Lessons to jumpstart disruptive innovation
Peter Skarzynski and Jorge Rufat-Latre
Peter Skarzynski
(pskarzynski@
strategos.com) is a founder
and Senior Managing
Director and
Jorge Rufat-Latre (jrlatre@
strategos.com) is a Director
at Strategos, a global
strategy and innovation
firm.
n many markets, the current low-growth, high-unemployment environment favors
disruptive innovation – products or services that offer a new combination of features
and lower cost. For example, instead of plunking down $2500 for a top-of-the-line
laptop, a lot of business consumers are learning to love the dazzlingly innovative $400 iPad
that is missing quite a few features they usually take for granted.[1]
I
Innovative, disruptive competition is the name of the game at a time when customers need to
reassess their previous assumptions about cost and value. Historically, corporate winners
that emerge from a downturn are those that have changed the game, not stayed the course.
Protecting a business by cutting costs alone cannot prevent innovative players from luring
customers away via new value-creating offerings. In fact, even smaller companies, when
they offer their customers more innovation for their money, can tilt the field in their favor
regardless of their competitors’ size or cost management skills.
So now is the time for leaders to challenge their management teams to answer two questions:
Are we prepared to disrupt our industry before our competition does? Does our organization
know how to stimulate, manage and sustain disruptive innovation?
Experience suggests that most companies won’t be too happy with their honest answers to
these questions. However, by following the best practices of successful innovators, leaders
can guide their organizations through and out of this economic slowdown and avoid
becoming one of countless business victims of ‘‘innovation inertia.’’
Three critical lessons for disruptive innovators
A look at a wide spectrum of disruptive innovators over the past few decades reveals that
their success as game changers is primarily driven by three critical capabilities:
1. The ability to anticipate and act on market discontinuities and unmet customer needs,
with a particular focus on the business model.
2. The ability to link incremental and breakthrough innovation efforts by focusing on a single,
shared aspiration.
3. A mindset that expects opportunities for disruptive innovation to inform strategy and for
strategy to inform the search for disruptive innovation opportunities.
Companies looking to be disruptive in this current slow-growth environment should ask
themselves, ‘‘What proactive steps need to be taken to anticipate, address, and even drive
change?’’ Three lessons from successful disruptive innovators offer guidance.
DOI 10.1108/10878571111095367
VOL. 39 NO. 1 2011, pp. 5-10, Q Emerald Group Publishing Limited, ISSN 1087-8572
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Why is innovation inertia such a big risk in a recession?
Companies suffering from innovation inertia are putting their futures at risk. Consider the recent
history of entertainment rental giant Blockbuster Inc., a leader that paid the price for its own
innovation inertia back during the post-dot.com downturn. As a result, it drifted from a position of
dominance to one of potential irrelevance as competitors, large and small, emerged to redefine the
entertainment rental industry.
In early 2000, as the bursting dot.com bubble evaporated billions of dollars in stock valuations
resulting in cross-sector retrenchment, Blockbuster appeared a safe bet for investors – a traditional
retailer leveraging its nation-wide footprint to dominate the entertainment rental business. For many,
Blockbuster embodied a key lesson of the dot.com debacle: don’t invite upheaval upon yourself or
your industry, especially in tough times.
Yet upheaval was precisely what was in store for Blockbuster as Netflix, an Internet start-up, began
winning many new customers. In Q1 of 2000, for example, Netflix abandoned the traditional single
rental model of the video business to focus instead on a new value proposition – flat monthly fees,
no due dates or late charges, and DVDs that arrive by snail-mail direct to your door.
Netflix’s model was so potent that Blockbuster soon undertook a strategic reboot, the leader now
forced to play the follower or risk irrelevancy. By 2004, Blockbuster was compelled to defer any
efforts to build upon its successful retail model in order to instead build up its virtual presence in the
hopes of besting Netflix. To that end, it attempted to create its own game with a mix of online and
in-store services while copying Netflix’s subscription model. With its vast retail footprint, Blockbuster
assumed that no competition could replicate this strategy and that its online/offline service mix
would substantially up the ante of its overall value proposition. From Blockbuster’s perspective, the
only visible risk was in failing to launch its Internet solution quickly enough, thus allowing Netflix to
sew up the online market space altogether.
