The fact is existing large companies find it extremely difficult to leverage disruption. They are focused on doing the things they do well and serving the customers they have served up to the present, often extremely successfully. The problem with disruption, however, is that it disrupts, as it were, and the nature of the changes disruption brings (to processes, products and customer demands) are extremely difficult to see coming. So how can large companies leverage disruption successfully?
Companies need to be focused on innovation to remain competitive. Innovation is disruption on a smaller scale and can be defined very simply as changes that are made which result in the creation of economic value. Disruptions and innovations occur because of changing business models, as a result of advances in technology and by a combination of both. Innovations can be broken down into four main types:
• Normal Innovation – this is incremental improvement in a company’s existing technological competencies and existing business model.
• Disruptive Innovation – where a major change in the business model occurs (perhaps, but not necessarily, because of) a technological advance.
• Radical Innovation – this results from a radical change in technology but the business model remains the same.
• Fundamental Innovation – caused by a radical change in technology that also creates a new business model.
Some large companies try to emulate startups but this can be misguided. Often startups do not have innovative business cultures and while management presents them as exciting place to operate they can be confronting: there is no tolerance for incompetence, everyone is highly disciplined and focused, there is a high level of personal accountability and they can require brutally candid assessments of someone’s performance and, if found wanting, they are sidelined.
While disruptive innovation looks obvious in hindsight it often requires a commitment to a vision that everyone else thinks is crazy. It is difficult to look into the future and know what is going to happen. Another failing is that large companies tend to look to the same sources (customers, suppliers, partners) for strategies when they really need to be talking to people outside their comfort zone to really leverage disruption. Perhaps rather than focusing on ‘creative destruction’ as Joseph Schumpeter put it, large companies need to focus on ‘creative construction’ where the best response to disruption for a large company is to simply defend and expand its current business making steady innovations – as long as disruptive forces have not totally eclipsed their business model, that is.
