Established companies have typically achieved their success by focusing on “sustainable innovation:” continuous delivery of new features related to the core business. What’s needed today, however, is “disruptive innovation:” creating products and services adjacent to the company’s core business and shifting the market dynamics for the rest of the playing field.
In recent years, this has been the game of start-ups and digital natives that have boldly trampled into incumbents’ territories by identifying an overlooked niche market, offering customers a good-enough product or service, using the feedback to mature the offering and ultimately flipping the market in their favor.
Even when incumbents have had the resources to innovate, many have been toppled by this recipe. Some shy away from disruptive innovation because products and services built with new technology don’t produce shareholder-worthy growth rates. Salespeople might deem the new products unworthy of their time. In many cases, the existing culture can shield the core business from “pesky invaders” (new products that current customers don’t necessarily know they want) that — they fear — will steal resources or cannibalize the existing business.
The Seven Capabilities of Disruptive Innovators
It doesn’t have to be that way. Established companies can beat start-ups at their own game by developing a set of seven capabilities to make their entre into the exponential growth market.
Dig deep to the root of business change to find the opportunity.
When revenues or sales decline, the natural tendency is to ask a question from the company’s perspective: “How can we improve sales?” To discover the opportunity hidden in the problem, businesses need to reframe the question from the customer’s perspective: “What induces customers to leave their current provider?” Doing so leads to insights about new business models and digital products that reach new market segments.
Ethnography: uncover customers’ motivations to make them the center of business decision-making.
Companies need a repeatable approach to identifying innovations with high revenue potential. We recommend combining big data with field research on behaviors and emotions (sometimes called “thick data”) to gain a deep understanding of customers’ motivations and desires. The goal of the field research is to assess the growth potential of the new product or service and how customers and their ecosystems use the products. Combining the ethnographic study results with big data provides better answers to questions traditionally answered by market research alone.
Design an experience that meets customers wherever they are.
After the ethnographic research is finished, businesses need to design a user experience (UX) that matches the identified customer desires. UX designers should focus on the challenges customers want to solve and the events that trigger their use of the product.
Build a business case that would excite venture capitalists.
Organizations need to define the market and business opportunity so precisely that it could withstand the scrutiny of venture capitalists. This means having ready answers to the optimal product and market fit, emerging target market and size, current players, their activities and market share, and more.
Develop and implement a flexible product architecture that delivers rapid value and can be adapted quickly.
The market launch needs to happen within a few months, with continuously faster deployment for successive releases. Today, a fully Agile development organization can release multiple times per day and commit code changes to production in less than an hour. We recommend the following planning steps:
Identify current processes and IT systems that the new digital product might affect.
Use a microservices-based cloud architecture.
Build consumer-grade, enterprise-scale production code from the start by using digital engineering tools and practices, such as test-driven deployment, iterative development, continuous integration/delivery and DevOps.
Form pods — self-sufficient teams of six to seven members who possess the required technical and domain expertise, as well as expertise in user experience, visual design and quality assurance.
Develop a digital change management strategy.
Baptism by fire: launch to market.
Launching to market exposes the digital service to real-world demands, and forces the team to behave like a real start-up, not a large-company prototyping team that faces little risk from failure. Rather than inserting the new digital product or service into the current sales and marketing organizations, consider creating a dedicated marketing team and a go-to-market approach tailored to the new market’s requirements.
Turn operations and maintenance into an asset for continuous innovation.
With a microservices architecture and Agile processes in place, operations teams can monitor service uptake in real-time, detecting shifting market conditions in days instead of months. Some companies may want to conduct a cost-benefits analysis to decide whether to host, operate and maintain the solution internally or engage a partner. The latter approach has the advantage of freeing the innovation team to focus exclusively on new product development rather than support activities.
Without the Right Culture, None of the Above Applies
Existing teams in large incumbent organizations are typically too caught up with current products and business models to envision another way to function. To avoid being displaced by upstarts, established companies need to get out of their own way. This means not allowing a cautious culture or rigid organizational structure to stifle innovation.
For many companies, the practical approach to innovation is to engage an experienced partner with the ability to quickly ramp up a bespoke, seasoned team that can combine data science, human science and business acumen to conceive, build and bring new digital products to market at scale.