By now any well-read executive knows the basic playbook for saving a business from disruptive innovation.
Nearly two decades of management research have taught businesses to be on the lookout for upstarts that offer cheap substitutes to their products, capture new, low-end customers, and then gradually move upmarket to pick off higher-end customers, too. When these disrupters appear, we’ve learned, it’s time to act quickly – either acquiring them or incubating a competing business that embraces their new technology.
But the strategic model of disruptive innovation has a blind spot: it assumes that disrupters start with a lower-priced, inferior alternative that chips away at the least profitable segments, giving an incumbent business time to start a skunkworks and develop its own next-generation products. That advice hasn’t been much help to navigation-product makers like TomTom, Garmin and Magellan.
Free navigation apps, now preloaded on every smartphone, are not only cheaper but better than the stand-alone devices those companies sell. And thanks to the robust platform provided by the iOS and Android operating systems, navigation apps are constantly improving, with new versions distributed automatically through the cloud.
The disruption here hasn’t come from competitors in the same industry or even from companies with a remotely similar business model. Nor did the new technology enter at the bottom of a mature market and then follow a carefully planned march through larger customer segments. Users made the switch in a matter of weeks. And it wasn’t just the least profitable or “underserved” customers who were lured away. Consumers in every segment defected simultaneously – and in droves.
This kind of innovation changes the rules. Disrupters can come out of nowhere and instantly be everywhere. Once launched, such disruption is hard to fight.
The first key to survival is understanding that big-bang disruptions differ from more traditional innovations not just in degree but in kind. Besides being cheaper than established offerings, they’re also more inventive and better integrated with other products and services. And many of them exploit consumers’ growing access to product information, and the ability to contribute to and share it.
Three devastating features
Big-bang disrupters deliver surprises, thanks to three defining characteristics:
Twitter’s sudden success with minimal investment underscores an important dimension of big-bang innovations: they are often born of rapid-fire, low-cost experiments on fast-maturing, ubiquitous technology platforms. They don’t need budget approval and aren’t vetted before development begins. When cost is low and expectations are modest, entrepreneurs can just launch their ideas and see what happens.
These innovations are often built out of readily available components that cost little or are free. In the future, the most successful innovators may be those who simply happen upon the right combination of other people’s technologies.
As disruptive technologies become cheaper to manufacture and deploy, innovators can experiment with new applications at little risk to investors, abandoning prototypes that do not quickly prove popular. Generally these experiments take place directly in the market, using open platforms built on the Internet, cloud computing and fast-cycling mobile devices.
New businesses can be launched without their own foundation. If the application catches on with users, other resources can all be leased or purchased in real time. In the world of big-bang disrupters, it is perfectly rational to churn out dozens of new products and see which ones take hold. Most will fail outright. But just one success can pay off big.
Big-bang disruptions collapse the product life cycle we know: Everett Rogers’ classic bell curve of five distinct customer segments – innovators, early adopters, early majority, late majority and laggards.
Now there are only two segments: trial users, who often participate in product development, and everyone else. The adoption curve has become something closer to a straight line that heads up and then falls rapidly when saturation is reached or a new disruption appears.
The new product cycle can be simplified into three basic stages: development, deployment and replacement. The adoption of disruptive innovations is no longer defined by crossing a marketing chasm. Instead, the innovators collectively get it wrong, wrong, wrong – and then unbelievably right.
Big-bang disrupters contradict everything you know about competitive strategy. They are thoroughly undisciplined, and they start life with better performance at a lower price and greater customisation. They compete with mainstream products on all three value disciplines right from the start.
Under these conditions, you can’t win simply by becoming more disciplined with your current strategy. Pulling back to focus on your best customers or on delivering higher quality or a lower price will buy you only a little time, if any.
Surviving big-bang disruption
Big-bang disrupters are rewriting the rules – and the new rules hold only until the next wave of disruption comes along. Here are four strategies that incumbents have used to survive and even thrive in the face of big-bang disruption:
See it coming: Learning to recognise the warning signs is key to survival. But since the early market-based experiments usually fail, the familiar signals sent by low-end customers jumping ship may never arrive. You need new tools to recognize sooner than your competitors do that radical change is on the way, and that means interpreting the real meaning behind seemingly random experiments. Filter out the noise generated by unencumbered development by finding internal or external seers who can predict the future with insight and clarity.
Slow the disruptive innovation long enough to better it: The best survival strategy may simply be to ensure that disrupters can’t make money from their inventions until you’re ready to acquire them or you can win with a product of your own. You can’t stop a big-bang disruption once its unconstrained growth has taken off, but you can make it harder for its developers to cash in. Meanwhile, look for opportunities to leverage your surviving assets elsewhere.
Get closer to the exits, and be ready for a fast escape: It’s up to senior management to confront the reality that even long-successful strategies may be suddenly upended, requiring a radical re-creation of the business. To compete with undisciplined competitors, you have to prepare for immediate evacuation of current markets and be ready to get rid of once-valuable assets.
Try a new kind of diversification: Diversification has always been a hedge against risk in cyclical industries. As industry change becomes less cyclical and more volatile, having a diverse set of businesses is vital. Make sure future strategies are built on a platform that can easily be extended and experimented with, and quickly scaled both up and down. The profitable life of a big-bang disrupter may be short, and you’ll need to be ready with the next one before someone beats you to it.
Larry Downes is a fellow with the Accenture Institute for High Performance. His most recent book is ‘The Laws of Disruption’. Paul F Nunes is the global managing director of research at the Accenture Institute for High Performance and the co-author of ‘Jumping the S-Curve’.