Disruptive Innovation

{I wrote this for a term-paper - so, please excuse me for the pedantic tone.}

It’s quite intuitive to believe that established companies with a wealth of resources and talent are better equipped to innovate. However, we have all seen how successful companies – who in many cases also constantly add innovative features to their products – fail miserably while new start-ups take over. How do we explain this apparent paradox? Professor Christensen of HBS in  his book "Innovator's Dilemma" explains this paradox by providing a very insightful distinction between the different kinds of innovations that established companies and newcomers engage in. Sustaining innovations (incremental) are pioneered by established companies while disruptive ones (radical) by newcomers.

Apparently, the management principles that make a company successful in the first place are also responsible for preventing it from engaging in disruptive innovation. Whether it’s “customer-driven enhancements” or “ignorance of smaller and non-existent markets” or “blind focus on core competencies” or “overshooting” – they all create a culture that’s not conducive to disruptive innovation. On the other hand, a start-up does not suffer from any of these. It focuses on niche areas and tries to capture a small or non-existent market by experimenting with new ideas; all necessary inputs for disruptive innovation.

Even though, the recommendations to manage disruptive innovations offered by Professor C make good sense and I’m sure would help established companies deal with disruptive innovations in more creative ways, I still believe that the reason why they cannot compete with start-ups is not just strategy or the lack of it. I’ll try to explain my reasoning using an analogy:

Winning the disruptive innovation game is a lot like winning a jackpot lottery. You can marginally increase your chances of winning by buying several tickets but because of the sheer number of lottery tickets that are sold…it’s almost impossible to predict who’ll win. Of course someone will win and most probably an unknown man (start-up) from Silicon Valley. However, when we compare him with this rich guy (established company) who bought 200 tickets and still won only 10 dollars, we tend to ignore the fact that there are 5 hundred thousand other people (start-ups) who couldn’t make the cut. The sure shot way for an established company to win would be to buy all lottery tickets but that wouldn’t make much economic sense and so there’s not much they can do unless of course Professor C comes up with a statistically insightful way of winning a jackpot!

I think Oracle and Cisco are two companies that have safely guarded their territory by in- house R&D and aggressively eating the smaller fishes. They are always on top of things. Anyone who does anything remotely related to their areas gets acquired soon. I’m not sure how easy it is for other companies to follow these guys but they really seem to know how to manage (and capture!!) innovation in their respective fields.

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