Editorial
The Gist
- Digital era shift. Disruptive innovation is no longer the only path to success, with alternative models like Blue Ocean Strategy and nondisruptive innovation offering growth potential.
- Nondisruptive benefits. Emphasizing nondisruptive innovation can lead to social and economic advantages, creating new industries without displacing existing ones or causing job losses.
- Expanded perspectives. Business leaders should prioritize value innovation and adopt a broader, more open-minded approach to uncovering commercially viable nondisruptive opportunities.
We live in a digital era. And in contrast to earlier phases of digitization, today’s leaders are not narrowly focused on increasing business efficiency. Instead, they are using digital technologies — social, mobile, analytics, cloud and the Internet of Things — to challenge business models and product and service value propositions.
Given this, disruption has become "baked in" to change and innovation. Today, digital disruptors do not just come up with new, more valuable offerings for their customers, they often disrupt the fabric of society. To be completely fair, this has been a fundamental since the first industrial revolution. In this vein, however, the authors of "Blue Ocean Strategy," W. Chan Kim and Renee Mauborgne, ask in their new book, “Beyond Disruption,” whether digital has to be so disruptive.
More importantly, they suggest additional models for innovation. While I personally believe models for transformation can intermingle with each other, each model is worth considering including its societal value. Nevertheless, old approaches do eventually die. The former head of Kodak’s digital products group claimed several years ago they could have better managed the initial wave of digital photography, but they would not have survived combined devices or apps.
What Is Wrong With Digital Disruption?
Kim and Mauborgne believe disruption is increasingly leaving organizations broken and tired and anxious. Consequently, their book posits a world without shuttered companies, hurt communities or lost jobs in the aftermath of disruptions.
Kim and Mauborgne suggest the root of the problem is that historically CEOs have over emphasized outperforming rivals within existing industries. This type of thinking was reflected in Michael Porter’s strategy classic, “Competitive Advantage.” The authors claim it leads to zero sum thinking and continually fighting for a bigger share of the pie.
Related Article: The State of Digital Customer Experience: Where We're Headed
Innovation and Growth Without Disruption?
Ever since Andy Grove published “Only the Paranoid Survive,” CEOs have likely felt the only way to survive, succeed and grow is to disrupt their industries and even their own companies. Even former Cisco CEO John Chambers, said in a keynote speech, “Seventy percent of companies would attempt to go digital, but only 30% would succeed.” So, are there other avenues for innovation and growth?
To some extent, the authors' suggestions can be found in Igor Ansoff's "Strategies for Diversification." However, it is valid to question whether organizations have overlooked diversification into entirely new businesses. In my experience, venture capitalists (VCs) who I have approached, and in some cases, received funding from, favor disruption because it allows them to readily estimate market size.
In describing nondisruptive innovation, the authors suggest it has three unique characteristics: 1) it can be generated by a scientific invention or technology driven innovation or not; 2) it is not limited to any specific region or socioeconomic standing; and 3) it is not the same as the new-to-the world innovation. Simply put, it creates a brand-new market outside or beyond the boundaries of existing industries.
From this point, the authors propose that innovation does not necessarily have to completely replace legacy offerings. They assert that disruptive creation and nondisruptive creation represent opposite ends of the market creation and growth spectrum. In disruptive creation, new businesses emerge at the expense of existing ones and their associated jobs. Conversely, nondisruptive creation allows for new business development without destabilizing preexisting markets or threatening the companies and jobs connected to them.
The authors contend that Blue Ocean Strategies represent a hybrid approach. To recap, Blue Ocean solutions embody the vast, unexplored potential of open waters. The authors draw a comparison between the iPhone and Cirque du Soleil as examples. In summary, the three forms of innovation and their distinguishing features are as follows:
- Disruptive Innovation: Creates new markets within existing market boundaries. Takes demand from existing markets. Results in disruptive growth.
