Chan Kim and Renee Mauborgne in 2004 wrote about competitive marketplaces coining the terms Red and Blue Oceans. The Red Ocean is the analogy that represents contested markets. There is a constant fight for dominance. A Blue Ocean represents a new market or an uncontested marketplace. Their research identified companies that have succeeded over the long term. Finding generational companies prioritized the creation of Blue Oceans instead of fighting wars of attrition of trying to maintain a hold of market share.
Blackberry is a great example of achieving the Blue Ocean by pairing their cell phones with an e-mail service capability in 1999. For several years, they dominated the mobile market and maintained a stronghold in business sales. The market eventually became saturated with competitors and instead of trying to create a new evolution, they chose to fight for the maintenance of market share leading to their eventual corporate death.
Most MBAs leading organizations will repeat these stories of failing to innovate and continue to fall into similar traps. As organizations grow, their expectations with shareholders, analysts, and executives verbalize innovation but their behaviors stress stability and repeatability. Having a desire to create a foreseeable performance leads to the development of evaluation models that are predictable in nature which directly leads to favoring incremental over disruptive initiatives. Incremental initiatives are easier to predict, they are empirically grounded, and they are easier to recover from if they fail.
The disruptive and Blue Ocean initiatives fall into a different category, one of unpredictability. Financial modeling returns on investment and customer adoption are all unknowns with proposing a disruptive initiative. The data is poor, the market is yet to be defined, and the risks are significant which leads to organizations inherently guiding back to choosing safer incremental projects. Unfortunately, these incremental gains are only tactical maneuvering to win a battle in a war that will continue for years. The disruptive model is the strategic approach that will lose a handful of battles in sacrifice to win the longer-term war.
Taking a more myopic view, it is very easy for an executive and management team to tell their teams to be more creative, to bring forward disruptive ideas, and to be the beacon of innovation. There are two specific occasions where these plans fail. The first being that the role or responsibility the individuals are built for standardization and not for innovation. For example, a pharmacist technician refilling a prescription would not want to be creative when following a standardized procedure but would be encouraged to think of creative opportunities to improve the patient experience.
This would be targeting the creativity to areas more apt for innovation versus providing a generalized notion to be creative. The second occasion where innovation initiatives flop is when those ideas are brought forward, and the organization doesn’t have the capability, capacity or courage to act on those ideas. The innovator is dejected and will have then lost faith in the organization that they will act upon the best ideas.
Innovation is the creation of something new, disruptive innovation is something new that changes people’s lives. People find employment with organizations that are relatively stable which is why they are bringing in new resources. There are set patterns, roles and responsibilities all centered around a businesses operating model of how they make money. Within a few hours of employment, new hires know what is important and what to protect because it puts food on the table. These protected resources also can cloud the judgment of those around it and keep people from moving into the future with disruptive innovation, this is change. Change management has been studied exhaustively, small changes experience a 70% failure rate, a disruptive innovation represents a change on a grander scale thus increasing the possibilities of change resistance and failure.
Most business leaders would consider it common knowledge that long-term growth and investment is vital to a company’s sustainability. Many would be able to dissect how the life of a product is shrinking and explain the importance of a disruptive innovation that could provide a second life to the organization. This leads to the funding of research and development (R&D) departments knowing that innovation is a continuous cycle and that there is a need for dedicated teams to continue to release new ideas.
There are different focuses for R&D teams with a goal to have a steady release of new products. Some organizations or sub-teams strictly focus on incremental updates to existing products, this keeps the revenue machine churning, but will rarely provide significant growth. Other teams focus solely on long term growth projects which would be revolutionary for the market representing an aim on disruptive innovation. Google founder Sergey Brin captured his thoughts on Google’s approach to innovation defining it as a 70-20-10 split model. Seventy percent of Google’s efforts would go to incremental innovation to keep their core revenue streams strong, 20-percent of their efforts would go to disruptive innovation, and 10-percent of their efforts would go to moon shots or innovations that could change the world but may not have a direct link to Google’s main business.
