In past industrial revolutions, innovation and disruption took decades to mature and overtake existing industries. Look at the gap between the invention of the steam engine in 1712 and the invention of the internal combustion engine in 1872. Businesses that were entrenched in the steam engine era had 160 years to innovate and embrace the next iteration of the technology.
In the information age of today, this disruption cycle is measured in months rather than years. There are dozens of startups in Silicon Valley today that are tinkering and experimenting in a quest to figure out new ways of doing business with a focus on disrupting existing industries. For leading corporations, this can represent either a threat or an opportunity, either of which depends on perspective, which we provide in the rest of this article.
Business Model Innovation
In the traditional corporate-centric sense, business model innovation referred to businesses creating faster and more efficient processes utilizing existing products, technologies, and markets. An example of this is the Japanese Kaizen business model innovation. By streamlining manufacturing processes through small iterative steps, businesses that utilize the Kaizen philosophy maximize throughput while maintaining input at a constant.
This type of business model innovation is no longer enough to keep market leaders at the top. Disruptive business models like lean startup, platform (ecosystem), and interface business models are giving startups in Silicon Valley an unfair advantage over large corporations. Examples of startups that are disrupting industries through business model innovation are Uber, Airbnb, and Slack.
While these business model innovations may be perceived as a threat, opportunity lies in understanding the practicality of these business models. Owing to the extreme competition and exacting standards in Silicon Valley, startups that embrace these business models do so as an adaptation to the unique circumstances they find themselves in.
Required to be nimble and rapidly iterate, these business models provide an adequate framework from which these startups operate, something that other antiquated business models cannot do. By understanding and embracing these innovative business models, corporations can evolve their existing business models to match those of disruptive startups.
Clay Christensen, the father of disruption theory, posited that incumbent organizations are disrupted because of the continual action of disruptive forces at the low end of the market. A case in point is Uber. While incumbents like car manufacturers and taxi companies were busy corralling existing markets, Uber began serving a then-fringe market, which comprised people disgruntled with existing transport and automotive solutions. Through this low-end market action, Uber is on course to disrupt not just the taxi industry, but the entire automotive industry.
When corporations see this market action, the response is often to strengthen their position in the current market. This is a mistake, Clay Christensen cautions. He suggests instead that large corporations should use their strong market positions to start low-end market actions within their vertical and lateral markets.
In other words, corporations should preempt eminent disruption and seek to disrupt themselves. This self-disruption could be in the form of startup engagement, corporate ventures, in-house innovation labs or investments in startups poised to disrupt the industry the corporation currently dominates.
Cutting-edge Technology Innovation
Technologies like blockchain, Artificial Intelligence (AI), Virtual Reality (VR) and others have been identified as disruptive technologies. However, technology does not disrupt an industry; it is the application of that technology that disrupts an industry.
If you consider blockchain, especially the aspect of smart contracts, the applications are endless yet abstract. Startups are only now beginning to find practical and scalable applications for the technology; something incumbents must follow closely as these applications may touch on or even disrupt their specific industries.
Corporations looking to harness these technologies to dominate their markets further and go after blue ocean opportunities must understand how these technologies can be contextually applied. They must also set up benchmarking, and listening channels focused on the Silicon Valley innovation hub to capitalize on any new developments in the area of technological innovation.
While investing heavily in innovative technologies as a me-too strategy can be an expensive exercise and is ill-advised, running smaller and easily scalable experiments with such technologies and their emerging applications can help prepare the organization for future large-scale implementations.
Determining whether disruptive innovations are a threat or an opportunity to your organization requires context. The Leading Digital Transformation program is a context-building opportunity for senior executives and key decision makers of leading organizations on how to approach these disruptive innovations.
Through exclusive visits to successful Silicon Valley companies, in-person talks with innovation experts and presentations from top-tier startups, the summit offers an opportunity for organization leaders to lead the charge in establishing a culture of disruptive innovation within their organizations.