To respond to the disruptions in their business environment, organizations often establish dedicated innovation units. These units, though named differently, often face a common hurdle: their promising ideas fail to translate into impactful market outcomes. This predicament stems from the approach itself and the underlying model.
I found myself reflecting on the complexity of this challenge after a recent engagement with a mid-size industrial company. Despite a historic commitment to innovation, the company was facing a declining ability to launch new initiatives and reinvigorate existing ones. In response, the company introduced a disruptive innovation unit, a departure from traditional strategies. This unit focused on disruptive technologies, encompassed research and development, and then handed off to marketing for product commercialization. However, even with significant resources and strong management support, the results were modest at best. This narrative is not unique, and often culminates in the finger being pointed at marketing and sales for seemingly inadequate commitment to innovative efforts.
The crux of the problem lies within the framework of the approach itself, revealing a dual dilemma. First and foremost, the approach betrays a linear perspective on new product development, akin to a step-by-step progression through ideation, feasibility assessment, prototyping, testing, refinement, and go-to-market guided by a business plan. While effective in established markets for incremental innovation, this model falters in disruptive scenarios. Such circumstances operate in a cloud of uncertainty that encompasses scenarios ranging from unfamiliar technology applications to challenges posed by potential customer resistance. This evolutionary process resembles a dynamic whirlwind rather than a linear progression, with technical and business facets constantly intersecting and looping back. In essence, the mental model governing these projects departs from traditional R&D-focused product development and evolves into a dynamic, multi-dimensional entrepreneurial endeavor.
Second, this approach often takes a disruptive stance without a clear operational definition of the term. Often, these companies associate disruption with technological novelty, leading to the continued use of the term “disruptive technology”. However, true disruption depends on compatibility with a company’s business model. For example, Apple’s release of a groundbreaking MacBook beats the competition technologically, but fits seamlessly into its business model of selling computers. Conversely, SouthWest Airline’s disruption of traditional airlines lacked any technological novelty and instead revolutionized business models. The launch of Nespresso in the 1990s exemplifies a break with legacy model, as Nestlé’s mass-market model contrasted sharply with Nespresso’s unique value proposition, profit structure, and operational dynamics.
Framing disruption as “a new business model that is partly or wholly different from the current one” highlights the challenges faced by disruptive innovators. A misplaced emphasis on technology often assumes that marketing and sales will naturally follow suit, fitting new products into existing sales paradigms. This assumption is flawed and leads to incongruent sales models that are detrimental to both the incumbent market and the introduction of disruptive innovation.
Effective disruptive innovation requires a re-evaluation of the business model. Business units must see themselves as business incubators that cohesively shape the enterprise from conception to fruition. In cases of innovation aligned with existing business models (referred to as continuous innovation), reliance on the current distribution network is prudent. In cases of disruptive innovation, however, the unit must envision an entirely new business model, distinguishing between elements that can be shared with the current model and facets that warrant differentiation. In essence, these units must move from tinkering with new technologies to orchestrating comprehensive business models. By embracing entrepreneurship as their defining model, these units can navigate the complex landscape of disruption by embodying adaptability and innovation across all dimensions.
📖 To learn more about the challenge of disruptive innovation, see my book: A Manager’s Guide to Disruptive Innovation
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🇫🇷 French version of this article here.