What a 'Big Bang' Disruptor Could Do to You
Disruptive innovation has been disrupted. The new threat to status-huggers is "big bang disruption," in which players not even in your market whip from their sleeves products that are both cheaper and better than existing ones. These innovations--mobile devices, in particular--are also better integrated with other products and services. So instead of starting in an underserved consumer segment and working up from there--as Clay Christensen described in The Innovator's Dilemma--big bangs seemingly appear overnight, and all segments snatch them up at once.
Consider standalone GPS systems. Companies like Garmin, Magellan, and TomTom thought they were competing with each other, until free, high-quality navigation apps began turning up, preloaded, on every smartphone.
"We're accustomed to seeing mature products wiped out by new technologies and to ever-shorter product life cycles," write Larry Downes and Paul F. Nunes, consultants at the Accenture Institute for High Performance, in this month's Harvard Business Review. "But now entire product lines--whole markets--are being created or destroyed overnight. Disruptors can come out of nowhere and instantly be everywhere. Once launched, such disruption is hard to fight."
Inc. editor-at-large Leigh Buchanan did an email interview with Downes and Nunes about the implications of big bangs for those who hope to ignite such disruptions--and those who hope to survive them.
Are there any advantages to large size in your model? Or do big companies eventually go away, to be replaced by shifting networks of small players?
There are still significant advantages to scale, but mostly to slow the inevitable transformation of an industry, or skew the trajectory of big-bang disruptors. Large-company advantages include the ability to control certain production or component facilities, to lobby and use regulation, and to have purchasing and channel power. But those advantages can quickly be outweighed by disadvantages: lack of speed and agility, high relative costs of learning and innovation, anti-trust regulation, and lack of trust from others in open innovation environments. This is definitely an environment in which small businesses and start-ups can seize the early opportunities. And early opportunities may be the only ones that matter.
Does this mean the decline of iterative improvement? Why spend time buffing something that is destined shortly for the dustbin of history?
You'd think so, but we found quite the opposite. The big-bang disruptors emerge from a hothouse environment where innovators are constantly launching market trials of new combinations of component technologies. In many cases, development costs are very low (think of hackathons and other quick-launch experiments). And early users can easily become co-developers, funders (think of Kickstarter, which just chalked up its first Oscar win), and long-term loyalists.
In that kind of ecosystem, you can keep iterating until you or someone else finally hits the right combination of technologies and a business model to deliver it. Then, bang! Incumbents misread those failed experiments as false signals that the disruptive technology isn't ready for prime time. But what's happening instead is that entrepreneurs are walking on target, narrowing in on just the right place to send the bomb.
Once a big-bang disruptor is launched, of course, the key to profitability is to continuously enhance, upgrade, and update it. Think of the most popular games and other short shelf-life apps, such as Farmville, Angry Birds, and Draw Something. You create a moving target for competitors, and, again, new digital development and distribution platforms make it relatively easy and cheap to iterate and to involve the loyalists in the process. As soon as you stop buffing, you're finished.
What should an R&D organization look like in this new world? How would it differ from what is now state of the art?
Something dramatic has happened to R&D in the last few decades. As Moore's Law continues to drive down the costs of core component technologies at an exponential pace, the cost of introducing new products and services in information-intensive industries (that is, all industries) has fallen faster than the cost of R&D in general. At some point, the lines cross, making the added costs from innovation less than the decline in costs from technology improvements. This enables the fundamental feature of big-bang disruptions: that they enter the market not only better than incumbent offerings, but also cheaper. That flips the wisdom of innovation theorists such as Clayton Christensen on its head. If you're looking for disruptors entering your markets at the low-end, you are looking in the wrong place.
Increasingly, successful R&D is virtual, taking advantage of the same platform for delivery as the platform for development. New products and services are crowd-sourced and crowd-funded. And rather than take on big problems head-on, they look for cheap solutions based on off-the-shelf technologies that can be introduced into new market segments.
One of the most intriguing new products we saw at this year's Consumer Electronic Show, for example, was something called PowerTrekk, which will be available soon in the U.S. Based on simple chemistry it generates electricity to charge mobile devices using disposable cartridges fueled by water and human-applied pressure (screw on the cap). In reality, what they've created is a personal hydrogen fuel cell, whose only by-product is sand. Its makers aren't trying to create an alternative to less sustainable forms of energy. But as they improve on their simple, elegant solution, they might just do it anyway.
What's the point of patenting something if it stands to become quickly obsolescent? Do we need to think differently about IP?
Very much so. There is growing consensus that both the patent and copyright systems are not working as well as they should and are counter-productive to Congress's goals for having them in the first place. The real problem isn't so much that patents grow quickly obsolescent. It's that the patent office has been extremely generous in granting them in the first place, forcing companies to use litigation after the fact to determine which patents are actually valid.
Which is not to say that the system can't be fixed, or even that existing patents have lost their value. Strategic assertion of IP assets can prove determinative for an incumbent industry participant trying to hold off the explosion of a big-bang disruptor, slowing it down just long enough to form an alliance, strategic investment, joint venture, or outright acquisition. Companies have little choice but to take advantage of the existing system to the extent possible.
