12 May 2005

Disruptive Innovation

When you get a chance, you've got to check out Clayton Christensen's stuff online - he's the Disruptive Innovation dude & Harvard Business School prof who basically explains why Southwest airlines, Apple's ipod shuffle, Gen McArthur's "hit 'em where they ain't" battle of the pacific, all managed to make such a big impact.

The basic principle is that incumbents (i.e. successful organizations & companies) keep making "good" decisions and doing the "right" thing, taking care of their most profitable & loyal customers, which leads to their destruction when small, sneaky, innovative organizations come in and provide goods and services to two distinct customer groups: overshot customers and nonconsumers.

The overshot customer is me and my home computer. The past 3 computers I've purchased have all had WAY more capability, bells & whistles than I ever use (same with my cable service, for that matter). That is, the computer guys are overshooting my needs and providing me with more technology than I really want… which means if someone figures out a way to provide me LESS than the current cutting edge desktop capabilities (or fewer tv channels), and can charge less for it, they are going to get my business and eat the incumbent computer provider's lunch…

The other category is the nonconsumer. That's the spec-ops guy who's never had access to real time imagery until this new thing called BRITE came along. From the official imagery provicer's perspective, these dusty, muddy guys were not imagery consumers. But they wanted to be, and were delighted to have anything at all... and they loved that it did not require much in the way of training, money or ability. That's also me with my new iPod shuffle. I never would have shelled out $300 for a full-up iPod (sadly, I'm just not that hip)… but a low-end, minimal capability, low-cost gadget that's kinda fun and within reach of the amazon.com gift certificates I got at Christmas time… I went from nonconsumer to consumer...

Key line: "Disruptive products or services initially are inferior to existing offerings, at least along standard value metrics." (emphasis added). That's the thing - disruptive innovation does not involve going after the incumbents where they are strong, but rather hitting 'em where they ain't, like MacArthur in the Pacific. Pursuing new value metrics.

Ebay is another great example - they started out swapping beanie babies, and the used car salesman down the street ignored it because it was serving nonconsumers (who's going to buy a car on ebay?). By 2003, more than 300,000 cars were sold on Ebay. Dang.

Apparently, there are ways to see this sort of thing coming, if you're the incumbent. And there are ways to make this happen, if you're not. Read the article, and check out his books (The Innovator's Dilemma, The Innovator's Solution).

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