Saturday, 29 October 2011

Disruptive innovation

I've been thinking a bit recently about the importance of disruptive vs iterative change. I recently moved to a job where I get to work a lot with blue chip clients, whats interesting about the technology sector however, is that rather than striving for the bleeding edge, most companies operate on the basis of iterative improvement.

There are of course companies which do well at being innovative and disruptive. Apple is probably the one which would spring to the minds of most people. In the last few years they have done more to re-invent the technology field than any other company. Moving us away from static PCs towards light weight mobile technology. That technology has proliferated through the world, driving down cost and enabling a boom in communications into areas of the world which previously struggled to access these types of technology. From the Guardian article:
In 1998, there were fewer than four million mobiles on the continent. Today, there are more than 500 million. In Uganda alone, 10 million people, or about 30% of the population, own a mobile phone, and that number is growing rapidly every year. For Ugandans, these ubiquitous devices are more than just a handy way of communicating on the fly: they are a way of life.
And how are these devices altering the way people live?
Four years ago, in neighbouring Kenya, the mobile network Safaricom introduced a service called M-Pesa which allows users to store money on their mobiles. If you want to pay a utilities bill or send money to a friend, you simply dispatch the amount by text and the recipient converts it into cash at their local M-Pesa office. It is cheap, easy to use and, for millions of Africans unable to access a bank account or afford the hefty charges of using one, nothing short of revolutionary.
Thats not just a change, that's a shift in the rulesets of entire countries, contained in devices which fit in a pocket and are within the financial reach of the vast majority of the world's population.

A hat tip to Dan Tapscott for the next piece, the piece which really locked me in to the idea of disruptive technology in this context. Amazon posted some disappointing results recently, and the market reacted badly:
On Tuesday, Amazon.com reported third-quarter earnings that fell far short of Wall Street's expectations. Its earnings were down 73% from the quarter a year earlier and it missed the analysts' consensus estimate of $0.24 per share by nearly a dime. By all accounts, this was a sizable earnings miss and the stock responded as such, dropping as much as 20% in afterhours trading.
Now even to my limited understanding of finance, that seems like a bad day for Amazon, but as it transpires, the reality is significantly more complex, and in that complexity lies the more important story:
Amazon missed its earnings because the company has been investing more heavily than Wall Street expected. And these investments are being made in the infrastructure to support not just a single disruptive business, but a number of disruptive-growth opportunities. Below is a snapshot of Amazon's portfolio of disruptive businesses:
  • Amazon Retail — disrupting traditional retailers
  • Amazon Kindle — disrupting the paper book format and paper book retailers
  • CreateSpace — a self-publishing solution that disrupts traditional publishing houses
  • Kindle Fire Tablet — a new market disruption enabled by business model innovation
  • Amazon MP3 and streaming audio and video — disrupting traditional content distribution companies
  • Amazon Web Services — disrupting the companies that sell on-site servers and native software applications
Now, like Google, Amazon pursues a policy by which some of its innovations will fail, but there's little sense in the market punishing either company for investing in technologies and ideas which will fundamentally alter the way in which different businesses work.

There's something fascinating in the market's response to this situation, which deserves its own analysis, but the simple question is, what does it say about the financial market, that a company which is investing vast amounts in new ideas is punished. It seems to me that the idea is to promote the mundane, because that leads to smoother curves on balance sheets. But there you go.

Disruptive change is a tool which is nigh on impossible to factor into strategy, because it involves changing rulesets. Altering rulesets is something which is much easier to have applied to you, or to take advantage of, rather than to develop yourself. Yet iterative change is so rarely truly successful, you end up relying on others having a slower cycle of improvement than you.

Building disruptive change into strategy also means being able to adapt your strategy on the fly, whilst keeping a keen eye on the final objective. Only changes which move you closer to the goal at greater speed should be adopted, whereas others must be dis-guarded, no matter how fascinating their employment might seem.

New ideas also aren’t necessarily the only way of implementing disruptive change. Old and traditional techniques, applied at the right time and in the right way, can shift the course of a campaign. On this topic, its worth reading on this topic is Rick Perry and His Eggheads, which details some of the ways in which the Perry campaign for Governor of Texas used a disruptive technology (real statistical analysis of the outcomes of campaign advertising) to change the way traditional technology (campaign advertising) was implemented.

The mundane will always be more appealing, mainly because it works. But the more disruptive the approach, the greater the impact.

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