Picking disruptive winners

Optimize Magazine features an article with Clayton Christensen discussing the difficulties with picking disruptive winners from pretenders or losing innovations. He suggests that to select winning solutions you need to be able to evaluate what innovations are transformational, which are just hype, which investments are worth pursuing given limited time, resources and other alternatives and what changes external to your organization are important.

The article is specific advice to CIO's and the challenges they face yet it addresses fundamental questions that any executive needs to consider when judging from among alternative courses of action. Christensen highlights the problem with most analytical approaches based on historical results - it is accurate at describing what has been done, but not what needs to be done. This tendency to look inward and allow history to be a guide often ignores the external environment, missing what will be important in the future. Like most articles that feature Christensen's thoughts and arguments, this is well worth careful consideration: Forging Innovation From Disruption

Most people quickly understand the benefits of a disruptive strategy. The difficulty comes in precisely identifying whether a strategy actually fits the pattern of successful disruptive innovators. Indeed, once the term "disruptive" entered the business lexicon, countless entrepreneurs proudly announced that they too had a disruptive solution. Sometimes they did, but many times they didn't.

Understanding the signals of disruption is critical. After all, you don't want to outsource critical functions to a company that has a high probability of flaming out. Nor do you want to switch to a service provider that will be bankrupt in six months. The good news is, if you know where to look and what to look for, you can identify whether a company has a legitimate chance of driving disruptive change. The process involves identifying whether a company has introduced the right kind of innovation to the two distinct customer groups that welcome disruptive innovations—overshot customers and nonconsumers.

The overshot customer and nonconsumers enable the emergence of disruptive innovations. Christensen argues here, and in other articles and in his books, that competitive pressure and internal processes motivate companies to one-up the competition and extend their own product lines beyond market needs. They end up designing and offering products and services loaded with features that nobody wants or uses at prices which cover their costs but that shrink their addressable markets. Feature expansion results in complex, expensive products and the internal orientation prevents the company from identifying or even recognizing competitive threats from less capable products. The key then to a successful low-end disruption is to attack the vulnerability in firms with business models which operate in this manner.

Most firms ignore nonconsumers as there is no systematic means in place to seek or capture useful feedback about what they want or need. Companies don't waste time analyzing or reporting on nonconsumers. At least not until another player produces a less capable product or service that satisfies a need just enough to attract those nonconsumers. The key to a new-market disruption is the technology itself. A disruptive technology makes it easy for people to do it themselves. If your business falls into this category, look for simple, convenient, disruptive solutions that will lead to the development of new markets. If you are competing against this, unless you actively seek out information about nonconsumers, you will miss the opportunities to create new markets.

The article concludes with a 3 month plan for turning your organization toward identifying conditions that make markets ripe for an innovative solution. The plan involves an assessment and evaluation of needs and training to help the organization recognize signs of disrupting business models or innovative technology that creates new markets. The second month is used to evaluate your product and service offerings. It will look at current products and services that might be vulnerable to overshooting customer requirements. And it will evaluate which products/services are too complex, too expensive or require expertise or experts that reach beyond the need of a market tier. The third month is spent aligning organizational and operational processes and business methods to identify overshot and underserved markets and improve internal capabilities to monitor the external environment.