Disruptive Innovation: Enabling Practitioners to Tackle the " Innovators Dilemma " with Graphical Techniques

This paper presents the findings of part of a 30 month investigation, conducted to better understand the persistent failure of management practitioners to fund potentially disruptive innovations. A Mode 2 case study strategy was employed. The iterative transfer of knowledge, between four industrial cases and academia, has successfully culminated in new academic understanding of disruptive innovation and guidance for practitioners. It was found that funding decisions are mainly constrained by mental not physical processes. Organisations wishing to pursue disruptive innovations can challenge psychological attachments to incrementalism, and overcome the funding barrier, with a holistic understanding delivered through graphical portfolio tools. INTRODUCTION Organisational innovation effort is traditionally focused upon performance improvement in attributes most valued by the most demanding customers those willing to pay higher prices. Thus, both incremental and radical innovations offer performance improvements that lead-customers [1] desire and expect [2, 3, 4]; however, occasionally revolutionary breakthroughs occur with a discontinuous impact upon this steady state [4, 5, 6]. Conventionally, discontinuous innovations offer revolutionary leaps forward in performance improvement, in directions that lead-customers desire, yet break the steady-state as they are not yet expected to be possible [4, 7]. However, there is a type of lesser understood discontinuity, known as disruptive innovation. Disruptive innovations are characterised by processes, products, services or business models that offer lower performance along traditional trajectories. As such, they are under-valued by traditional lead customers and often generate lower gross margins. Perceived as “low-end” by industry incumbents, disruptive innovations introduce new types of performance criteria to niche markets. Through a period of exploitation and migration upstream towards higher-end customers, they eventually redefine the paradigms and value propositions on which existing industries are based [4, 7, 8, 9]. For example, Ryanair and easyJet have pioneered the low-cost-no-frills airline industry in Europe and, by migrating into the frequent flyer markets, nearly all European air travel carriers are now trying to adopt the low cost model [10]. Christensen [4] and Gilbert [11] were the first to propose that there are two ways of delivering disruptive innovation “lowend” and “new-market” disruptive strategies. Both gain their energy from the fact that organisations get trapped into oversupplying their customers’ needs. ‘Performance oversupply’ creates a vacuum into which disruptive innovations can flourish by providing simpler propositions [12]. Christensen’s [4, 12] low-end disruption thesis (Figure 1), states that performance oversupply leaves organisations vulnerable to new, simpler propositions entering the industry from below. A process of sustaining innovation, from the low-end niche Pete THOMOND, Fiona LETTICE and Torsten HERZBERG Cranfield University, School of Industrial and Manufacturing Sciences 1182 market, allows the disruptive innovation to migrate upstream, eventually disrupting and transforming the traditional industry. Examples include: • Cannon’s introduction of simple table and desk-top photocopiers into small and medium sized enterprises, which eventually disrupted Xerox’s control of the highspeed photocopying industry. • Seagate’s 5.25 inch disk drives used to launch the Personal Computer, which disrupted the more complex and more expensive 8 inch drives, produced for use in mini-computers by the likes of Shugart and Quantum. Figure 1. Revolutionary innovation as a disruption from below [12]. Gilbert’s [11, 13] thesis of a new-market disruptive strategy (Figure 2), states that industries can create or target emerging markets of ‘non-consumers’ customers who have historically lacked the skill or money to buy and use their products. It is from this position, with incremental improvements, that they can build new net growth with more non-consumers and eventually enter and transform existing markets using the low-end approach. Examples include: • eBay’s introduction of a facility whereby items, not sellable in traditional auction houses, could now be sold in a similar “to the highest bidder” fashion. • Henry Ford’s introduction of comparatively inexpensive cars to non-auto consumers, transformed the traditional industry of expensive, customised car manufacturing. Figure 2. New-market disruption [11]. Foster and Kaplan [15] conducted an analysis of the Standard & Poor’s index of 90 important US companies. An organisation joining the index in the 1930s, could expect to remain listed for 65 years, this had dropped to just 10 years for companies joining in 1998. Clearly, today’s organisations face increasingly discontinuous business environments and it is well-recognised that firms need to periodically engage in the process of revolutionary innovation for long-term survival [15, 16, 4, 17, 18, 6, Pr od uc t P er fo rm an ce Time Disruptive Innovation A = Pace of Technological Progress within industry. B = Performance that customers can utilize or absorb. C = New performance trajectory. = Beginning point of technology oversupply . Sustaining Innovations Disc ontin uous /Brea kthro ugh Incre ment al High-end