- Blue Ocean Innovation: Creates new markets across existing industry boundaries. Creates something partly old and new. Consists of a blend of disruptive and nondisruptive growth.
- Nondisruptive Innovation: Creates new markets outside existing industry boundaries. Creates completely new demand. Results in mostly nondisruptive growth.
Related Article: The Future of AI: What's Next for the World's Most Disruptive Technology?
Innovation Social Impacts
Disruptive growth and innovation frequently result in substantial adjustment costs for society, despite the advantages they provide to consumers. For a disruptive product or service to succeed, it must offer a significant increase in value. The authors cite Netflix's competition with Blockbuster and the iPhone's rivalry with Nokia, Sony-Ericsson (now part of Sony Corporation), Motorola, and BlackBerry as prime examples.
The authors further argue that disruption revolves around aggressive business practices and fear, focusing on scarcity rather than abundance. It operates on a win/lose principle and follows a disrupt-or-die mentality. In contrast, nondisruptive innovation provides substantial value to consumers without these negative aspects. One example is 3M's Post-it Notes, which had no significant impact on the paper clip market. In this case, there were no winners or losers. As a result, Kim and Mauborgne assert that nondisruptive creation generally has positive outcomes for both the innovator and society.
A New View of Business Advantage
Clearly, given the wider range of innovation approaches proposed, it is worthwhile to re-examine the foundations of competitive advantage in business. The authors suggest that today's competitive advantage is based on four key factors:
- As an entrant: The ability to avoid direct confrontation with established incumbents.
- As an incumbent: The ability to mount an effective response to full on disruption.
- Internal Stakeholders: The support of internal stakeholders.
- External Stakeholders: The ability to not have an evident backlash from external stakeholders.
The authors advise incumbents not to limit their response to fighting fire with fire or merely attempting to disrupt in return. Instead, they encourage organizations to consider responding with nondisruptive creation. Pfizer's introduction of Viagra serves as an example. It is important to note that entrepreneurs may not necessarily set out to disrupt, but in my experience, venture capitalists and private equity investors often do.
Importance of Nondisruptive Creation
During my MBA, I recall a professor saying that if you were not greedy, you should go down the hall and take a philosophy class instead. While everyone laughed, I personally believed that greed could not be the sole objective of a business. After reading Milton Friedman's book "Free to Choose," I struggled with his assertion that a firm's sole purpose was to generate profit for its shareholders. He maintained that as long as a company operated within the rules of the game, without deception or fraud, focusing solely on profit maximization would provide enough social good. Furthermore, he viewed social issues as beyond the purview of businesses.
Fortunately, a few years later, I pursued a second master's degree in business strategy. By this time, the concept of strategy had evolved beyond the machine age perspective. I remember studying Russell Ackoff and Ian Mitroff, who advocated for stakeholder modeling and assumption surfacing in the development of business strategies. Similar to the authors, they believed that the costs to societies and communities should be anticipated. Consequently, an expanded view of corporate mission is necessary. Moreover, there is a drawback to separating social and economic good. Clearly, whenever possible, enterprises should strive to integrate the two.
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In nondisruptive innovation, social good is not realized by how companies spend money, but rather through the manner in which they generate revenue to flourish and prosper. The authors express concern about the implications of the Fourth Industrial Revolution, which encompasses the emergence of exponential technologies that catalyze significant leaps in productivity and efficiency.
The authors, echoing Klaus Schwab of the World Economic Forum, inquire about the consequences of eliminating vast numbers of blue- and white-collar jobs. They argue that if innovation is solely focused on disruptive innovation, it becomes unclear where new jobs will emerge from. The issue is that new technologies typically require fewer people. How can we support communities and societies without jobs? For this reason, the authors propose that societies need market-creating businesses. These enterprises establish entirely new industries, ensuring that everyone can participate in and benefit from the economy.
3 Paths to Market Creating Innovation
The authors claim there are three paths to market creating innovation.
