Designing for disruptive innovation
Eliane Tozman, Head of Design for IBM Canada Innovation
Working with start ups and innovation hubs in Ontario and across Canada, the thing I most often hear is: “Disruption is all about technology, AI, big data etc..”. I used to internally roll my eyes and react to such statements, now I politely suggest that the people who I talk to (mostly young entrepreneurs) should come to one of my forums, presentations or even a talk on said subject or if time is limited I also politely ask for their email address so that I may send them some material on what disruption is all about. Technology is a tool just like a hammer, or a pen, or even a computer. You should know the various usages, at least in my humble opinion. Let me go dig a little more and offer some examples. Nothing makes me happier then seeing Canadian start ups be successful, not only is it good for our amazing country, but it’s awesome to see people you actually met be successful, in whatever they are pursuing. For this article let’s focus on technology led companies.
Theory on disruptive innovation
A disruptive innovation is an innovation that helps create a new market and value network, and eventually goes on to disrupt an existing market and value network. The concept was actually coined many years ago (1995!) by a professor at Harvard. Clayton Christensen. The term is used to describe innovations that improve a product or service in ways that the market does not expect.
The first sign is that the technology developed by a company is improving along a clear trajectory. This improvement curve of sustaining innovation describes how the performance of the technology gradually gets better and better. In other words, the technology gets better and better in one particular area. There are no leaps of radical innovation that would radically deter this course. Without an identifiable trajectory, the other parts of disruption can not take place. What this means is the established companies leverage technology for sustainability and often don’t seek out or explore new technologies – of course there are exceptions, but we’re generalizing here
The second premise of the original theory argued that companies are bad at listening and satisfying their customer. In detail, the companies that fail to acknowledge customer needs, and keep developing technology along the original trajectory, regardless of what is needed. Consequently, they would produce excess performance in limited values. Overlooked customers, and at a lower price. Disruption happens when the incumbent’s mainstream customers start taking up the start-up’s products or services in volume. By targeting segments of the market and their customers of the market that have been neglected by larger companies typically because it is focusing on more profitable areas.
Third claim of the theory is that, although the once dominant parties possessed the power to join the revolution and adopt the innovative technology, they did nothing of the kind. They just kept innovating at a much smaller scale and don’t actually create anything revolutionary. A smaller company with fewer resources can unseat an established, successful business by creating, producing and launching into the marketplace revolutionary products and services. Disruptive innovation does not attempt to bring better products to established customers in existing markets. Rather, they disrupt and redefine that trajectory by introducing products and services that don’t necessarily compete, these smaller more nimble companies create new markets. It’s not technologies that actually disrupt, it is innovation. It is the business model that the technology enables that creates the disruptive impact.
New technologies, a human entered approach combined with a wicked innovative business model, provide the structural cost advantage necessary to take large chunks of the market over time.
Think Blockbuster and Netflix. This occurrence does not happen because established companies do not innovate (they do), but because they’re focusing on making good products better for their existing customers. (This is called “sustaining innovation” and it is different from disruptive innovation.). Netflix introduced a entirely different experience for people, it didn’t compete with Blockbuster, it wasn’t renting entertainment in physical spaces, but rather it created a whole new way for people to access entertainment!
Is this case isolated, cherry-picked? As a thought experiment, here are several other disruptive innovations. With the above patterns in mind, consider whether technological innovation or design innovation was the key to disruption in each of these cases:
- Computers — Apple II (1977). Apple finally came up with a visual interface for the masses to use computers, gone with the days of having to actually understand code. Even kindergarten children could now use computers.
- Used book and collectibles sales — eBay (1995). Anyone could bid on a myriad of items right from the comfort of their own home. No invitation required
- Book selling—Amazon (1995). And so much more. A marketplace that has everything.
- Animated films — Pixar 3D animation, beginning with Toy Story (1995). The advent of very sophisticated animation that combines storytelling with deep visualizations
- Music — iTunes music store and 99¢ downloads (2003). Music for the masses. Now we have streaming from Napster (the first) Spotify, Pandora, SoundCloud, and many more.