However, in another section of the movie rental market, further business model reinvention was
underway. This innovation didn’t originate from a start-up or even from an established player in the
entertainment rental marketplace. This upstart was . . . McDonald’s! Thanks to a potential of over
13,000 high-traffic locations, McDonald’s Redbox-branded automated video kiosks could offer
on-the-go customers DVD rentals easily, conveniently and for less than a dollar a day! You could
reserve online, forget memberships, forget late fees, and then return your rental to any Redbox.
Distracted by Netflix, Blockbuster never saw Redbox coming.
Fast-forward now to 2010. Redbox[2] currently offers far more locations (27,000) than Blockbuster
(estimated just over 10,000 at peak). Annual revenues rose rapidly from zero to over $1B over a time
when Blockbuster’s revenues, though much larger overall, began a slow decline despite its massive
asset base and a stable, established economic engine.
Imitation is one way measure of Redbox’s success. Blockbuster announced recently that it will move
into this novel space pioneered by McDonald’s. Thus today Blockbuster faces a virtual replay of
2000. Enduring another economic downturn, the company is again on the cusp of another industry
upheaval as new competitors vie to make video-on-demand commonplace.
For years, Netflix and others had been positioning themselves for the inevitable migration to a new
business model while Blockbuster kept to its original business model. Only recently did it announce
that it will indeed, once again, attempt to follow its competitors’ leads, this time with
video-on-demand services.
Lesson #1: disrupt by anticipating and acting on market discontinuities and unmet
customer needs, with a particular focus on the business model
The Starbucks coffee shop has become a familiar part of the American landscape. Now the
largest coffee house chain in the world, Starbucks started in Seattle in the early 1970s selling
just roasted beans, and it only began introducing customers to coffee custom brewed by
skilled baristas in the 1990s. Nowadays, though the recession has forced many coffee-shop
customers to cut back on $4 custom brews, there is a still a big demand for high-quality
coffee prepared quickly.
Research has shown that consumers want a lower-cost alternative that still produced
excellent coffee, but eliminates the mess and time of making it at home. Enter Green
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Mountain Coffee Roasters with its Keurig coffee system and a whole new way to think about
home-brewed coffee.
Green Mountain Roasters started in 1981 as a small café in Vermont. By the early 2000’s, this
specialty coffee roaster had found a niche by bringing their premium-roasted coffees to
customers through supermarkets, restaurants, and many other outlets. Seeking to grow,
Green Mountain discovered significant ‘‘white space’’ by interviewing customers who valued
the idea of premium coffee made simply and easily at home or office.[3]
Green Mountain understood that in order to deliver the key customer values of ‘‘simple and
easy’’ the company would have to offer non-traditional methods of coffee making. The
solution would need to be all-inclusive, non-messy and guarantee a perfect cup every time.
And that’s where the company’s K-cup technology and Keurig coffee system, which they
purchased in 2006, comes in. The customer value is clear – no more grinding beans,
cleaning messy filters, or measuring water.
Finally, it’s important to note that Green Mountain didn’t initially push their coffee-capsule
solution through the traditional retail channels. Instead, they made a very conscious decision
to begin with businesses. The benefit of starting in the workplace was that future retail
customers had the opportunity to learn how the product worked in the office and become
familiar with its benefits before spending $150 to buy the system for the home. While many
companies have struggled to survive in this economy, Green Mountain Coffee has grown –
ranking #2 on Fortune’s list of Global100 – Fastest Growing Companies.[4]
So how can your company take advantage of the innovation opportunities that occur amid
changing customer needs and evolving trends? Two best practices:
1. Monitor customer needs through observation rather than just researching data.
Remember that reports and analytics describe past actions customers have taken. In
order to really understand customers’ current needs, spend time with them, talk to them,
observe them, be like them.
