Economic Crisis is the right time for ‘Disruptive Innovation’
November 14, 2008 by Raj Sheelvant
Current economic crisis can provide a perfect backdrop for Disruptive Innovation according to Knowledge@Wharton article titled ‘Why an Economic Crisis Could Be the Right Time for the Companies to Engage in Disruptive Innovation’
Quoting Paul J.H. Schoemaker, research director for the Mack Center for Technological Innovation, the article notes that there are 2 kinds of innovations incremental innovation and transformative innovation. Using Austrian economist Joseph Schumpeter’s term of Creative Destruction, Paul Schoemaker suggests that transformative innovation (which leads to creative destruction) is how entrepreneurs sustain the capitalist system. So, largest gains in business come from more daring innovations that challenge the paradigm and the organization. Incremental innovation is something the organizations continue to do during good times. While many organizations are focused on being solvent in this current economic crisis, companies with strong balance sheet, I my opinion, should continue to focus their R&D effort on transformative innovation. Creating products or services that can dramatically alter the competitive landscape.
To institutionalize the process of Creative Destruction, everyone in the organization, especially top executives, should recognize that disruptive innovation is actually important. But according to the article, in a company that’s already successful — or one with layers of bureaucracy that hinder new ideas — this can prove difficult. The firm also must commit itself to research. Therefore disruptive research is absolutely critical, especially in the technology space. The article notes that it is not enough to simply have brilliant engineers. Without competent management on the business side, the most elegant technology can wind up on the scrap heap of business history, or even worse, usurped by a competitor.
‘Disruptive Innovation’ should be one of the organizational ethos to be successful in this hyper competitive globalized environment. Given the high failure rate companies should develop an array of possible situations and contingencies, rather than pin all their hopes on one plan. And instead of being stuck in the ‘analysis paralysis’ the organization should reward individuals and department to move fast. It’s OK to fail but learn from the failure should be the mantra. This will empower individuals to take educated risks in creating new and compelling products that will leave the competitators in a defensive mode scrambling to respond to this new challenge.
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Comments (3)
Hi Raj
Interesting post.
Have you read “Good to Great” by Jim Collins? In it you’ll find a strong case for continuous incremental improvement.
Jim argues that it is this organic build up of momentum, rather than disruptive innovation, that carries the enterprise through market slumps.
It’s a well structured argument based on solid research, which, in light of this blog post, I think you’d find interesting.
Personally I take it with a pinch of salt, given that the book was written a number of years ago. But either way, I’ve yet to read a better argument for focusing on one plan or, as Jim puts it, a “hedgehog concept”.
Cheers from South Africa.
Sorry Kosta, but “Good to Great” is not good research and its conclusions are flawed. There isn’t a single “good to great” company doing well now, and several (Fanny Mae, Circuit City) are in serious trouble or gone. The book focusses on execution and completely ignores strategy – and without a good strategy it doesn’t matter how good the execution is. Even on execution, Jim Collins comes up with his own derived tactics, like the Hedgehog concept, without ever identifying whether the company was a Balanced Scorecard user. The Hedgehog concept is merely aspirational whereas Balanced Scorecard analytically links execution to results.
Try reading “The Halo Effect (and eight other business delusions that deceive managers)” by Professor Rosenzweig to understand how bad Jim Collin’s research really is.
Tom… Thanks for the book recommendation. I have not read “Halo effect” yet. I am going to read it.