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Disruptive innovation

5 November 2010 No Comment

One of our alumni, Richard Wyatt-Haines put me onto this blog post today about disruptive innovation. We’ve been banging on for some time about the transformational power of cloud computing and I’m presenting a seminar next week which you can read about here on that topic. Richard’s “heads-up” to this article was therefore the perfect timing because (as usual) I’m still writing the content – quelle surprise.

We all see the disruption produced by the new low cost alternatives in mature markets – just think Easyjet and Ryan Air. The arrogance of the market incumbent is often clear to those of us on the outside but it must be fascinating to watch the┬áperturbation┬áof those in the incumbent boardroom when the “jumped up start up” starts to get traction for a fraction of the price and often makes a virtue of the fact that they do it with a fraction of the features.

The thing that struck me so much was the “takeaways” – to quote from the article….

  • “The incumbent eventually realizes what is happening to them. ┬áThey are run by smart & shrewd people or they wouldnÔÇÖt become leaders in incumbent organizations in the first place
  • They are blinded for too long ÔÇô reinforced by big revenues & profits that come from customers that corroborate┬átheir misinformed views of the future because they have a shared & vested stake in status quo
  • Disruptive technologies are often those the are less performant and feel ÔÇ£chintzeyÔÇØ relative to their well-heeled competitors. ┬áThey are radically lower in price. ┬áThey initially create deflationary pressures in a market. ┬áThey are nearly impossible to react to. ┬áBut while the price points are dramatically lower this often encourages more users, more innovation in the eco-system and therefore often a bigger market opportunity than even the incumbents perceived
  • I am reminded about how dismissive traditionally television media is about YouTube ÔÇô even to this day. ┬áAbout how dismissive traditional print was about blogs or the airlines views the ÔÇ£peanut servingÔÇØ Southwest Airlines. ┬áAbout how Microsoft viewed Google Apps. ┬áSony, the iPod. ┬áUS automakers made the mistake with the ÔÇ£low endÔÇØ Japanese manufactures until the Toyota became the Lexus. ┬áWhat future have telcos for call-based revenue in the era of Skype?”

And his slightly tongue-in-cheek summary about how incumbents can react was interesting too……

“Perhaps the best they can do is to help fund their successors. ┬áPerhaps they can spawn the next generation of innovators and leave a footprint of their DNA along the way. ┬áOr at least diversify the future fortunes of their shareholders in the way that Yahoo! earned handsomely from GoogleÔÇÖs success. ┬áI donÔÇÖt know ÔÇô it may not be intellectually or emotionally possible.

But if I studied every incumbent industry around me and saw the destruction that technology and the Internet was bringing I would at least want to have an ownership stake in my pillagerÔÇÖs future cashflows if I knew the sacking of the castle was inevitable.”

I’m off to buy some shares…..

Jon Stacey


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