Three Proven Paths to Disruptive Innovation

Disruption isn’t magic

The popular mythology is that nobody sees disruption coming. Disruptive businesses, like unicorns, appear as if by magic, to upend the status quo. And the disruptors are mad wizards who somehow see the future no one else could have. But the truth is, most disruptors follow a very linear thought process and those companies being disrupted are more victims of their current successes than they are caught off guard.

Even the best companies are vulnerable

More than half of the companies listed in the Fortune 500 in 2000 have since been removed—dethroned by a more technologically savvy disruptor. And, it is predicted, that between now and 2025, half again will have succumb to a similar fate.In his seminal work, “The Innovator's’ Dilemma.” Harvard professor Clayton Christensen lays out the basic development trajectory of disruptive innovation and provides a myriad of logical reasons why successful companies fail to act when smaller, even less-well-funded, disruptors enter the scene.

It’s an excellent text with innumerable examples that most will read with exquisite hindsight and shake their heads at what seem today to have been myopic management decisions. But how do you know you’re not following the same path today in your own industry—great at the game you’re playing, but not realizing the game itself is about to change?

1. Launch tomorrow’s market offering, today

Is your target segment a growing or shrinking demographic? Are there macroeconomic trends that will have any major impact on the size of your current markets? Are there any shifting  generational or social norms that could affect perceptions of your brand or your offering?Choosing which trends might materially affect your markets one day is an art form, to be sure. But the idea here is to scour secondary research sources and glean from that data the most relevant bits to help model a snapshot of your market at some specific point in the future—two years, five years—when you believe those trends will converge to a tipping point for the current market.

For a relevant example, we can look at the hospitality industry. In it, there are any number of examples of companies using this type of analysis to shift their offering to meet future demand. Case in point, while Generation X may currently represent the largest segment of business travelers, many of the leading hoteliers have focused their innovation teams on changing their room and common space designs to address the impending market dominance of Millennial business travelers.

Watch a Gen-X-aged business traveller enter a recently renovated room at a Marriott and you’ll likely see them looking all around the room for a desk that isn’t there. Watch a Millennial business traveller enter the same room and they’ll sit on the bed and pull out their laptop without a second glance for a desk they’d likely never use anyway. Common areas are being similarly transformed. Where once hotels created separate lobby, work and dining areas with nationally recognized eateries, current renovations are delivering integrated common rooms and unique culinary options derived from local influences.

2. Expose your industry’s deepest darkest secret

In most industries, there’s some fact about the standard business model that no one really wants to talk about because, though it may be inconvenient for the customer, it drives significant revenue. Take for example the insurance industry. Everyone in the industry would tell you that it is, by necessity, a relationship business. To get insured properly, you need a guy or gal in the business who knows the business, because every customer is unique, getting the best premium is math intensive, and the process is too arcane for the issuance of a policy to happen any other way.On top of that, once you were insured, having a claim processed and (hopefully) paid was often a weeks-long undertaking.

Customer complaints about that extended time span were met with explanations that processing a claim required multiple checks and balances and a great deal of necessary paperwork.Though, as proven by industry upstart Lemonade, it is likely more accurate to say the deepest darkest secret of the insurance industry was that most customers fall into common risk profiles, adding obfuscation and complexity in how premiums are calculated reduces price comparison opportunities, and that claim delays were more about earning a greater amount of interest on cash reserves than it was about extensive investigations.

Lemonade began providing renters and home insurance for urban dwellers through an A.I. fueled mobile app, in a process that takes less than two minutes. And claims processing and payment? Three minutes. Further, instead of paying annually, Lemonade customers can “subscribe” to their coverage on a monthly basis.The innovation here doesn’t appear to have stemmed from a single a-ha moment. It seems the product of a systematic, cumulative uncovering of all of the ways the insurance industry intentionally complicates the offering to protect existing revenue streams.

3. Create a future where your industry’s greatest strength is a weakness

This has demonstrably been the most fruitful path to success for disruptive businesses in the past decade. Just look at Alibaba, Uber or AirBnB. Prior to Alibaba, retailers professed their strength by touting the depth and scale of their inventory. Nothing could compare to, “everything, in stock!” Alibaba became the largest retailer in the world expressly by creating a business model where they carry no inventory. Love them or hate them, the same approach was quite successfully taken by Uber.

They have grown to be the world’s largest taxi company, expanding rapidly in more than 80 countries and they own no taxis. AirBnb? The fastest growing hotelier in the world because they explicitly own no property. Ironically, the most current example of this might be Amazon’s recent push to open physical storefronts—differentiating themselves from increasing online retail competition by creating enhanced opportunities for more personal interactions as well as faster local deliveries.

Innovators understand that if you can envision a way to threaten the value of an industry’s greatest asset, the industry will instinctively apply resources to protect that asset, temporarily giving the innovator plenty of runway upon which to gather momentum.

Pick a path. Now act like, or fund, a startup

Technology, machine learning and automation is lowering barriers to entry in every industry. Emerging generations expect better solutions. Disruption is imminent. If you’re charged with improving the long-term competitiveness of your business you have two main choices. Disrupt, or be disrupted. The point here, is that it doesn’t take a massive spark of genius to spot the next disruptive opportunity. It only takes commitment to taking the path.