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LEAD Innovation Blog

Read our latest articles on innovation management and innovation in a wide range of industries.

Date: 30-Apr-2018
Posted by: Daniel ZAPFL

Disruptive Innovation - 3 answers for innovative companies

 

Everywhere there is talk of disruptive innovation. A spectre or the longing of all? disruption is a form of innovation that can almost completely suppress an existing technology or product and turn an entire industry on its head. It demonstrates how powerful and powerful the right innovation can be at the right time.

Kodak - the most famous example

The example of Kodak and disruption is already very widespread, but it is as striking, fascinating and instructive as no other.

Kodak, founded around 1880, was famous for its pioneering technologies and innovative marketing in photography. In 1988 the company had more than 145,000 employees and was among the most successful and valuable brands worldwide.

In 2013, however, Kodak gave up the photography business and now specializes in printing presses, where they generate sales of $2 billion with around 7,000 employees.

 

What's happening?

Kodak had already presented the first prototype of a digital SLR camera in 1975. They also pioneered digital photography with products such as the Kodak Photo CD. However, the company has nevertheless insisted on its existing expertise and product lines in analogue photography and this was a "deadly" decision.

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"If You Don't Cannibalize Yourself, Someone Else Will"

That's what the famous innovator Steve Jobs said. Kodak did not want to cannibalize the lucrative business they had been doing for decades. For this reason, they opted for the products of analogue photography and left the digital in the cellar.

More and more CEOs are taking up the words of Apple's founder, who have recognized the pressure to innovate in the context of digital transformations. And it is not as far-fetched as the example shows. But what exactly is behind it?

 

The role of digitisation

Digitisation is not only a driver of innovation, but also an accelerator of innovation. And this is not only because information technology and its rapid emergence of new basic technologies open up completely new possibilities for generating customer benefits.

Another phenomenon is the simple and fast innovation by IT. Without a lot of money, software solutions in beta can be brought to market quickly. Compared to product development, an innovation can be developed and placed relatively quickly and easily.

Innovations in the hardware sector, on the other hand, have the disadvantages that

  • investments in machines are necessary.
  • extensive technical know-how is required to produce at competitive costs.
  • you have to bring fully developed products on the market in terms of product liability and warranty.
  • the development time is much longer.
  • In this way, you have substantially higher risks compared to software, where time is usually the only investment.

 

Definition Disruptive Innovation

Companies usually focus on the best customers who generate the best returns. They rely on the continuous improvement and perfection of the products for these segments. This is the dilemma of the innovators that Clayton Christensen has been talking about for years.

Disruption, on the other hand, occurs in less attractive and lower market segments. As the products and services mature, they gradually move into other segments and attack the lucrative businesses of established companies.

The same was true for Kodak and digital photography. At the beginning, digital photography was not taken seriously because it had one major disadvantage: the quality and resolution of the images. But it had many other advantages over analogue photography. You couldn't tell

  • look at the pictures immediately,
  • distributed and passed on quickly,
  • print them immediately, and
  • you could take a lot of photos, because one picture did not cause any additional costs.

These advantages, called Z-dimensions and bringing new features and benefits, helped the technology to make its breakthrough. And the problem of low quality was solved relatively quickly and was no longer a risk of diffusion.

 

Risk of Disruption

The ability to innovate and the possibilities of digitisation have increased the potential of corruption.

The attackers usually come from a different direction and not from their own industry. This makes them even more dangerous because they are often perceived much too late.

Genuine disruptions such as LED lamps, airbnb or mail-order pharmacies can shake up the entire industry, define new rules of the game and overturn successful business models.

For example, navigation devices have significantly reduced the market for street maps and navigation devices are gradually eliminated by Google maps and navigation apps.

 

3 tips for innovative companies

Companies that want to secure their survival in the long term and make a profit must devote themselves intensively to innovation. Here are three tips on how companies can face up to this kind of corruption.

 

High sensitivity

The most important thing is proactivity and a high level of sensitivity to detect and identify potential industry attackers at an early stage. This requires vision in horizontal and vertical planes. Horizontal does not only mean to conduct research in one's own industry, but also to look at the breadth of neighbouring and complementary areas. Vertical stands for a broad view of the future.


It is also important to take every signal seriously and not to rely arrogantly on its market power.

Once you have discovered an innovator, there are several ways to respond:

  • Partnerships or alliances with the innovator or even acquire and integrate the company.
  • Blocking e. g. by means of patents, which is a not very elegant, fair and safe possibility.
  • Reaction with own innovations.

 

Do it yourself

You can't defend an attacked market segment forever with intensive marketing campaigns, aggressive sales strategies or low prices. If the new, innovative alternative offers a higher benefit from the customer's point of view, cannibalization will sooner or later become reality.

Companies that want to be successful in the long term are therefore forced to innovate. Either you position yourself as an innovation leader and try to create disruptive innovation yourself. This requires a lot of courage, openness and foresight in a strong innovation culture, which many companies have to work on with certainty. Or you want to be a follower and jump on the running board if you are successful in innovation.

Each of these strategies has its advantages and disadvantages. The pioneer can win and shape the market for himself, but is exposed to a greater risk. The follower, in turn, has a low innovation risk, but the risk of losing the connection.

 

Hedging through diversification

It is impossible to overlook all developments and innovations in the market and to have an answer to everything. This is not possible due to the complexity, size and global nature of the markets.

Hedging through diversification is a very successful tactic. However, it does not rule out that companies must also be innovative and develop new business areas. However, diversification distributes the risk. If a market segment is attacked, other alternatives are used and expanded through innovation.

 

Conclusion - Disruptive innovation - 3 answers for innovative companies

Disruptions can shake up entire industries. The only correct answer is to play an active role. It's best to be at the forefront as a perpetrator and proactively shape the market. However, since this can also have its limits, especially with regard to limited resources, this also includes a broadly based monitoring process in order to have and be able to react to changes and threats at the radar in good time.

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Daniel ZAPFL

Born in Graz, Austria. After positions as project manager & head of innovation of the project management at LEAD Innovation, Daniel Zapfl has been responsible for the success of the innovation projects of our innovation partners since January 2018.

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