- Movie rentals — Netflix streaming (2007)
- Travel — online, consumer-operated reservation services: Travelocity (1996), Kayak (2004). Offered customers to book, search and read everything on line, instead of relying on one expert to suggest everything from flights to hotels etc..
- Map publishing — turn-by-turn Google Map interface powered by GPS in mobile phones (2012)
- Uber — built a platform in a fragmented limo market that let it come into transportation and logistics more broadly.
- Airbnb — focused on providing a cost advantage solution for students who could not afford the hefty New York hotel prices.
Bringing it all together — Design Innovation
Now that we’ve gone in depth, explored disruptive innovation, its major characteristics and examples, let’s take this one step further and bring it to our present day — We’ve just burned through over 20 years of innovation!
So what am I talking about now? Well modern disruptions today not only focus on shifts in the marketplace, leveraging the coolest technology or targeting upset customers (we know they do all of this). They also pay very close attention to creating the very best experiences for their customers. The demand for seamless and highly engaging experiences is vital. 89% of companies believe that customer experience will be their primary basis for competition. In 2011, that number was 36 percent. (gartner, 2015).
Let’s take Apple for instance. Apple does not deliver technology to consumers; it designs experiences, then finds the right technologies to deliver those experiences. And sometimes it waits patiently for the necessary technologies and business arrangements to be available to deliver a particular experience. By doing what it does, Apple disrupts. Again, and again, and again. When Steve Jobs came up with the idea of creating an iPhone the technology for it didn’t even exist. Plus the marketplace was saturated with mobile devices. He had to wait 2 years before he could create the first iPhone prototype, and subsequently disrupted the entire mobile device market. When I meet with Apple representatives all their business cards say: Customer experience etc… It starts with customer experience. Technological innovation is a means to use engineering knowledge to create new processes and products and design innovation to mean the use of design thinking to create improved experiences using available technologies.
A lot has to do with the demographic shift taking place, the demand for better and greater experiences is because the newer generations such as the Millennials, who will account for 75% of the workforce by 2025, view the world in a radically different way. 56% can’t go 10 minutes without checking their mobile device. 1 in 4 are interested in becoming entrepreneurs. (I’ve linked some interesting articles and info-graphics). 95% use their smartphones to shop, read news and socialize. 71% believe business innovation improves society and 78% of millennials feel that innovation is essential for business growth! They are the first generation of digital natives, and their affinity for technology helps shape how they see the world. This generation is the largest in North American history and as they reach their peek spending and working years, the impact on both the economy and the demand for better products and services will be well pretty impressive to say the least.
Think about some of the problems some of these upcoming and now established companies came into the marketplace. They were solving a problem. Uber offered a way for people to order private transportation. Only 5 years ago we were still waiting at the corner hailing a cab, ensuring we had cash and completely relying on the driver to take us via the fastest route. What about Airbnb? Airbnb was started by two mid western design students who could not afford the rent on their San Francisco apartment. To make ends meet, they decided to turn their loft into a lodging space.. How about the story of Doug Dietz, Design Principle at GE with over 20 years work experience in designing and developing medical imaging systems, amongst which was the MRI machine? In hospitals the MRI machine caused 90% of children to panic and be terrified to go through the machine so they had to be sedated by an anesthesiologist, resulting in only a few children per day that could be scheduled for imaging. Learning of this, Doug used Design Thinking to solve the problem and make the experience better for children. He and his team transformed the MRI machine into a kid’s adventure story with the patient starring in the lead role. They applied colorful decals to the outside of the machine and on every surface of the room, covering the equipment, floor, ceilings and walls. They also created a script for the technician to lead their patients through the adventure. Not only did the children not need to be sedated but almost all wanted to go through the MRI machine again. The result being many more lives were saved… by decals.
Major changes in demographics, technology and experiences have driven expectations much higher; and according to the DMI value index, design-led companies out perform the S&P 500 by 219%.
So what do these stories tell us? That design is here to stay and it’s set to be a major player in the world of innovation, if your company or services is not maniacally focused on creating the best possible revolutionary experience, well another one bites the dust as they say…