capability reduces the need for cars, optimizes the use of existing cars and reduces the need to own a car.  So GM's core business is still shaky, and they will do all they can to sustain car ownership and accelerate the development of autonomous cars.  Or, they'll (and here's where the deal with Lyft comes in) sell cars or lease cars to firms that then make them available on a fractional basis to consumers.  Because ultimately GM's model is based on selling, leasing and financing a large quantity of cars.  If the "buyer" changes, they don't care.

True Disrupters aren't trying to sustain or preserve the status quo.  In fact it's the status quo they are trying to replace, reject, rebuild.  It's difficult for someone or some company with something to protect to "disrupt" their own markets, which is why Sony didn't build iTunes, and why Apple did.  Apple didn't have a stake in the revenue flow of album sales, while Sony couldn't quite wrap its head around 99 cents per song.  Apple had a lot to gain, but Sony had a lot to protect and preserve.

Not you, not me, but the man behind the tree

There's an old saying in Congress, that new taxes shouldn't affect you or me, but "the man behind the tree", in other words, someone else.  That's also true for disruption if you have a stake in the market.  Disruption should happen, but it should happen somewhere else.  Thus, financial services firms want disruption, but they want it to happen somewhere else in the value chain, not to retail banks or treasury applications.  Retailers want disruption to happen, but not to their stores, their malls, their websites.  It must happen, but somewhere else.

But the further away from core capabilities a firm tries to innovate, the less experience and knowledge it has, and the less effective it can be trying to innovate or disrupt. Which leads us back to the dilemma between being a preserver or disrupter.  If you are a preserver, you want to protect what is value to you (industries, markets, customers, products) and that's what you know best.  You certainly aren't going to disrupt your own markets or customers or business models, so you cast about for something else to disrupt.

So, for all the talk about disruption, we know two things:  first, very few firms will disrupt their core capabilities, where their knowledge and strength lies.  Second, if they try to disrupt distant markets or customers, their knowledge and experience isn't helpful, and they aren't well known in the industries they try to disrupt.  So local disruption is unlikely and distant disruption is fraught with challenges.

Is this why corporations struggle to innovate?

I think this is one really good reason why so many large corporations struggle to innovate. If they are preservers, their instinctive nature is to build, grow and preserve their markets and customers.  Disruption would be drastic, perhaps fatal.  Many ideas that they conjure up are valuable, but would impact or eventually disrupt business models, operations or customers.  This leads to more and more incremental ideas in existing and adjacent markets, and more and more haphazard innovation activities in markets and industries that they know little about.

Does this mean that preservers can't innovate?  No, but it does mean they need to establish very clear goals and expectations about what should be preserved and protected, and the amount and range of innovation in core markets and capabilities, and where and when it is right to disrupt.  They'll need to innovate and disrupt outside of their core markets with partners, because they cannot influence a distant market or customer base alone.  That means that preservers better get awfully good about identifying potential markets to disrupt, and finding the right partners to help them, something they haven't done well in the past.
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posted by Jeffrey Phillips at 7:41 AM


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