Thursday, May 02, 2013

Breaking out of the m (old) for disruptive innovation

One of the recent mantras for politicians and hand wringers around the political and social scene is the constant refrain that we've reached the end of innovation in specific fields.  After all, when you evaluate, for instance, the automotive market innovation seems stalled.  Cars today are a bit nicer, a bit safer, and a bit more energy efficient than they were in the 1970s, for example, but few drivers from the 1970s would find a car from 2010 strange or unusual, or frankly, very different.  In many areas and many industries it appears that innovation is slowing if not completely stalled.

One of the reasons for this, of course, is that we've reached a diminishing returns point that I'll coin as the Moore limit.  This is a corollary to Moore's Law.  Moore's law of course states that computing power will roughly double every 18-24 months, and that has been the case for years.  But it's possible even Moore's Law will reach a point of diminishing returns based on "line width" that semiconductor manufacturer's can scribe in silicon.  We can add more capability to the same volume of silicon by miniaturizing the circuits, but at some point we'll have to switch technologies in order to continue to shrink the circuits.  Every technology or capability has a limit to which it can be stretched, and then innovation becomes more about the accessories, business models or experiences.  The four cylinder internal combustion engine may have reached a pinnacle in cost/weight/efficiency tradeoffs, so automotive engineers turn to new technologies for further innovation - electric vehicles or other propulsion units.

When pundits talk about stalled or stagnant innovation in specific industries or technologies, what they are actually identifying is that innovation has achieved a logical point of diminishing returns based on existing technologies or capabilities. To gain truly new breakthroughs that deliver disruptive innovation, what's needed is a switch to a new way of thinking, a new technology, a new business model.  When that switch occurs, new innovations will emerge.  What's true in silicon for semiconductors (a change from electrons to light for signalling and switching) will be true in other areas.  Another innovation barrier is that what was at one time beneficial (standards, infrastructure) becomes a lock-in factor.  One reason there's so little innovation in the automotive space is our investment in roads and oil production.  There is a significant investment supporting the automotive industry as it exists today, and a lot of resistance to dramatic innovation in automobiles as a result.

I'd rather fight than switch

When these points of diminishing return occur, many fierce competitors who are 'locked in" to the old way, the old technology, the old mold, will often become friends.  GM, Ford and Chrysler joined together to fight alternative propulsion plants, doing just enough to appease politicians without creating a true alternative power or propulsion system.  NASA's recent decision to partner with Russia on manned space flight over SpaceX is another example.  NASA prefers to rely on what was a competitor (the Russian Space Agency) using existing technology than to make a business model and technology switch to SpaceX.  True, SpaceX is still a nascent competitor, but NASA has simply doubled down on the old, trusted model rather than break out and explore a new model.

Yet another example is the college and university educational model.  The residential, in-class, in-person model was developed when learning was a privilege and few people could afford to attend.  Now, knowledge is pervasive and available on a number of platforms.  The demand for educated workers is growing faster than our traditional collegiate system can sustain, and the current model isn't scalable.  We've reached the limit of innovation within the existing framework and even have some potential alternatives to explore, but powerful forces are working against innovation in the model.  We need to educate more people more effectively and can't be limited to the on-campus model any longer. Competing universities band together to both fight changes in the model and simultaneously explore changes in the model with channel partners like Udacity.

Next, a shift of emphasis

Every product technology, capability or business model will reach a logical limit of innovation within its existing frameworks or capabilities.  When that happens, firms will innovate the packaging, the delivery systems, the accessories.  When GM encountered diminishing returns for innovation of the automobile, they invented and perfected innovations around funding and financing the purchase.  In effect, GM is a now a financial organization that happens to make cars.  I'm waiting for the innovation around the business model, when GM, Ford and Chrysler recognize that people no longer want to own transportation but want it on demand.  But that innovation switch breaks the mold, no longer selling cars but providing transportation options on demand.  As any industry reaches what I've termed as Moore's Limit, the attention turns to ancillary innovation over core innovation, and innovation seems to stagnate.  That's because to continue to innovate at the core, a step change is necessary but the resistance is high.

Finally, Disruption

When you want truly disruptive innovation, you will need to break the mold, step out into completely new technologies, capabilities and delivery systems.  The reason innovation appears to be stagnant in many industries is that few firms are willing to disrupt the existing technology or delivery systems - they have too much at stake to do so, and the few new entrants or substitutes can arise when entry costs are high and new technologies seem so risky or uncertain.  In a time when we are all holding our collective breath over the economic fortunes of the economies of the US and Europe, few organizations are making big bets.  So innovation will appear stagnant until one of several potential events occurs:
  1. a deep pocketed innovator decides to force the issue and break the mold of some of our largest industries.  (SpaceX)
  2. enough potential customers decide that an alternative is required and create it themselves (Open Source) or throw their weight behind an unlikely new entrant (Google Docs)
  3. a revolutionary new technology enters the market that lowers resistance to a step change (I finally get my jet backpack)

I'm convinced that if we could dig up the newspapers from the days of Julius Caesar he had advisors wringing their hands about the lack of innovation in military arms and arts.  After all, the sword and shield were thousands of years old.  Innovation, like evolution, proceeds through long periods of incremental change interrupted periodically by significant disruptions.  We live in a time where those periodic disruptions will occur with greater frequency.  Talking about stagnant innovation is strange to me - innovation will occur, we just need to start looking for the disruption in places that aren't what we expect.  Innovation, especially disruptive innovation, rarely originates in the tried and trusted systems, but on the edges.
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posted by Jeffrey Phillips at 6:39 AM


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