Putting Disruptive Innovation to Work – A Conversation with Lead Author of the Innovator's Guide to Growth

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by: Idris Mootee

There’s no shortage of disruptive innovations out there and every start-up has a disruptive idea to create the next big thing. Lots of media play as it is an industry that will continue to attract disruptions due to its very nature. Just look at Joost and Vudu. Joost founded two years ago to provide a global TV distribution platform, melding content owners, advertisers, and users into a single community.

They have been struggling for a while and now with a renewed effort to try and regain viewers to its online service by introducing a browser plug-in for its video service. Still in beta, the new plug-in should give viewers the possibility to view the online video service without the need to download the dedicated client software, which was needed until now.

What about Vudu? 16 months ago the maker of a movie-playing set-top box was generating splashy headlines in publications like NY Times. Now the company, which bills itself as a video store in a box, and is struggling on many fronts. I have heard that they are developing a download service that is intended to rival Blu-ray quality. Dubbed HDX movies, these ultra-high-def flicks are currently being watched by folks willing to wait a two or three hours for a film to start, but we are probably 24 months away. Most people would scoot down to Blockbuster and rent a Blu-ray Disc and pick up some beers.

These companies face the typical challenges of bringing disruptive innovation to the market. There will be no question they will evolve the business and think of every idea to increase adoption. Some argue business models like Joosh and Vudu will fail because they tend to ‘cram’ the new disruptive thing into an old business model (broadcast television when everything is about content) in order to prop up the old declining business. They have to revisit the some key questions for any disruptive innovations starting with this one:

Disruptive solutions usually offer a fundamentally different bundle of performance. Is Joosh or Vudu offering “good enough” performance on dimension that matter to mainstream target? If convenience is the key, are they offering a superior experience. The 3 hour wait for download may work well for someone who lives in a remote area, but not those who lives 5 minutes away from a Blockbuster.

A good example is when BlackBerry started in 1999 as a non-Windows compatible, non-Palm compatible e-mail only device. Until recently (the Bold which I am using and it is great) it’s browser sucks and the voice quality was not so great. It was inferior to the average cell phone every dimensions… but it did one new thing really well by solving a new problem: It gave access to instant information anywhere. They have been very successful in sustaining innovation while not losing focus of their core.

On the topic of disruptive innovation. Here’s my interview with the lead author Scott Anthony, The Innovator’s Guide to Growth, which takes the idea of disruptive innovation as part of a virtual book tour.

One challenge of innovation today is that it is unclear whose mandate it is within current organization structures, and only a handful of companies have the luxury to create a dedicated innovation team, let alone innovation budget. What is your view on setting special innovation team or it is better to be assigned to corporate strategic planning or to business units level marketing? And what’s the best to decide on the budget or should it be a percentage of the marketing budget?

Scott: As is always the case, there isn’t a one-size-fits-all answer to this. I think P&G CEO A.G. Lafley has it right when he describes how critical it is for the CEO, or Business Unit leader to be actively involved in innovation. Without the active involvement of the most senior leader, it’s just too easy for a company to default back to what worked before instead of what’s necessary for the future. 

Generally speaking, I’d rather have a few people focusing all of their energy on innovation than a large group that has innovation low on its collective priority list. So the most important thing to me isn’t where responsibility resides, it is where innovation falls on that group’s priority list. If it’s lower than #2 on that list, I get worried. Then, it is a strategic choice. The closer to a going business the group resides, the less likely it is to step out and develop truly disruptive ideas. On the other hand, the further the group is from operations, the less likely it is to implement ideas. The best outcome is to have multiple innovation groups; one at the business unit or even brand level, and another at the corporate level.

In terms of the budget, it is wholly contingent on what kinds of results you are expecting. However, we do think companies should “grow into” their innovation budgets. Allocating too much money too soon can be a good way to set a company up for failure.

Idris: The concept of “overshooting” is proven very useful in analyzing products with a large technological components or pure technology-based products playing the s-curve, how do you see it’s applications in other less-technology-intensive industries? Suggestions of any industry(s) which you think are ripe for disruptive innovation outside of media and communications?

Scott: Our experience is that overshooting applies to just about every industry. In some industries it can happen more slowly, or can be more “hidden,” but the forces of overshooting are always at work. Consider the health care industry. What physicians can achieve today is amazing. But in pursuing the most challenging conditions, we have predictably created an expensive, complicated health care delivery system that overshoots the diagnosis and treatment of basic conditions. That’s one reason why we are so optimistic about concepts like MinuteClinic or other nurse-based delivery approaches. Similarly, think about the legal services industry. Someone in the industry once told me it is the only industry where prices go up in both boom times and recessions. While high-end law firms provide great services for their best clients, they are way too expensive and complicated for simple cases. You are beginning to see the emergence of disruptive models in legal services, but there will be a heck of a lot more in the coming decades.

Idris: Going after non-consumers is a very effective to identify corporate blind-spots and help them to see markets that have yet to exist. Given that 90% of the growth of 90% of most companies out there are dependent on current consumers or more specific 20% of their customer case provides the 80% revenue, how would looking for non-consumer makes sense for these companies?

Scott: It’s all a question of your time horizon. In the short term, it almost always makes sense to prioritize providing better products and services to your best customers. If you don’t figure out ways to reach new consumers in new contexts, however, you are bound to find yourself falling behind the competitors who see the opportunity to reach those nonconsumers. Put another way, do you think the 20% of customers who are providing 80% of today’s revenues are going to provide 80% of revenues five years from now? Competitive forces and market saturation mean that almost every company is going to have to figure out how to reach today’s nonconsumers. And it’s always better to do it when it’s a luxury instead of when it is a necessity. While spotting nonconsumers is hard, and developing winning solutions to target them is even harder, it is well worth the effort.

Idris: One chapter of your book talks about innovation metrics. Can you share your thoughts on what’s the most commonly useful and irrelevant innovation metrics and how should they be measured? Pls talk about the timeframe for innovation projects of this nature, you mentioned 3 years in the book, explain why 3 years?

Scott: This is another tough question, because I really haven’t seen one metric that works for all type of innovation. That’s why the book recommends using multiple metrics that track inputs, the process, and outputs. Although any individual metric has issues, the metric I am most skeptical of is net present value. It’s not the metric that’s wrong, it’s the application of NPV that causes trouble. The typical application biases companies to safe, known, low-potential ideas. At the project level, you need to track an idea’s rough profit potential and its residual risk. Senior leadership should use the potential and the risk as inputs into judgment calls about whether to kill an idea or move it forward. At the company level, a reasonable thumbnail view can be percent of revenues from products or services that didn’t exist 3-5 years ago. It’s important that these are truly new products and services, not just incremental line extensions. The reason why we suggest 3-5 years is it provides enough time to really see the impact of an idea – in most industries at least! For what it’s worth, I see tremendous opportunity for researchers and practitioners to address some of the issues related to metrics. The Innovation Movement won’t reach its full potential unless we have more satisfactory answers to these kinds of questions.

Thank you Scott. This is definitely a must read for those who are interested in disruptive innovation. The Innovator’s Guide to Growth, authored by Scott Anthony, Mark Johnson, Joseph Sinfield, and Elizabeth Altman take the subject to the next level: implementation. The authors explain how to create this crucial capability for unlocking disruption’s transformational power. If you are interested, continuing on this book tour this Friday,visit Creativity and Innovation.

Original Post: http://mootee.typepad.com/innovation_playground/2008/09/putting-disruptive-innovation-to-work—a-conversation-with-lead-author-of-the-innovators-guide-to-growth.html