Hey, happy Monday, hope all is well!
I’ll cut it short because I want to show you this graph.
Yes I know it is not attractive but, for those of us in strategy, it is as close to a self-fulfilling prophecy as it gets. But in order for you to appreciate the real beauty I need to explain what it is, why it is important to you, and why a chart like this could even endanger your business.
Follow me and I’ll explain what this is all about. You will be thunderstruck.
Meet Disruptive Innovation
I have tried to use the simplest words I could find so forgive me from the start if the speech may seem simplistic, my goal is to make you understand this very important concept.
The theory of Disruptive Innovation was first codified by Clayton Christensen to explain why small and agile companies were able to not only compete in the marketplace but even outperform and disrupt established players of much larger size and with better managers at least on paper.
To sustain their growth rates, large companies invest in what is called the Sustaining Innovation. They basically constantly update their products and services to attract customers who are always willing to spend in order to secure higher margins that way. In doing so they end up going overboard with adding extra features, features and accessories and focus only on the most profitable customers.
What happens instead, at a different point in the market, is that some people are no longer willing to pay, or are not interested in using those extra features, and start looking for less expensive alternative solutions made possible by technological evolution. This is where small business entrepreneurs see the opportunity and bring new solutions to the market, less performing in some respects, but incredibly less expensive and above all suited to the new emerging needs.
These innovative companies are born with a completely different structure from the big ones. They are agile and have the ability to make strategic choices that in the eyes of managers of established competitors seem nonsensical by favoring speed of execution over efficiency. In this way they are able to improve their product and gain increasing market share.
When large companies (or simply companies that do not innovate) get the first signals from the market, that is, they sell less and less and are forced to reduce prices, it is usually too late. Disruptors take over the market and endanger the large and more structured ones.
If you are thinking:
- Is Tesla disruptive? The answer is no.
- Is Uber disruptive? The answer is no.
- How do you combat the risk of becoming obsolete and irrelevant? By putting yourself in a position to launch your own disruptive innovation.
All these things I explain well to those who decide to participate in the Design STRTGY for Business Innovation program which is now in its 5th edition. Here you can find the full program.
It always happens like this…
The trajectories in the market for both scenarios I described to you, of Sustaining and Disruptive Innovation, have in all industries a graph like this.
Ta daaaa! Doesn’t that look perfectly superimposable with what I showed you above?
The graph shows the performance of the processors Apple uses in its devices by relating those produced by Intel and those it has started producing for itself since 2015.
If the acronyms don’t ring a bell try googling acronyms such as. 4790k.
What you see in the graph is that Intel supported Apple’s demands for faster and faster desktop processors until it reached a plateau.
On the other hand, Apple launched its own processors for mobile (a market that its vendor was not directly interested in) and improved them, quietly and incredibly fast until they reached performance comparable to desktop processors and even surpassed Intel.
That is why it was inevitable for Apple to abandon Intel and switch to the new technology. (In fact, the M1 is nothing more than the A14 processor for desktops with different power access for desktop and mobile.)
Doesn’t everything seem clearer now?
This is disruption.
Apple was doing what the good managers at Intel thought was too risky or even incomprehensible to them. Develop microchips for smartphones so powerful that they would outperform desktops. A strategy that made perfect sense for Apple since it could thus unify its ecosystem.
… and it will continue to happen.
The beauty of knowing sound theories is to be able to interpret the present and predict the future.
I recently had a conversation with a colleague who has a company that specializes in developing mobile apps in which I was explaining to him what disruption was. He told me that was exactly what was happening to him.
I quote. “First customers came with an idea, then they started coming to us with wireframes, later with mockups, today they come directly with working prototypes made with no-code software. They will probably make their own apps tomorrow. I feel I have to innovate…”
Disruption impacts all sectors, certainly yours as well.
Could you recognize now some phenomena that have happened to you that you can relate back to disruption? How are you dealing with them?
Take a few minutes to write me your story, I would love to collect it together with the others in an e-book of Italian cases. What do you think?
Go disrupt!
Make yourself heard.
