Disruptive
innovation is the mantra to super success. It is the buzz word in today’s
technology obsessed world. Especially with the internet allowing startup firms
to reach a huge clientele, the scaling up of a disruptive innovation is
exponential.
So
what is disruptive innovation? It is the creation of a new product, service or
business procedure which changes the way business is carried out. It makes existing
products, services or business procedures less relevant, if not irrelevant
altogether. Disruptive innovation may change the way we do things altogether,
or it may reduce the price of a product or service so much that similar existing
products or services become unsustainable. Examples of disruptive innovation
are, the gasoline engine that replaced the horse for daily commute, or the
computer with word processor which made the type writer irrelevant.
Notwithstanding
the importance of disruptive innovation and the initial success that it may
enjoy, soon reality starts to bite. The innovation needs support to survive and
succeed as its market scales up. E-commerce is a disruptive innovation but , it
is not the end. It is just a means of doing business. Finally some physical
product or service has to be sold to a customer and should reach the customer.
For this a new ecosystem has to be created. This new ecosystem may comprise
additional disruptive innovations or the re-deployment of time tested methods
and products.
Let us
take the example of fuel cells for road transportation. A phenomenal amount of
money has been spent on research in the field with a large dose of success
also. However, commercial success of a fuel cell powered car in today’s world
cannot be assured. It may be bought by a few enthusiast, but it will remain and
object of curiosity, till such time as an ecosystem to support them is
established. This ecosystem would comprise Hydrogen producing plants, short and
long term storage system for Hydrogen, Hydrogen transportation systems,
Hydrogen dispensing systems, establishment of hydrogen dispensing network etc.
A
number of independent fuel cell and hydrogen based cars have been demonstrated successfully.
However, the main challenge would be to make the entire ecosystem work
together effectively by integrating the
different components and to design a whole system that can be used by customers
in real situations.
While
developing this ecosystem, we come across another phenomenon called the
Innovator’s Dilemma. This dilemma is faced during commercialisation of the
ecosystem. Any innovative technology would initially be exorbitantly
expensive. For example, each fuel cell vehicle is nearly ten times the cost of
a conventional vehicle. This makes them too expensive even for the high end
markets. As the product is adopted and the scales of production increase, the
prices would come down. As a result, more and more people may adopt them, thus
further reducing the cost. But the product would not be adopted till the price
comes down. Now the dilemma is, should I invest in this product whose future I
am not sure of. If today I invest a large sum of money and the product bombs? A
catch 22 situation. Till I invest more, the product won’t succeed, and till the
product succeeds I don’t want to invest more.
Those disruptive
innovators which are able to identify and build a basic minimum ecosystem
requirement for the success of their product or service at launch, succeed
while others may not. Just imagine if the if i-phone had been launched without
the ecosystem of apps for doing various things and i-tunes for accessing those
apps. i-Phone in that case would have remained a curiosity. Nokia was one of
the first to introduce a touch screen based smart phone, but it never built the
ecosystem around its OS. Those smart phone OS which could develop a large
ecosystem are successful while those which had a limited ecosystem are either
dead or struggling.
As the
product succeeds, and the cost of both, the product and the ecosystem falls
due to economies of scale, further investment is pumped into the ecosystem,
leading to further adoption of product and further strengthening of the
ecosystem.
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