- Disruptive Growth: This is about destructive creation. It offers customers breakthrough solutions for an existing industry problem. Yet it wipes out incumbent industry and players.
- Blended Growth: This is about Blue Ocean Strategy. Here, you refine an existing industry problem and solve the refined problems.
- Nondisruptive Growth: This is about nondisruptive creation. Here you solve a brand-new problem beyond existing industry boundaries.
The authors propose that disruption can either completely or incompletely displace an existing industry, as demonstrated by Uber and Amazon. They provide examples of less disruptive approaches, such as Kickstarter, Viagra and Microfinance, which generated new growth and jobs. Blue Ocean strategies accomplish this by redefining existing industry problems. In this case, organizations focus on creatively redefining business problems across, rather than within, industry boundaries. For example, Stitch Fix curates the perfect look for women, combining the expertise of a personal shopper with the lower prices and convenience of online retail.
Realizing Nondisruptive Growth
The authors suggest a part of the problem is that business leaders have been overly sold on three ideas:
- People should analyze what is to shape our view of what could be.
- Future tech innovation is key to market creation and growth.
- The heart of innovation is the lone, smart, gut instinct entrepreneur.
Individuals who drive nondisruptive creation operate from a distinct perspective. Doing so necessitates leaders to reframe their mental scripts, transitioning from machine age analysis to systems thinking and synthesis. The authors argue that business founders often mistakenly equate technological innovation with market creation. As the CIOs I know confirm, technology is a factor, but genuine innovation requires people and processes. Value is what truly matters. Consequently, the authors recommend prioritizing value innovation and then seeking enablers to achieve it.
To succeed, innovators must open their minds to unveil commercially compelling nondisruptive opportunities. Success involves identifying brand-new problems or prospects. In this context, entrepreneurs or intrapreneurs need to seek out overlooked issues in their industry or profession. Fueling this process are individuals who are passionate about their work and its impact. For me, CIO Tom Fountain, when I was at HP Software, was this kind of person. He was always willing to invest time, even when he was extremely busy.
Subsequently, entrepreneurs or intrapreneurs need to challenge the assumptions that have obscured opportunities and reframe them in order to unlock their potential. This approach closely resembles what Linda Yates describes in "The Unicorn Within." It is crucial to remember that opportunities do not simply appear out of thin air.
Once this is achieved, the next step is to unlock the opportunity. The authors recommend using assumption implication analysis, as well as evaluating risk/return, customers, and business scope. With this groundwork laid, entrepreneurs or intrapreneurs should seek a high-value, low-cost method of delivery. From my experience, this often starts as a rough but promising idea, sometimes referred to as "a pig with lipstick." This process requires resourcefulness, assessment of internal resources, and a can-do attitude. It is crucial to have the ability to discern what is important in order to determine what is needed to jump-start the business. A remarkable example is Square, which recognized that its business success hinged on enabling its devices to process credit card data through a headphone jack.
Undoubtedly, the knowledge to succeed in bridging the digital divide can be found anywhere. Entrepreneurs or intrapreneurs can bring about a digital future in a way that is nondisruptive. This will create growth and prosperity for business and society. Nondisruptive innovation is a counterbalance. It can be a socially stabilizing force for domestic economies. It can build a better economy without disruption.
Parting Words on Digital Disruption
Unquestionably, it is easier to disrupt existing markets. Venture capitalists and businesses have been primed for it since the first industrial revolution. However, the average lifespan of a business has been steadily decreasing. By incorporating nondisruptive elements into the mix, there are advantages. I am personally familiar with two excellent examples. Alation developed a data catalog to simplify the process for business users and others to find data and reports.
This innovation did not disrupt report and analytics vendors, but rather enhanced their value. Similarly, at HP, I led DecisionCenter, which created high-value dashboards for CIOs and their teams to manage more effectively. DecisionCenter did not eliminate or disintermediate source systems; instead, it made them and their data more valuable.
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