The right way to innovate

When is ‘right’ probably going to turn out to be wrong, a mistake? When is doing the ‘right thing’, improving products and services, aiming to increase market share and profitability not helpful, in the long run?

The Innovator’s Dilemma, the landmark book, written slightly more than 20 years ago by Clayton Christensen of Harvard Business School describes all sorts of examples of well-run world-class companies that pursued sustaining innovations, yet failed.

Making incremental improvements to their products and services, for instance, hard disk drive manufactures who add more memory, and increase the processing speed. Sustaining innovations are those one needs to make, just to stay in the game. Basically, product and service innovations that respond to what customers want, as any good manager should. Yet, they lost out to companies pursuing disruptive technology, and in many cases, no longer exist. Digital Equipment Corporation a maker of mini computers and Kodak would be prime examples, in a very long list.

Innovation dilemma

Sustaining and disruptive innovation dilemma

In Christensen’s book, which The Economist described as one of the six most influential management books ever written, he describes the dilemma. Doing the right thing, pursuing management best practice, when faced with competitors creating disruptive technology does not work. This happens because the disruptive technology company usually enters the market with a poorly performing product that, for instance, it is thought nobody wants, in an unprofitable segment.  But gradually the disruptor, starting from a small niche market, slowly improves the product.

The disruptor goes up the value chain, eventually beating out the sustaining technology company, which ignored the threat. Strange paradox is that, at the time, Kodak invented (disruptive) digital photography technology, there was no market for it. Kodak filed for bankruptcy in January 2014 and digital photography technology is on every smart phone.

Business is all about adding value. Understanding what the customer values, and being able to create it is an absolute. Looking at the 10-year share price graphs of well-known listed companies in retailing, airline and sugar shows a ski slope like decline, a steady erosion of value.

Knowledge, skills and mindset define managers who lead. Knowledge, has become almost a commodity in our information age, just Google and you will get several answers. For skills, it gets trickier. To run an airline, retail chain or sugar plantation requires specialised distinct industry skills. But most important is mindset, which can’t be purchased.

How does one explain the dominance of Java House, which has a simple business model, originally based on a California diner that on the surface, appears easy to copy?

Perceived value is what counts. How does one justify the price tag on an Apple iPhone that sells for 10 times the price of your average smartphone? Both are made in China, look quite similar and have virtually the same functions.

Is reading a few management articles all that’s required? Yes, it is smart to stay current, and have an eclectic reading list, but wrong to think the often tired, worn out ‘same old, same old’ comfortable thinking has much value.

Just as truly disruptive innovations are hard to spot, because initially they often test poorly and take time to be accepted in the market, if your reading matter is ‘comfortable’ it likely falls prey to confirmation bias, only repeating what you would like to hear. Stuck in: ‘in the box’ thinking.

Simply calling a new approach ‘disruptive’ generally means it is not. Just like the so called ‘innovative’ is usually just more PR marketing hype for plain old copying. An innovator’s mindset needs to take into account Albert Einstein comment: “We cannot solve our problems with the same thinking we used when we created them”.

To prosper one has to be ready to create small experiments, outside mainstream thought, looking out for disruptive innovations. In the process, slowly coming to understand the innovator’s dilemma: that what seems at first glance correct, is often incorrect. There is a lot of truth in the proverb: “When you change the way you look at things, the things you look at change.”