How to think like a disrupter
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Most managers fiercely believe that creating growth through innovation is fundamentally a risky, random endeavor. Indeed, there is a general sense that a fog enshrouds the world of innovation, obscuring high-potential opportunities and making success fleeting.
Yet peering through the innovation fog in the right way begins to illuminate patterns. For example, eBay (nasdaq: EBAY - news - people ), the University of Phoenix, Toyota Motor (nyse: TM - news - people ), Craigslist and Wal-Mart Stores (nyse: WMT - news - people ) appear to be very different. But each actually followed a particular pattern to create a booming business.
The pattern goes like this. Start with a solution that makes it easier, simpler and more affordable for customers to solve pressing problems in their lives. Bring that solution to a group of customers that established market leaders consider insignificant. Follow an approach that makes it difficult for those market leaders to respond.
We call this disruptive innovation. We've seen the disruptive pattern play out in more than 50 different industries. Some industries--like automobiles, retailing, media and computing--feature wave after wave of disruptive change.
Our research and field work suggests that following a disruptive strategy can give a company a disproportionate chance of creating a blockbuster-growth business. Today, companies like Procter & Gamble (nyse: PG - news - people ), Intuit (nasdaq: INTU - news - people ), Cisco (nasdaq: CSCO - news - people ), Dow Corning and many others are using disruptive patterns to increase their chances of creating attractive-growth businesses.
How can other companies write their own disruptive success stories? We have found the following five principles to be a good starting point.
1. Look for the "job" that can't be adequately or affordably done.
One core element of succeeding with disruptive innovation is learning to look at markets in new ways. Remember a simple principle: Customers don't really buy products; they hire them to get "jobs" done in their life. To find growth opportunities, then, look for customers who are frustrated with their inability to get an important job done.
For example, Intuit's QuickBooks software made it easy for small-business owners to achieve an important job: Make sure the business doesn't run out of cash. Some alternatives, such as pen and paper and Excel spreadsheets, didn't work so well. Professional accounting software packages were confusing and filled with unnecessary features. QuickBooks did the job better than any alternative and quickly took over the category.
2. Remember that nonconsumers can be great customers.
When Sony (nyse: SNE - news - people ) entered the consumer electronics market in the 1950s, it didn't try to beat established tabletop radio providers by introducing better products. Rather, it introduced its simple, portable and relatively inexpensive transistor radios to teenagers who wanted to listen to baseball games or music out of the earshot of disapproving parents.
Sometimes, the best target customers are those that lack the skills, wealth, access or time to consume existing products. Removing a barrier that constrains consumption can be the ticket to growth.
3. Don't let the pursuit of perfection crowd out the "good enough."
Quality is truly in the eyes of the beholder. In the pursuit of perfection, companies often create over-engineered products that are complicated and expensive. The customer might prefer a simpler, cheaper solution with less performance.
For example, Eastman Kodak (nyse: EK - news - people ) gulped hard when it introduced its disposable Kodak FunSaver in the late 1980s. It worried about attaching the Kodak brand to a camera whose pictures wouldn't be as good as those taken by a high-end camera. Purchasers, who compared the FunSaver's pictures with the alternative--no pictures at all--deemed the solution fantastic. Remember, quality can only be expressed relative to the problem customers are trying to solve.
4. Do what competitors don't want to do.
Historically, Blockbuster (nyse: BBI - news - people ) made almost all of its profits from charging late fees. How motivated, then, would the company be to aggressively mimic DVD rental pioneer Netflix's (nasdaq: NFLX - news - people ) no-late-fee business model? Not very. Similarly, why would Microsoft (nasdaq: MSFT - news - people ) give away its software when its gross profit margins from selling software approach 80%?
Generally, disrupters follow an approach that established market leaders consider unattractive or uninteresting. By doing so, the disrupter can turn a competitor's greatest asset into a liability. Competitors will typically look at a disrupter and say, "That market is too small to matter," or "That's not our market," or "They must be losing money at those price points."
5. Focus early activities around testing key assumptions.
An overwhelming amount of evidence suggests that companies entering into new markets tend to start with the wrong strategy. This simple statement has profound implications. No one would willingly pour money in a fatally flawed strategy, but companies time and again make this mistake when they step up investment in a strategy too early.
For example, Apple Computer's (nasdaq: AAPL - news - people ) initial foray into the personal digital assistant market was a $350 million flop. Apple assumed that people would want a personal computer replacement, when what they really wanted was a personal computer complement. The initial high investment made it hard for Apple to adjust.
When you are going in a new direction, pick an early point of learning and adjustment where you can invest a little, earn a little, learn a lot and adjust your strategy to wards success.
Clayton M. Christensen is a professor at the Harvard Business School. Scott D. Anthony is the managing director of Innosight, a Watertown, Mass., innovation consulting firm founded by Christensen (www.innosight.com). The two co-authored Seeing What's Next (with Erik A. Roth).
