Monday, December 10, 2007

Incremental and Disruptive Innovation

There's an interesting article in Portfolio magazine this month by Andy Grove. You'll remember Mr. Grove as the person who drove Intel to its prominence and who wrote the book Only the Paranoid Survive. Andy's article is focused around advice he is giving to the leaders of Wal-Mart and GE about opportunities to disrupt health care and the automotive industry. Andy argues that Wal-Mart has an excellent opportunity to disrupt the way health care is delivered, and that GE has an excellent opportunity to disrupt the automotive market based on electric engines.

Here's the point - there's potential in any business to produce new products and services in line with your core business models, or to tweak the business models where your firm already participates. In many cases this innovation will be "incremental" - it will be copied. The first innovator is the leader of the pack, and many firms will work hard to catch up. A good example of this phenomena is new touch screen phone from Verizon, which looks strikingly like the iPhone from Apple. Now that the market is catching up to the base iPhone, what will Apple's response be?

What Grove is pointing out, however, is that while real disruptive innovation and change can become very difficult for larger firms, since these firms have so many products and so many competitors in their "home" markets, disruptive innovation in other markets or segments may be actually more beneficial and easier to accomplish. Wal-Mart has stores in many small cities and towns across the US. What would happen if you could acquire health services and your pharmaceuticals in Wal-Marts - or even if the doctors and nurses were Wal-Mart employees? Wal-Mart has a long standing and well deserved reputation for keeping costs low. It's ubiquitous stores provide easy access to many people and great convenience. Wal-Mart could significantly disrupt the delivery of non-emergency healthcare if it so chose.

GE, with its investments and knowledge in power generation and engine technology, has several real rationales for entering the market for electronic vehicles. First, it stands to benefit from the use of more electricity generation and distribution, and second, it has knowledge of engine technology. GE, if it chose to enter the market for electronic automobiles, could create quite a difference in that market.

The point being that many firms have capabilities, insights and technologies that would allow them to enter and disrupt other markets if they were to combine those skills and choose to attack. These moves will create disruptive change, since the moves will upset the standing order. When your organization decides to innovate, it should consider the possibilities within its own products and markets, and those opportunities to leverage internal capabilities to disrupt a different market segment as well.
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posted by Jeffrey Phillips at 5:48 AM


Blogger Graham said...

Thanks for the interesting post. It inspired me to write one of my own:

Lots of attention is given nowadays to the low end disruptive innovations motivated by Christensen in his book The Innovator's Dilemma. However, they do not always come from startups, and i think its important to understand both kinds. Christensen's RPV theory (described in The Innovator's Solution) can help to do this.

8:22 AM  
Anonymous Anonymous said...

This ability to assess ones own capabilities and move them into another area is, in my experience, incredibly powerful. I redrew this slide (originally in German- a McKinsey workshop a few years back.. it makes a clear point about market disruption... it is interesting to note that SMART was even more innovative originating at SWATCH (watches) and originally a partnership with M-Benz. The assembly line was co-owned by all the suppliers!
Apple, of course!,had many useful capabilities to ensure the success of iPod/iTunes/ITMS. Steve Jobs had been involved in a useful industry (Pixar) which helped him understand media industry politics. Also the music artists knew Steve through the software on the Mac... so Apple were equipped to move forward across uncharted terrain with the maximum of useful knowledge. The Disney were useful for videos and, and... now we have iPhone and AppleTV threatening to.....

10:53 AM  
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2:19 PM  
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6:32 PM  

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