The Innovator's Solut!on

1. Disruptive innovation is the key to creating new growth businesses

Disruption does not guarantee success, but it sure helps: The Innovator's Dilemma showed that following a strategy of disruption increased the odds of creating a successful growth business from 6 percent to 37 percent.

Disruptive innovation offers a significantly higher probability of success in building new-growth businesses compared to sustaining innovations. Disruptive innovations introduce simpler, more convenient, and less expensive products that appeal to new or less-demanding customers. They typically take root in two types of markets:

• Low-end disruptions: Target overserved customers with a lower-cost business model
• New-market disruptions: Compete against nonconsumption, enabling new populations to begin using a product

Successful disruptors follow a consistent pattern:

• Start with a technology that is "good enough" for unserved or underserved customers
• Improve the product over time along a trajectory of innovation
• Eventually displace established competitors as performance improves

2. Identify jobs customers are trying to get done, not just product attributes

Customers—people and companies—have "jobs" that arise regularly and need to get done. When customers become aware of a job that they need to get done in their lives, they look around for a product or service that they can "hire" to get the job done.

Jobs-to-be-done framework: Instead of segmenting markets based on customer attributes or product characteristics, focus on the underlying job that customers are trying to accomplish. This approach provides several advantages:

• Reveals true competition across product categories
• Uncovers opportunities for innovation and growth
• Guides product development to better meet customer needs

Example: Milkshake study

• Morning commuters "hired" milkshakes to:
  • Make commute more interesting
  • Stave off hunger until lunch
  • Be consumed easily while driving
• Competing products: Bagels, bananas, breakfast bars

By understanding the job, the company could improve the milkshake to better serve customers' needs, rather than simply tweaking product attributes.

3. Target nonconsumption to find disruptive footholds

Competing against nonconsumption often offers the biggest source of growth in a world of one-size-fits-all products that do no jobs satisfactorily.

Nonconsumption opportunities arise when people are trying to get a job done but are unable to do so because existing solutions are:

• Too expensive
• Too complicated
• Inaccessible

Targeting nonconsumption offers several advantages:

• Less direct competition from established players
• Lower performance requirements to satisfy customers
• Potential for rapid adoption and market growth

Examples of successful disruptions targeting nonconsumption:

• Personal computers (vs. mainframes)
• Cellular phones (vs. landlines)
• Discount retailers (vs. department stores)

To identify nonconsumption opportunities:

1. Look for situations where people "hire" workarounds or suboptimal solutions
2. Identify barriers preventing broader adoption of existing products
3. Develop simpler, more accessible solutions to address unmet needs

4. Integrate when performance is not good enough, modularize when it overshoots

The problem is that in an attempt to build convincing business cases for new products, managers are compelled to quantify the opportunities they perceive, and the data available to do this are typically cast in terms of product attributes or the demographic and psychographic profiles of a given population of potential consumers.

Performance trajectory: Understanding where a product falls on its performance trajectory is crucial for determining the appropriate business strategy and organizational structure.

1. Not good enough: When product functionality and reliability don't meet customer needs

   • Interdependent, proprietary architectures are advantageous
   • Vertical integration is necessary to optimize performance
   • Examples: Early stages of new industries or technologies

2. More than good enough: When products overshoot customer needs

   • Modular architectures become prevalent
   • Industry structure tends to dis-integrate
   • Compete on speed, convenience, and customization
   • Examples: Mature industries with standardized products

Implications for managers:

• Assess where your products are on the performance trajectory
• Align your business model and organizational structure accordingly
• Be prepared to shift strategies as the basis of competition changes

5. Commoditization and de-commoditization occur reciprocally in value chains

Whenever commoditization is at work somewhere in a value chain, a reciprocal process of de-commoditization is at work somewhere else in the value chain.

Value chain dynamics: Understanding the interplay between commoditization and de-commoditization is crucial for identifying future profit opportunities.

Commoditization process:

1. Product overshoots customer needs
2. Modular architectures emerge
3. Industry structure dis-integrates
4. Profits erode in the commoditized segment

De-commoditization process:

1. Performance-defining subsystems become critical
2. Proprietary, interdependent architectures re-emerge
3. Opportunities for differentiation and higher profits arise

Key insights:

• Profit potential shifts across the value chain over time
• Focus on areas where customer needs are not yet satisfied
• Be prepared to move up or down the value chain as needed

Example: Personal computer industry

• Initial profits in computer assembly (e.g., IBM)
• Shifted to operating systems and microprocessors (Microsoft, Intel)
• Now moving to internet services and mobile devices

6. Match organizational capabilities to the task at hand

Our purpose in this chapter is to help managers understand how these processes of commoditization and de-commoditization work, so that they can detect when and where they are beginning to happen.

Organizational capabilities are determined by three factors:

1. Resources: Tangible assets (people, equipment, technology, cash)
2. Processes: Patterns of interaction, coordination, and decision-making
3. Values: Criteria for prioritization and resource allocation

Matching capabilities to innovation types:

• Sustaining innovations: Leverage existing capabilities within mainstream organization
• Disruptive innovations: Create new capabilities through autonomous organizations

Assessing organizational fit:

1. Do we have the right resources?
2. Are our processes appropriate for the task?
3. Will our values prioritize this initiative?

Creating new capabilities:

• Develop new processes through heavyweight teams
• Create new values by establishing autonomous business units
• Acquire capabilities selectively, preserving key processes and values

7. Create new capabilities through careful resource allocation and autonomous units

It's relatively straightforward to find the ideal customers for a low-end disruption. They are current users of a mainstream product who seem disinterested in offers to sell them improved-performance products.

Building new capabilities is essential for successful disruptive innovation. Key strategies include:

1. Resource allocation:

   • Frame disruptive opportunities as threats to secure initial funding
   • Shift to opportunity framing for implementation and growth
   • Create a separate process for evaluating disruptive ideas

2. Autonomous units:

   • Establish independent organizations for disruptive initiatives
   • Allow new processes and values to develop
   • Protect from mainstream business pressures

3. Management development:

   • Identify high-potential managers based on learning ability
   • Provide opportunities to gain relevant experience
   • Balance short-term results with long-term capability building

4. Acquisition strategy:

   • Acquire for resources, processes, or values
   • Integrate acquisitions when resources are primary
   • Preserve autonomy when processes and values are critical

By carefully managing these elements, companies can create the capabilities needed to successfully pursue disruptive growth opportunities while maintaining their core business.

Last updated: October 4, 2024