2. Don’t be single-minded about assessing trends; instead look for the bigger picture. Major,
disruptive market changes can rarely be traced back to a single shifting trend. Rather, it’s
the combination of trends that, when considered together, open a fundamental
opportunity in the marketplace.
Lesson #2: link incremental and breakthrough innovation efforts by focusing on a
single, shared aspiration
Many companies segregate their innovation efforts into incremental and game-changing
initiatives. On problem with this approach is that it can sometimes be impossible to tell an
incremental idea from a game-changing idea in its early stages. Innovations with the power
to disrupt typically have roots in existing products or services, so why pull them apart?
A second, related reason for not segregating incremental and breakthrough innovation
efforts is that breakthrough innovations are often dependent upon the competencies of the
organization to be successful. Failures in breakthrough innovation efforts are often times a
result of organizations trying to step too far outside of what they understand. In some such
cases, the new business is so different from everything they do that no one really wants to
‘‘ Major, disruptive market changes can rarely be traced back to
a single shifting trend. Rather, it’s the combination of trends
that, when considered together, open a fundamental
opportunity in the marketplace. ’’
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own it. This is the historical lesson taught by the breakthrough innovation efforts of Xerox
PARC, which failed to foster commercialization of the PC.[5]
An alternative to separating incremental and breakthrough innovation is to connect them
using a platform-based approach that focuses on delivering a single, shared aspiration of
the future. This approach begins with making a declaration about what a company wants to
be in the future and then defining a plausible set of steps/actions that help it attain that future.
In other words, how can a company migrate from what it is today, to what it wants and needs
to be tomorrow?
This is the approach that Crayola has taken over the past few years. After several failed
attempts at breakthrough innovation, Crayola refocused its efforts on ‘‘dreamspaces.’’
These spaces described a future ambition shaped by marketplace insights and a thorough
understanding of the competencies of their own organization. With its dreamspaces defined,
Crayola crafted migration maps (see Exhibit 1) that provided a playbook for moving towards
their dreamspace.
Through this initiative Crayola developed a ‘‘No Limits’’ platform, a highly innovative set of
children’s arts and crafts solutions that limit the amount of mess for the parents. Traditional
products were modified and new products were created. Crayola didn’t achieve
breakthrough innovation by sending a group of individuals off to think and develop in an
entirely new space. Instead, breakthrough innovation was achieved by aligning all the efforts
of the organization on a single, shared ambition.
To ensure that both game-changing and incremental innovation will be served:
1. Do not select opportunities at the idea stage. Instead, use ideas as building blocks for
broader opportunities and elaborate these opportunities to the point where it is possible
to assess their overall potential and risk.
Future
Exhibit 1 Migrant map for No Limits dreamspace
Dreamspace
Opportunity
Opportunity
No barriers to creativity so
Mom feels good that her
children can express
themselves anytime and
anywhere
Developing
Crayola Capabilities
Opportunity
Opportunity
Less-Mess
Paint Line
Opportunity
Color Wonder
Existing
Opportunity
Customer Challenge
Mom limits creative
activities because of
mess, inconvenience,
and other barriers
Unexpected
Surfaces
Fabric &
Window
Markers
Sidewalk
Chalk &
Paint
Crayola
Outdoor
Existing Opportunities
Launched (2004-2007)
Developing Opportunities
(Exp. Launch Date: 2009)
Future Opportunities
(Expected Launch: 20__)
Existing
Developing
Future
Crayola Reputation*
*Source: Strategos analysis based on company announcements and other publicly available data
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‘‘ Successfully delivering on disruptive innovation can have
lasting beneficial effects on an organization. Innovation
capability begets innovation capability. ’’
2. Create growth platforms organized as a sequence of incremental innovations that build
up to a game-change. New approaches need to be learned, technologies found and
licenses obtained. All these steps can be sequenced into a migration path that combines
different levels of innovation and that guides an organization to its goal.[6]
Lesson #3: recognition that disruptive innovation can inform strategy, just as
strategy can and should inform disruptive innovation
Having a well-articulated corporate strategy is imperative to crafting, planning and
executing disruptive innovation. Too frequently, however, companies don’t clearly articulate
the link between innovation and strategy. The mindset should be ‘‘how we work toward
where we want to be.’’ Done right, disruptive innovation will push the boundary on strategy –
forcing senior management to make explicit decisions about what’s in the innovation
program and what’s out.
