Disruption and Innovation

disruption
Clayton Christensen, who coined the concept of disruptive innovation in the late 1990s, analysed the phenomenon through the lens of market demand.
 
Imagine you’re an established corporation, focused on the needs and demands of customers. When another company comes along with a new technology appealing to a niche market, you’re not likely to respond right away to this marginal demand. As that new technology improves, suddenly a broader swathe of customers find they need it – and you don’t have it. So you have to marshal your resources to deal with the shift in demand as quickly as possible. Sometimes it’s too late.
 
There are important supply-side issues to this thinking. You may have your internal teams working to maximise existing technologies to develop the best possible product. All of a sudden something like the iPhone comes along and, to compete, you have to transform the way you design and manufacture your product. But your teams are too focused on their task at hand, they don’t have the right competencies, organisational structures are too siloed, and you can’t change fast enough. Oil tankers that cannot change direction quickly become dinosaurs. Big corporations are learning that need to be fleet of foot.
 
Rather than responding to disruption after it’s already happened – and then only to discover that structures and processes are too entrenched to respond quickly enough – executives and managers need to prepare for disruption. They need to accept the likelihood of big changes in their own business. They need to interrupt product development and ask uncomfortable questions such as: Who are our emerging competitors? What about trying things this way instead of our usual way? That sounds easy, but it’s hard and needs courage and money.
 
There’s no one size fits all that will help us prepare for and manage disruption. Sure, some companies have their special and autonomous innovation teams. We can find these in engineering, FMCG, IT, automotive, aeronautical and similar sectors. But even that’s not enough. The problem is that these teams are often made too autonomous, while the rest of the company goes along in its siloed, habitual ways. These innovation teams are often set off to the side to do their blue-sky thinking without any immediate effect on the company’s fundamental products and operations. It’s better to have everyone interacting across hierarchical and departmental structures to think about and question these things daily. That’s what happens in Google, Apple, IBM, Nissan and other household names.
 
Change can be terrifying. And for the most part, humans are ill-equipped to deal with it. But the days of maintaining the status quo are over. Now, more than ever before, leaders and the organisations they lead must be prepared to navigate uncertainty and embrace experimentation to thrive in an environment where these days nothing can be taken for granted anywhere and in any aspect of life.
 
In business, this ambiguity, in part, is a result of the advent of superfluid markets and the global flow of innovation enabled by digital technologies. These trends challenge traditionally structured innovation practices. Twenty-five years ago nobody would have envisaged Amazon’s emergence. Nobody would have considered the possibility of Airbnb which has billions in market capitalisation but owns not one property. Or Tesla and Space X. Or Netflix. Or Uber. Or Aldi.
 
In fluid markets, the sheer availability of data and decision-making capabilities empowers customers and erodes the control of incumbents who act as digital intermediaries. The confluence of artificial intelligence and blockchain is beginning to directly connect everything to everyone. Machines will transact autonomously with other machines, as well as directly with people, to request services, trigger inventory replenishment or bid for goods you didn’t even know you wanted or needed. Fluid markets also erode fundamental company structures by allowing core functions to be outsourced. Companies need to be disruption-ready.
 
Disruption seeks different management and different leadership. Yes, bravery is key, but it’s not the whole story. Where knowing more was a differentiator in career progression, today it’s about how effectively you can collaborate and connect knowledge internally and externally to create value for the organisation.
 
Quality management in an organisation is a potentially rich source of ingenuity that might be untapped. People tend to emulate the qualities that got their leaders promoted in the first place, and middle managers are no exception. However, management qualities that were typically valued in the past - execution, team control, output, some risk management, traditional experience - are inadequate for the demands of the future.
 
To unlock their innovative potential, managers need leadership that models risk-taking, not just risk-management) and rewards disruptive innovation initiatives. And failure. Failures (well managed and focused) mean that something was tried and for the most part eventually leads to success. We need the right people who can operate the core business now and those who can ultimately disrupt it in the future.
 
Becoming disruption-ready also means working closely with regulators, as well as internal compliance functions, such as legal, risk and internal audit. It is important to engage these stakeholders to understand their needs and help them tap into the knowledge and diversity of thinking required to address new opportunities.
 
Companies need to help them move from the more conditioned position of saying ‘no’ to saying ‘how.’ One-off, disconnected projects will not have a lasting impact. For this reason, leaders and managers alike must align themselves to a shared ambition for disruptive innovation to guide the needed investment, governance and message to shareholders.
 
The big change will come about when we as consumers have a different mindset towards what’s offered to us by organisations. That’s happening already of course with the examples just mentioned, and there are more around the world – radical ways of looking at banking, energy, transport, information retrieval, commerce and so on. The speed of change is down to how easily audiences pick up on the new way of thinking. What’s disruptive is not just technology; it has the imagination and creativity to connect the seemingly unconnected.
 
So organisations must foster imagination and encourage play. They must make space for productive collisions. They must put business thinkers and creative thinkers together to have productive conversations that create forward momentum.

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