Disruptive Innovation - Making it happen in Organizations

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Authors: Sanjib Dutta, Anil Kumar Kartham
Senior Faculty Member, Faculty Associate
ICMR (IBS Center for Management Research).

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Factors That Affect Disruptive Innovation Contd...

Leveraging the Right Capabilities
Disruptive innovations fail to materialize when the organization fails to create the right environment for them. Disruptive innovations fail under three circumstances: 1) When the organization has limited resources to support them. Inadequate resources might disallow innovations. 2) Organizations are limited by their processes. Unsuitable processes can restrain innovations from becoming effective. 3) The organization's values could also be hostile to disruptive innovation.

1) Inadequate resources: Managers and money play key roles in the success of disruptive innovation. Very often managers who are successful in mainstream business are appointed to look after the disruptive innovation process. This could be dangerous, as the skills needed and the challenges faced by the managers in their careers are entirely different from the challenges they face and the skills necessary to promote disruptive innovation. They make wrong assumptions about customer needs, and the strategies necessary to address these needs.

They often employ the strategies which proved useful in mature and stable markets. Disruptive innovations create new markets and new opportunities. But these managers are ill-equipped to operate successfully in them. While managing the other resource - money, managers must avoid two misconceptions; one relates to the size of the company's reserves, the other to making losses. It is a general belief that having large reserves is an advantage for the growth of new businesses. This is not always so. Large reserves available for a new venture might result in managers sticking to the wrong strategy for too long. Instead, when there is less money, managers will naturally be more responsive to customer needs, and fulfilling them would generate revenues. As a result, a viable strategy emerges quickly.

It is also often believed that when there are disruptive innovations, a long period of losses has to be borne before profits begin to arise. And so, being patient is a virtue. But according to Christensen, innovators should be patient about the size of the business and not about profits. When profit is the driving force, a valid strategy emerges. But if the venture is concerned about its size from the very beginning, it may gamble on over-expansion which may lead to failure of the new venture.

2) Inflexible processes: While resources as such as technology, cash and technical talent are flexible and can be used for different purposes, processes are not. Processes are more inflexible than resources. Processes are usually not adaptable but are meant to do same job reliably, and repetitively. Hence, if a process works well for a particular task, this does not mean it will work well for other tasks as well. Failure can occur when disruptive innovation is attempted, keeping existing processes in place. For example, Sony brought out 12 disruptive innovations (in radios, TVs, VCRs, and Walkmans, to name a few) between 1950 and 1980. These innovations created new markets, and brought down industry leaders. However, between 1980 and 1997, the company was not able to bring out a single disruptive innovation. Sony relied increasingly on sustaining innovations. Though PlayStation, and Vaio Notebooks were dramatic products, they were introduced late, and in established markets. What brought about this change in the company's capacity for disruptive innovation? Before 1980, Akio Morita and his team used to decide on new product launches. No market research was done. The process of decision-making was based entirely on intuition. When Akio Morita retired from active management in the 1980s, decision-making was left to newly recruited marketing and product planning professionals. These professionals institutionalized data-intensive, analytical processes for market research. These processes identified segments in existing markets where customer needs were unmet, but the personal intuition required for disruptive innovations was missing.

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