Live music has been around since the first caveman banged sticks together. It grew in complexity over the years with the addition of instruments and then pairing instruments together. While the music changed, the constant was that it was always live, and it wasn’t until 100,000 years later when Thomas Edison invented the phonograph in 1878. This created the ability to listen to music on demand if you were fortunate to own a record player.
84-years later, Phillips, invented the cassette tape which took a large record recording and put it on a significantly smaller playing surface. It took years for the popularity to catch on, but it also added a new feature of mobility with the “Walkman.” This technology was then one-upped only 16-years later with Sony and Phillips partnering to create the Compact Disc (CD) which offered a sound quality similar to being at a live performance.
CD players had taken over the music market replacing the sales infrastructure that the cassette tape industry had built. Even before CDs had become a mainstay, the Fraunhofer Institut in Germany in 1987 was already working on the next technology of trying to refine the MP-3 player. By 1999 the first commercial release of the MP-3 player appeared which was quickly followed by multiple technology companies vying to get their foot into the market share. By the early 2000s, personal MP-3 player jukeboxes were becoming the next big thing in the music industry. The two issues that were visible with MP-3 players was music quality and the manual process to burn personal music onto a computer and then to transfer it onto an MP-3.
Apple was an early investor in MP-3 technology. Putting them in a spot to identify the gap between MP-3 players and ease of use. Breaking out of their model of personal computing, they placed a large financial wager of the development of their own MP-3 player, Following, in 2001 they released their iPod. Their focus was on the ease of use and customer experience. This led to the creation of the iTunes store which enabled immediate and easy downloads of music. Establishing an instant gratification environment and customized experience of purchasing only the music that the consumer wanted. More importantly, it controlled the accessibility of the consumer’s property. This trapped the consumer into Apple products. That is where their music collection was stored and could no longer be accessed by a rival product.
The state of books in 2019 is one of decline. Combining decreased hardback book sales with depleted attention spans, reading is no longer the national pastime. The main culprit to this decline though is the rise of the eBook. Starting in 1993 BiblioBytes started selling eBooks opening a new modality for learning. As personal computing and the internet advanced, Simon & Schuster began publishing books online in 1999 competing against their main revenue stream of paper books. Then in 2004 Sony rushed to the market with their eReader but couldn’t get the paper light right and the product died.
Meanwhile, a small startup, Amazon, had grown from being an online bookstore to becoming a one-stop-shop for all online shopping. However, books were always the lifeblood and in the core DNA of the company. By 2007, Amazon finally released their eBook the Kindle. Lauded for its simplistic design they had also nearly perfected their paperwhite technology were to look at their screen was the equivalent of looking at a paperbound book.
These eBooks brought more pressure on brick and mortar book stores causing a state of chaos on how to keep the book businesses alive. While Borders Books went into bankruptcy, Barnes & Noble was able to survive for a while by selling their eBook the Nook. Competing heavily against Apple’s iPad version of iBook and Amazon’s Kindle, the Nook offered instant book delivery with the discounted process but didn’t have the same multifunctionality that Apple and Amazon could leverage. Like the music industry, book services trap readers into a family of products that maximizes product loyalty with consumers. This model has also turned the hardback book market into a niche market instead of the main market.
Transferring knowledge in the 21st Century has changed radically over the last 100-years. The book is relatively a newer innovation but is being nudged out by audiobooks. Podcasts now nudge audiobooks out of the market. For visual learners, their attention span has gone to YouTube videos and even shorter video-based technologies. Newspapers and the nightly news are being replaced with bite-sized Twitter updates and phone notifications. Google search is now battling and implementing voice search capabilities. All while virtual assistants of Alexa, Siri, and Cortana still haven’t conceived their full potential yet. Older modalities will still continue to exist, but the market will be decided by providing more options that can placate a consumer’s personal preference.
Associated with the change in modalities is the rate of change in which this will occur. Innovation is growing exponentially in shorter timeframes. It took 100,000 years to develop the phonograph and it only took 19-years for the CD player to go from a must-have to obsolete. Technology is compressing invention cycles with the benefit of being able to scaffold their ideas upon each other. This is the driving force behind the economic marketplace where the markets today will be entirely different five years from now.
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