Clarifying Disruption: Operations vs. Innovation
July 25, 2011 Leave a comment
Part 1 of Series
The word disruption has multiple meanings in global business with the most commonly used definition some variation of “the act of interrupting continuity”. Within the context of logistics, supply chain, manufacturing, IT, and other business operations, disruption is obviously an experience managers work diligently to avoid. A good example of a recent operational disruption was caused by the Sendai quake and tsunami; a natural disaster which was unpreventable, but predictable and therefore can be mitigated with careful risk management planning.
In the context of innovation, however, and long-term economic survival, disruption can be paradoxical when “the act of interrupting continuity” of tightly controlled markets, stale products, and outdated business models is not an evil, but rather can be a savior to businesses, ecosystems, and economies, preventing eventual operational disruption, or as we’ve seen in many cases—complete failure.
Central to the theme of disruption in innovation is the nature of our species. We humans tend to be creatures of habit even when presented with evidence that the behavior is self-destructive in the long-term. In similar fashion, individuals and organized groups such as governments and corporations often refuse to change behavior even when continually presented with evidence that the cost of the short-term comfort zone may well be long-term survival, and of course fear and greed are ever present.
While resistance to change is often strongest in absolute monopolies, similar cultures are commonly found anywhere deep disequilibrium exists in the tension between security and progress, speaking to the need for competition. Entire industries or regions can become static relative to the world quickly today, displaying little evidence of awareness in decision making. Mix in a heavy dose of risk averse corporate cultures, conflicting (real and perceived) interests internally and externally, a bit of PR spin, and regional translation leakage between multiple native languages, confusion surrounding the issue of disruption becomes the norm rather than the exception.
History is overflowing with examples of the high costs of failing to intentionally disrupt the status quo with innovation. A few recent cases that come to mind include:
Failure to disrupt poor U.S. fiscal management and lack of accountability (in part with innovation) over a long period now threatens operational disruption
Failure to disrupt the U.S. healthcare and public educational system has greatly exacerbated the U.S. fiscal challenge, reflecting why prevention of negative spirals with continual improvement is so important
Nokia’s failure to maintain leadership in smart phones is now significantly impacting not just Nokia, but Finland’s national economy
Rim’s response to the iPad, which seemed unable to take the risk to cannibalize, failed to physically disrupt by tethering the Playbook with the Blackberry phone
Border’s failure to embrace disruptive digital publishing ended with liquidation
Offensive and Defensive Strategies
The need to disrupt static cultures, reform or replace decaying business models, and introduce competitive products is well known in management circles of course, so many kinds of offensive strategies, tactics, and systems have been crafted to overcome this age-old challenge, including motivational techniques, educational tools, recruitment practices, incentives, internal R&D, outsourcing, partnering, spin-offs, join ventures, acquisitions, IP licensing, and strategic venture capital. Quite a few companies have prospered through multiple business cycles employing a variation of all of the above in a persistent quest to achieve and maintain an optimal balance between growth and risk over the short-term and long. The number of companies achieving mediocrity upon maturity is far greater, however.
One common method of defense is the formation of cartels, particularly with commodities or commoditized products that are susceptible to innovative new comers or companies moving into their markets. Cartels and oligopolies can generate high margins for long periods of time and form very strong barriers to innovation, but eventually market and trade imbalances combined with innovation and conflicting interests of the members begin to fragment the cartel and erode market power, opening a window for competition that has proven to be healthy for incumbents, markets, and economies. When economies stagnate, it’s generally a sign that incumbents have too much market power, usually achieved in part by manipulating the political processes, which is just one reason of many why corruption should be avoided.
The word cannibalism is sometimes used to describe what is often a difficult internal corporate process of intentionally replacing aging products that are still providing a significant portion of cash flow, with more competitive products. Another term used to describe disruptive innovation in the broader economy is creative destruction, popularized by Joseph Schumpeter in the 1940s, which describes the theory of replacing the old with the new in the entrepreneurial process. In the modern global economy, situations and cultures that allow progress without disrupting entrenched interests are quite rare.
In part 2 of the series, we’ll explore how innovation is beginning to revolutionize the innovation process in the digital enterprise.