Competing Against Non-Consumption
Disruptive innovations infiltrate existing markets in amazing ways. At the World Innovation Forum this week, BIF research advisor Clay Christensen talked about the importance for established companies to compete against non-consumption and reliably plug these growth gaps before they surprise the market.
First, a definition: a new-market disruption is an innovation that enables a larger population of people who previously lacked the money or skill to begin buying and using a product (or service). Typically that product or service does not match the quality of higher-end models but that's o.k. To the non-discriminating non-consumer, something is so much better than nothing. Easy to use and affordable? Count me in.
Meanwhile, established companies in the high-end market may take notice of these new innovations, but they rarely take them seriously. That's a problem. Flash-forward a few years and the low-end models have taken hold. They're also incrementally innovating, increasing quality and performance. Before the established companies know it, the upstarts have started to take away marketshare, eroding customer-bases. It's too late. The sleeping giant should have woken up much, much sooner.
Two of Clay's classic examples of disruptive innovation are the detrimental effect steel mini-mills had on the steel industry and the infiltration of the personal computer into the world of the mainframe. (You can
find these stories in chapters 2 and 4 of The Innovator’s Solution.) Today's disruptions would include Minute Cinic and The Flip video camera.
At the forum this week, Clay put this idea of competing against non-consumption through the lens of solar energy. We currently have an economic stimulus package on the table that will make available billions of dollars for new energy technologies. And vendors will be targeting huge sums of that money on solar. In the U.S., Clay expects their success will be lukewarm to cold. Why? Here’s another disruptive innovation secret—it’s impossible to cram a disruptive technology into the mainstream market.
Right now, solar technology does not provide a better alternative to the current way of doing things. Certainly, through substantial research and development efforts, the technology will get incrementally better, but it’s not enough to convince anyone to give up their current way of doing things. In order for it to work, disruptive innovation must target the non-consumer. Which means for solar to work, Clay says it must first takehold in developing countries where electricity is scarce. Approximately half of the 2 billion people in Asia and Afrida are non-consumers of electricity. Yet if you look at the business plans in the press or company literature here in the states, a shocking number envision cramming new solar technologies into existing U.S. spaces. "Money will go wasted," said Clay. "The shorted distance between two points isn't a short line."
Following a disruptive strategy is far from easy - it involves fear, risk and potential cannibalization. Unfortunately, these fears, in the end, become self-fulfilling prophecies. So if you’re an established company, what can you do? Don’t fight the disruption. It may seem counter-intuitive, but don’t invest your dollars in trying to advance your existing technology to please your existing customers in your existing value network. You'll only force the disruptive technology to compete on a sustaining basis, and it will nearly always fail.
Clay suggests shifting responsibility for answering the disruptive threat to an autonomous organization that can then frame it as an opportunity. A new organization can pursue alternative channels, utilize different suppliers, and
employ different services. It can target the non-consumer. Most importantly, it can take advantage of the potential disruptive innovation without hindering the current, and most likely profitable value network. Yes, in the end, the child will grow up and the parent will retire but your shareholders will be happy enjoying the grandchildren.
"The Innovator's Dilemma," Christensen's seminal work on disruption, turns 12 this year. When it was published, "the revolutionary book that will change the way you do business," became a bible for technology entrepreneurs and executives alike. Interestingly when I talked to Clay he said it's only in the last couple of years that he feels his ideas have finally caught on to become broadly understood and applied beyond the technology industry. About time.
(Photo courtesy of Dov Friedmann )
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Comments
Jaap Linssen
Hi Chris,
Interesting perspective! When I shared it with my colleagues, one of them pointed out this quote: "The shorted distance between two points isn't a short line."
We discussed it and aren't sure if it's a typo or were not getting the point being made.
If it's the latter, would you explain?
Thanks,
Jaap
Fri, 05/08/2009 - 11:18
Chris Flanagan
Hi Jaap. Thanks for the comment. I had to go back to my notes on that one!
To clarify Clay's point, he was talking about the shocking number of green energy business plans currently floating around which are aimed at the already established U.S. market. Many companies are looking for funds to sell into this market which seems like a sure-fire, short line to success.
Clay's view is that this is a giant waste of money and that the shortest distance between investment and revenue gain isn't a short line into the already established U.S. market. (Why would Americans adopt something that is barely good enough compared to what we already have?) Instead, new technologies should be deployed outside the U.S., aimed at areas of non-consumption in the developing world. This will lead to improved, incremental innovations which will ultimately be able to penetrate into established energy markets in the U.S.
Cheers - Chris
Thu, 05/28/2009 - 12:44
Brittany
Well, this took me back to business school a little bit. I think you hit the nail on the head in your response Chris, it continues to baffle me how many people are unable to see that the life cycle of an industry has passed beyond growth and the evangelical zeal of early adopters and into market saturation. I was a judge in a local business plan competition a few months back and I kept shaking my head at the number of entrants still thinking there was a massive market for all things green here in the U.S.
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As a small business owner, I would like to thank you for the post. I run a successful small business and we are looking to expand. We have grown and evolved with the economy and we are looking to have a big year this year. We've hired new employees, changed our payroll processing and am looking to fight the "non-consumption" that you are talking about. Hopefully we can have a successful year and move into a larger building!
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You can also include the video production industry, the cell phone industry and music CD industry. All of these have or are becoming victim to innovations that de-value their product. While innovation is good, more often than not, they temporarily deflate the market due to the loss of several big institutions - provided they remain sleeping giants. Who knows, maybe this eventually happens in every industry. As a personal injury lawyer from Dallas my legal services are being cut back by organizations that enable legal documents to be cheaply processed through their automated site. This innovation doesn't necessarily threaten me, but sends a clear message that the market is changing due to advances in technology. ~Greg
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