Disruptive innovation: a winning strategy for tough times

Strategy & Leadership

ISSN: 1087-8572

Article publication date: 6 November 2009

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Citation

Leavy, B. (2009), "Disruptive innovation: a winning strategy for tough times", Strategy & Leadership, Vol. 37 No. 6. https://doi.org/10.1108/sl.2009.26137fae.002

Publisher

:

Emerald Group Publishing Limited

Copyright © 2009, Emerald Group Publishing Limited


Disruptive innovation: a winning strategy for tough times

Article Type: The strategist’s bookshelf From: Strategy & Leadership, Volume 37, Issue 6

Brian LeavyBrian Leavy is AIB Professor of Strategic Management at Dublin City University Business School (brian.leavy@dcu.ie) and the co-author of Strategic Leadership: Governance & Renewal (Palgrave Macmillian, 2009).

The Silver Lining – An Innovation Playbook for Uncertain Times

Scott D. Anthony (Harvard Business Press, 2009, 184 pp.)

The biggest silver lining for innovation is that the scarcity that is sure to result from the current economic climate is actually a good thing for innovation. Abundance is actually the root cause of many corporate struggles with innovation. Too much time or money allows companies to continue to follow fatally flawed strategies for too long or create overly complicated solutions that actually overshoot customer needs. On the other hand, constraints are one of the great enablers of innovation – Scott D. Anthony, The Silver Lining.

“Tough times don’t stop innovation” is the optimistic message offered by Scott D. Anthony in The Silver Lining. The author points out that some of business history’s greatest success stories had their origins in what seemed like the most unpromising of times. “An appropriate name for today’s times,” according to Anthony, is “the Great Disruption.” “The challenge is “reinvention, or transformation,” because simply “doing what companies are doing better won’t be enough.” The key is innovation, even in the face of today’s severe resource pressures.

One of the hopeful messages in The Silver Lining is that there has never been “a better time for innovators to face tighter purse strings” because the world of innovation has changed substantially.” The tools and approaches now available mean that “entrepreneurs and corporate innovators have never had more affordable ways to take an idea forward.” Another message is that that “guidance about innovating in uncertain times is actually guidance for innovating in any economic climate.”

The Silver Lining does not purport to offer any new theory about innovation. Rather, it sets out to take the best of what is already available and translate it into an effective guide for busy executives, drawing from many of the most influential ideas to have emerged in the innovation and new business venturing fields over the years. These include those of Rita McGrath and Ian MacMillan (discovery-driven planning), W. Chan Kim and Renee Mauborgne (blue ocean strategy), Vijay Govindarajan and Chris Trimble (the forgetting, borrowing and learning challenges in strategy innovation and new business venturing), Henry Chesbrough (open innovation) and Henry Mintzberg (emergent strategy).

However, the pivotal framework from which it draws most of its insights is the disruptive innovation theory of Clayton Christensen. This is hardly surprising, given that Anthony is president of Innosight, the innovation consultancy firm co-founded by Christensen to “help companies and their leaders embrace and apply the key principles of innovation in order to drive repeatable growth.” Anthony is also co-author of two previous best-sellers based on his Innosight experience, The Innovator’s Guide to Growth (2008) and Seeing What’s Next (2004). Prior to working with Innosight, he was a consultant for McKinsey, a strategic planner for Aspen Technology and a Baker Scholar at Harvard.

A key message in The Silver Lining, based on both “academic research and Innosight fieldwork,” is that “disruptive innovation is the more reliable way to create new growth businesses.” Anthony argues that disruptive innovators “bring something completely different to a market. Instead of trying to play the innovation game better than existing competitors, the disruptor changes the game. Disruptors typically transform existing markets or create new ones by focusing on convenience, simplicity, accessibility or affordability.”

So opportunities to transform existing markets and create new ones continue to exist even in recession, but before companies can take advantage of them, they have to learn how to transform themselves. As Anthony argues, changing their primary emphasis from operational effectiveness to disruptive innovation is like trying to take a classically trained musician and turn him into a jazz artist. The “transformation-seeking musician” has to “stop certain behaviors” such as following carefully laid-out music scores, change the way he uses his ear, and start new behaviors based on his personal synthesis of a variety of music styles. This “stop-change-start” idea guides the structure of the central part of the book.

Step one is the “stop doing some things” phase, which begins with the recognition that downturns “require prudent pruning of portfolios to free up scarce resources.” In particular, companies should take a hard look at their portfolio of in-process innovation efforts and their portfolio of existing businesses. One of the major impediments that companies run into in trying to tackle their in-process innovation portfolio is the distortion often created through the inappropriate use of metrics such as “first year revenues” and Net Present Value.

