Innovations need an eco-system

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.

There is a close relationship between and animal and its ecosystem. To live happily and healthily an animal needs a vibrant ecosystem. Similarly  for a product to succeed companies need to build and maintain a robust ecosystem.

Cdr Rajesh Sinha (Retd)'s profile on LinkedIn