This observation prompts two questions:
B
What is the role of innovation in the overall strategy of your company?
B
Is your innovation capability aligned with your strategy?
To address these questions:
1. Be clear about your company strategy and innovation’s role in its execution. Making
explicit strategy-to-innovation linkages will help you stretch a strategy at a time where it
might be tempting to hold back.
2. Follow an industry best-practices approach to innovation. A generic innovation capability
will likely yield opportunities that mimic those of rivals, leading to a fatal onset of strategy
decay and convergence. Learn how to customize innovation efforts for your particular
operation.
Significant change poses challenges
Successfully delivering on disruptive innovation can have lasting beneficial effects on an
organization. Innovation capability begets innovation capability.
The time challenge. If a company starts with a low capability for innovation, fast and stellar
innovations are not going to happen overnight. Focus first on accelerating existing
Case: McDonald’s surprising success with fries and DVDs
In considering McDonald’s success with Redbox in light of this lesson, the question is: How do DVD
kiosks deliver against a strategy built around burgers, fries and cokes? Here’s the simple answer:
Redbox exemplifies McDonald’s efforts to test and stretch the boundaries of its strategic options,
rather than to presume self-imposed constraints about its strategy. In other words, should
McDonald’s only offer burgers, fries and cokes, or can it use its competences to also provide
value-based retail convenience across new and different categories? While a number of quick,
inexpensive and learning-focused experiments by McDonald’s revealed some limits to these retail
categories, Redbox emerged as a clear winner. More importantly, the willingness to test its strategic
assumptions through innovation efforts helped to clarify and further define its strategy. Learning
from Redbox thus helped McDonald’s make better strategic choices around what it would not do, as
well as choose wisely where it would devote further attention.
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opportunities already in the pipeline. Use the lessons learned to work on a set of more
ambitious innovation opportunities.
The commitment challenge. Consider a low-resource approach that can get past temporary
economic challenges or emergencies. Work on specific innovations that can produce early
wins. Not all platforms have opportunities that can achieve their promise in the short term. In
these more difficult times, choose those platforms that take advantage of opportunities
faster.
The inclusiveness challenge. Disruptive innovation involves many people in many areas of
the organization but not all people and not all at the same time. Frequently communications
with future participants are often neglected and the project suffers in the long-term. So take
care to engage key future players for the purpose of building motivation and commitment.
Ask your innovation teams to communicate through informal networks and to target
influencers. As work progresses, identify the individuals and organizations needed to take
next steps. Involve them as early as possible.
By meeting these challenges, top performing companies have learned how to meld
disruptive and incremental innovation in disciplined and systematic fashion. By adopting
their best practices, almost any company can learn to out-compete their rivals by creating
new products, finding white-space markets and imagining new business models, even in
these toughest of times.
Notes
1. Current models of the iPad have no USB port, no internal drives for CD/DVD, no hard drive; they do
have up to 64 GB of flash memory – enough to hold photos, video, music, and ebooks.
2. McDonalds sold a partial interest in Redbox to Coinstar in 2007 and the remaining interest in 2009.
3. Skarzynski, P. and Gibson, R. (2008), Innovation to the Core, Boston: Harvard Business Publishing.
4. http://investor.gmcr.com/releasedetail.cfm?ReleaseID ¼ 500603
5. Chesbrough, H. 2003. Open Innovation, Boston: Harvard Business School Press
6. For a more comprehensive discussion of managing migration maps, see ‘‘Migration management:
an approach for improving strategy implementation’’ by G. Getz, C. Jones, and P. Loewe, Strategy &
Leadership, November 2009, Vol. 37, No. 6.
Corresponding author
Jorge Rufat-Latre can be contacted at: [email protected]
To purchase reprints of this article please e-mail: [email protected]
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