Of course, the value of IP can also rapidly deflate once big-bang disruption is underway. In the article, we tell the story of Kodak, which was so closely associated with film-based photography that it just couldn't make the transition fast enough to survive in the age of digital. In bankruptcy, the only real asset of value it had left was its portfolio of patents. Unfortunately, delays in the process of liquidation saw that portfolio's value shrink from an estimated $2 billion to only $500 million--in a matter of months.
Theoretically we all want cheaper and better. But isn't there a limit to how often people will replace goods for something that, while less expensive, still costs money?
This is the real beauty of big-bang disruptions: no more early adopters or early adoption costs. A few trial users work with developers as collaborators and even funders, helping entrepreneurs find the right better-on-all-dimensions offering. Consumers only get involved at that point, and so the products and services they get are not only revolutionary but also combine the right technologies, features, and business models.
In a sense, the few true enthusiasts are the workhorses, developing big-bang disruptors for the rest of us. Once they get it right, consumers prove the point by adopting rapidly and across all market segments. Few people actually bought e-book readers until Amazon got it right with the Kindle, and then everyone made the jump. It was the right technologies with the right company--and the Whispernet network--behind it.
Once the disruptor is established, consumers will wait until the next real one comes along before they buy again. The Kindle Paperwhite for the same price or less than the original? Sold. Today's late-to-the-market smartphones? So far, anyway, the market seems to be saying move along, nothing to see here.
Big-bang innovation presumably endangers capital-intensive industries most of all. So does rebuilding U.S. manufacturing become less desirable?
On the contrary. Manufacturing becomes more important. But it needs to be much more flexible, using many of the same information-based tools that are behind the big-bang disruptors themselves. The major disconnect today is between makers and innovators. Makers want a steady stream of demand. Innovators, even at the largest companies, are rarely continuous or even predictable. This leaves manufacturing with fluctuating utilization levels and sub-optimal efficiency.
In the era of big-bang disruption, manufacturers will need to design facilities for rapid reconfiguration, develop more optimal-demand scheduling tools, and use data analytics to gain early insight into future markets. That way, they can better predict where markets are going and find the future market leaders to which they can hitch their wagons.
How nimble can manufacturing get? Consider the democratization of three-dimensional printers, which are now cheap enough to be a consumer product for small businesses and even individual artisans and enthusiasts. Devices from companies including MakerBot and 3D Systems turn every business into its own manufacturer, and the equipment can be reconfigured on the fly just by loading a different design. The practical applications so far are somewhat limited. But as a model and a platform, it clearly points to the future of manufacturing.
You mention in your article that M&A strategies need to change. Is there any point in acquiring businesses for their products, since those products are also subject to disastrous disruption? Or are you only acquiring companies for talent?
Depends on the role you intend to play. As a producer, you may want to achieve scale so that you can supply other people's big-bang disruptors. As an innovator, you may want to merge to corner talent critical to the experimentation process, or to enable taking the lead on the creation of a new development platform. But buying existing businesses for their existing revenue streams will be increasingly risky. Current product revenue will become harder to forecast as the risk of disruption rises. And whatever time it takes to absorb and integrate an acquisition is time lost for innovation--a potentially-fatal delay.
Does brand become more or less important in this model? I can imagine arguments on both sides.
Again, that depends on the role you play. End consumers are likely to value brand less as they trust other consumers on evaluation sites and social networks more: a feature of big-bang disruption we call "near-perfect market information." Hot products that are market tested and proven will generate and determine brand strength. And famous brands that are disrupted, like some leading phone and PC makers, will struggle to best monetize their brands, especially if they wait too long.
On the supply side, brand can remain important as an indicator of reputation, good and bad. The brand will stand for the history of delivering on promises...say, to deliver 10,000,000 units in 30 days. One PC maker was recently caught up short when its newly-launched Windows 8 notebook got great early reviews, forcing the company to put the unit on backorder for 90 days. But of course 90 days may as well be forever. They lost the sales and damaged the brand.
Even more important than delivering products that gain sudden popularity is servicing them: solving user problems quickly and effectively. In the era of big-bang disruption, the biggest determination of brand value may well have little to do with marketing and advertising and much to do with the strength of customer service and support. That's another reason to cultivate lifelong relationships with trial users. Through knowledge bases and user forums, they may become a volunteer force of customer support agents far more effective and trustworthy than outsourced partners.
How do small businesses and start-ups take most advantage of big-bang disruption?
Small businesses and start-ups need to secure their role in the entire cycle of a big-bang disruption.
They must develop the predictive capability to understand when and by what measure a big-bang disruptor will next arrive in their industry. They have to focus relentlessly on core skills of delivering new products and services reliably and at scale, with virtual partnering with the right suppliers, assemblers, and retailers. They need to be prepared, even before succeeding, to exit quickly when saturation is achieved and sales (and margins) begin to collapse. And they must choose an end game. If they are a "once and done" competitor, then they need to focus on a timely sale of the company at a top-of-the-market price. But if they aspire to being a serial disruptor--a traditional company such as 3M or a modern-day counterpart such as Google, Pixar, or Amazon--they need to study the culture of innovation and honesty such companies embody, and code it right into their corporate DNA.
If a company is small because it's lean and mean, then it's already two steps ahead of larger, incumbent competitors. If it's small because it hasn't figured out what it's good at, then the big-bang ecosystem will broadcast that defect quickly and decisively.