Yet peering through the innovation fog in the right way begins to illuminate patterns. For example, eBay (nasdaq: EBAY - news - people ), the University of Phoenix, Toyota Motor (nyse: TM - news - people ), Craigslist and Wal-Mart Stores (nyse: WMT - news - people ) appear to be very different. But each actually followed a particular pattern to create a booming business.
The pattern goes like this. Start with a solution that makes it easier, simpler and more affordable for customers to solve pressing problems in their lives. Bring that solution to a group of customers that established market leaders consider insignificant. Follow an approach that makes it difficult for those market leaders to respond.
We call this disruptive innovation. We've seen the disruptive pattern play out in more than 50 different industries. Some industries--like automobiles, retailing, media and computing--feature wave after wave of disruptive change.
Our research and field work suggests that following a disruptive strategy can give a company a disproportionate chance of creating a blockbuster-growth business. Today, companies like Procter & Gamble (nyse: PG - news - people ), Intuit (nasdaq: INTU - news - people ), Cisco (nasdaq: CSCO - news - people ), Dow Corning and many others are using disruptive patterns to increase their chances of creating attractive-growth businesses.
How can other companies write their own disruptive success stories? We have found the following five principles to be a good starting point.
1. Look for the "job" that can't be adequately or affordably done.
One core element of succeeding with disruptive innovation is learning to look at markets in new ways. Remember a simple principle: Customers don't really buy products; they hire them to get "jobs" done in their life. To find growth opportunities, then, look for customers who are frustrated with their inability to get an important job done.
For example, Intuit's QuickBooks software made it easy for small-business owners to achieve an important job: Make sure the business doesn't run out of cash. Some alternatives, such as pen and paper and Excel spreadsheets, didn't work so well. Professional accounting software packages were confusing and filled with unnecessary features. QuickBooks did the job better than any alternative and quickly took over the category.
2. Remember that nonconsumers can be great customers.
When Sony (nyse: SNE - news - people ) entered the consumer electronics market in the 1950s, it didn't try to beat established tabletop radio providers by introducing better products. Rather, it introduced its simple, portable and relatively inexpensive transistor radios to teenagers who wanted to listen to baseball games or music out of the earshot of disapproving parents.
Sometimes, the best target customers are those that lack the skills, wealth, access or time to consume existing products. Removing a barrier that constrains consumption can be the ticket to growth.
3. Don't let the pursuit of perfection crowd out the "good enough."
Quality is truly in the eyes of the beholder. In the pursuit of perfection, companies often create over-engineered products that are complicated and expensive. The customer might prefer a simpler, cheaper solution with less performance.
For example, Eastman Kodak (nyse: EK - news - people ) gulped hard when it introduced its disposable Kodak FunSaver in the late 1980s. It worried about attaching the Kodak brand to a camera whose pictures wouldn't be as good as those taken by a high-end camera. Purchasers, who compared the FunSaver's pictures with the alternative--no pictures at all--deemed the solution fantastic. Remember, quality can only be expressed relative to the problem customers are trying to solve.
4. Do what competitors don't want to do.
Historically, Blockbuster (nyse: BBI - news - people ) made almost all of its profits from charging late fees. How motivated, then, would the company be to aggressively mimic DVD rental pioneer Netflix's (nasdaq: NFLX - news - people ) no-late-fee business model? Not very. Similarly, why would Microsoft (nasdaq: MSFT - news - people ) give away its software when its gross profit margins from selling software approach 80%?
Generally, disrupters follow an approach that established market leaders consider unattractive or uninteresting. By doing so, the disrupter can turn a competitor's greatest asset into a liability. Competitors will typically look at a disrupter and say, "That market is too small to matter," or "That's not our market," or "They must be losing money at those price points."
5. Focus early activities around testing key assumptions.
An overwhelming amount of evidence suggests that companies entering into new markets tend to start with the wrong strategy. This simple statement has profound implications. No one would willingly pour money in a fatally flawed strategy, but companies time and again make this mistake when they step up investment in a strategy too early.
For example, Apple Computer's (nasdaq: AAPL - news - people ) initial foray into the personal digital assistant market was a $350 million flop. Apple assumed that people would want a personal computer replacement, when what they really wanted was a personal computer complement. The initial high investment made it hard for Apple to adjust.
When you are going in a new direction, pick an early point of learning and adjustment where you can invest a little, earn a little, learn a lot and adjust your strategy to wards success.
Clayton M. Christensen is a professor at the Harvard Business School. Scott D. Anthony is the managing director of Innosight, a Watertown, Mass., innovation consulting firm founded by Christensen (www.innosight.com). The two co-authored Seeing What's Next (with Erik A. Roth).
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