Three Requirements for Managing Disruptive Innovation

It’s time to reel in the old definition of disruption and replace it with one that enables enterprises to manage disruptive innovation sustainably. At least, that is the new tack Clayton Christensen promotes.

The key is to embrace disruption and change early. Don’t react to it decades later. You can’t fight innovation.Ryan Kavanaugh

Christensen, a Harvard business professor considered the father of the idea of disruptive innovation back in the 1990s, now seeks to rein in tangential or unsustainable interpretations of his theory by honing it down to the question, what is it that causes customers to buy a certain product, or, what is the job to be done?

This question is the focus that makes managing disruptive innovation sustainable. As Christensen says in a recent Washington Post interview:

“Our experience has been that if somebody organizes and conceives and realizes there’s a job to be done, and there isn’t anything you can hire to do the job, that’s the context in which a company can be successfully launched. Furthermore, if you organize your company around a job to be done, it’s very hard for those companies to be disrupted by somebody who comes in at the bottom of the market with something that is just cheaper. It gives you insurance against disruption.”

Here is a look at three examples:

Briefly, the three key requirements for managing disruptive innovation successfully over time are:

  1. Avoiding distractions created by focusing the balance sheet. Instead, focus on the income data.
  2. Maintaining a focus on identifying the job that the customer needs to have done.
  3. Tracking and analyzing your current customer interactions—especially onboarding touches—in order to identify opportunities to create disruptive innovation.

Let’s drill down into those, starting with what may be getting in the way of identifying new opportunities for disruption.

Income or balance sheet: which data drive your decision-making?

Every enterprise collects and analyzes data. The savvy executive is the one who can identify which data should drive which decisions.

That brings us to the first key to managing disruptive innovation sustainably: an emphasis on your income statement rather than your balance sheet. Why? While your balance sheet reflects how efficient your operations are relative to income, your income statement reflects whether you are getting the job done for your customers.

In Management Today, Christensen takes on the possibly rogue notion of over-reliance on spreadsheet data, particularly if your goal is creating and managing disruptive innovation. Spreadsheets generate financial ratios that, while they serve certain purposes well—after all, optimizing ROI is a reasonable goal—they also can work to stifle a focus on the job to be done by lending too much weight to balance sheets rather than income.

Christensen outright states that this approach “causes businesses to manage by the balance sheet, rather than the income statement, and they’re not able to innovate.”

It used to be widely accepted that producing a low-end product for a different market was the job that needed to be done. In How Big Data is changing disruptive innovation – Maxwell Wessel, GM at SAP who runs a business unit pursuing disruptive growth, explains that the low-end approach “wasn’t what was holding incumbent firms captive. It was their own cost structures and their focus on driving marginal profit increases that kept those companies headed down the wrong paths. As long making the right decision on a short-term basis (trying to drive more value out of outdated infrastructure) is the wrong decision on a long-term basis (failing to adopt new technology platforms), CEOs are destined to struggle.”

Focusing on the job that needs to be done

Television’s “Shark Tank” repeatedly provides the lesson that successful entrepreneurs get a specific job done for customers. Once an entrepreneur makes their pitch, one of the sharks invariably asks, what are your sales? Only after the sharks receive data about customer purchases do they ask about pricing and operating costs. No customer purchasing data? Typically, no investment.

More typical product development approaches are either to build a better mousetrap or to “build it and they will come.” Why is disruption better?

Given those attributes, what are some ways to define the job to be done?

Maxwell Wessel defines disruptive innovation generally as having three characteristics:

  1. Cheaper (according to the customer)
  2. More accessible (in terms of utility or distribution)
  3. Uses a business model with structural cost advantages (relative to existing solutions).

Wessel argues that since data drive most of our more recent disruptive innovations, “there are new opportunities to attack industries from different angles.” Disruption, he says, means “starting where the source of data is, then building the information enabled system to attack an incumbent industry.” Uber, Netflix, and Google, he notes, have shown us how this works.

Wessel suggests that these three new questions replace the three older ones above for executives who seek to identify and manage opportunities for disruption:

  1.  “How can you adapt in the face of this new type of competition?”
  2. “How do you evaluate new threats?”
  3. “What capabilities do you need and where do you get them, when data is a critical piece of any new disruption?”

Christensen and Wessel appear to agree on our initial point: a focus solely on short-term gains is likely to stifle an enterprise’s ability to focus on the job that needs to be done.

Data that supports disruptive innovation

No doubt, tracking your customer communications—onboarding touches in particular—will be critical to both identifying opportunities for disruptive innovation and ensuring that your solutions are the right ones to get the job done for your existing and potential customers.

Vital to the task is ensuring that employees who interface with customers are armed with the tools to identify and segment customer responses in a way that captures their “functional and emotional and social” engagement with your product or service. Those typically are not uncovered in a day or a week, or even a month. It may take time to ferret out the full range of your customers’ reactions and levels of enthusiasm.

Investing in the right software can make all the difference to your company’s complete understanding of your customer’s response. The right tracking software also can enhance teamwork exponentially, and bring about significant improvements in your company’s agility, efficiencies, and levels of innovation related to customer satisfaction.

Photos by jurvetson

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