Instead of trying to focus on a single metric in the case of innovative projects, The Silver Lining advises companies to consider the answers to the following five questions: What is the upside potential, and is there any way a modest investment could identify whether huge returns are a realistic possibility? How much risk remains? What resources are required to reach the next learning milestone? How well does the idea fit a qualitative pattern of success? How much does the idea contribute to the overall portfolio’s balance? Anthony and his colleagues have found that “most innovation portfolios badly need this kind of assessment.” Companies are much better at starting projects than at terminating them and many innovation portfolios, when examined more closely, turn out to be filled with the “walking dead.” Pruning prudently also needs to be extended to the business portfolio, and what companies should be looking for here, when trying to prioritize, are projects with the most unexploited upside potential and those that are high on option value (Figure 4-1). Anthony neatly combines these dimensions into a two-by-two matrix that offers four different strategic priorities (Figure 2-2). The Silver Lining also offers its own “Portfolio Checkup” as a tool to help executives to determine the health of their innovation/growth portfolio.

Figure 4-1 How to boost your innovation batting age

Figure 2-2 Exploring unexploited potential and option value

The book’s discussion of the other two major steps – “things to be done differently” and “things to start doing” – includes: identifying key principles, most of them from the disruption innovation playbook, illustrating their importance with striking practical examples and offering clear advice to executives, supported by some useful tools. Among the principles highlighted under things to be done differently is the need to take a fresh look at the features currently on offer to the marketplace with a view to spotting opportunities to “do more with less” through judicious re-featuring. The “basic pattern of disruptive innovation” has “three important lessons for cost cutting: (1) Different customers define quality differently. Some customers care deeply about raw performance; others focus on convenience or cost; (2) A company has to cross a “good enough” threshold to compete in a given market tier; and (3) Disruptors master the art of trade-offs, intentionally sacrificing raw performance in the name of convenience, simplicity, or affordability.” Drawing on these basic insights, The Silver Lining offers a very practical “three-step process to drive intelligent cost-cutting” which involves segmenting your market “by the jobs the customers are trying to do,” determining “the thresholds and trade-offs different segments have along various performance dimensions” and “considering how you can get the customer’s job done in a way that meets your cost objectives.” It also offers some guidance on how to go about carrying out these steps.

A striking example of the value of making the “the job to be done” the basis for trying to assess market potential rather than more conventional demographic or psychographic approaches to segmentation, is provided by the launch of Pampers in 1961. Since the initial product was expensive (about 7 times more so in real terms than the product is today), the company expected the initial market take-off to happen among the wealthy. Anthony takes up the story: “Much to P&G’s surprise, lower-income consumers embraced the diapers. It turns out the convenience factor mattered much more to consumers who didn’t have their own washer and dryer. Disposable diapers reduced trips to the Laundromat and gave consumers – many of whom were hourly workers – the precious gift of time.” Once you have established a clear understanding of the job that customers are trying to get done, the “trick” is “to ensure that you cross the basic performance thresholds on every critical dimension, then selectively over-perform in areas that provide the most customer value, while thoughtfully decreasing performance along dimensions that don’t matter a great deal to a given customer group.”

The things that companies need to start doing differently also include “increasing their innovation productivity,” “mastering strategic experiments” and “sharing the innovation load.” To accomplish these goals The Silver Lining supports “open innovation,” and “discovery-driven planning” arguing that “companies need to find ways to remove the risk from innovation by smartly running strategic experiments” designed to quickly and cheaply turn assumption into knowledge. When it comes to conducting such strategic experiments, companies should also begin by being “impatient for profits, patient for growth” until most of the key uncertainties surrounding the development of viable strategy and business model have been resolved.

The book’s discussion of how companies might go about increasing innovation productivity is firmly rooted in the disruptive innovation perspective itself. One of the central ideas offered here is the notion of “constraint” as the key to where profitable new growth is to be found in existing markets. “Disruptive innovation theory,” “blue ocean strategy” and C.K. Prahalad’s “base of the pyramid” perspectives, all draw attention to the enormous opportunities to be found by looking for imaginative ways to bring “non-consumers” into the market. What constraints are currently keeping them out, and how might they be overcome? In round three of the “videogame wars,” Nintendo decided not to follow Sony and Microsoft in their obsessive struggle to win the battle for the dedicated gamer but to concentrate on trying to remove the constraints keeping a much wider base of potential consumers out of the category, a strategy that has delivered enormous success. As Nintendo President, Satoru Iwata, explained the change in direction: “Today, there are people who play and who don’t. We’ll help destroy that wall between them. Regardless of age, gender or game experience, anyone can understand the WII.”

In the final section on the things that companies need to start doing, the first priority is to “learn to love the low end” where many basic needs remain unmet and opportunities abound, where “good enough” can be “great” and where competition does not always have to be about price, as the Pampers example illustrated. Again, the secret is to look afresh at the jobs that customers are trying to do and the constraints that are impeding them. “The Great Disruption” will also require many managers to learn how to reinvent themselves as well as their businesses in order to deal with the paradoxical challenges that the current era presents, such as the need to pursue efficiency and innovation simultaneously.

Overall, The Silver Lining offers a very accessible “innovation playbook” for these uncertain times, and distills insights from the Christensen approach into practical guidance both on how to develop disruptive new businesses and also on how to refresh and re-feature existing businesses to make them more competitive. It is short enough to fully peruse on a long flight or overnight stay, and is packed with insights and practical guidance that will make it a very useful addition to the strategist’s bookshelf.

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