The previous article began our exploration of innovation.

Clayten Christensen is very clear about understanding the markets for disruptive technologies: “Markets that do not exist cannot be analyzed: Suppliers and customers must discover them together. Not only are the market applications for disruptive technologies unknown at the time of their development, they are unknowable.”

Wow.

In the early stages of a disruptive technology you don’t know what it is, how it works, what is required to develop it, who will use it, what they will use it for, or how they will use it. Based on this you have to build a business plan, establish a return on investment that meets corporate thresholds, prepare a development plan and budget, get approval, obtain and assign resources, deliver on schedule, and meet sales forecasts. And, of course, the new technology is inferior to existing more mature technologies for most use cases.

Right. Easy. No problem!

The only things you know at the early stages are that the initial markets will be small and that your early beliefs and assumptions are almost certainly wrong. Just to make things even better, there is an excellent chance that any truly new technology won’t work out. When it does work it is likely to take significant time to mature – more time than most companies are willing to accept for their investments. Until the new technology matures it will be inferior to existing technologies for most applications. Welcome to the wonderful world of pioneering new product development!

Based on this, no reasonable person would want to be involved in developing a disruptive technology.

Fortunately we have unreasonable people! People with vision, passion, and the skills needed to go after things that haven’t been done before. People with the determination to continue even after setbacks and failure. People that believe “impossible” is just a word in the dictionary between “imposition” and “impost”.

The next challenge is that well run companies have systems designed to prevent investment in disruptive technologies. Well, they aren’t specifically designed to do that, but it is one of the side effects of planning systems.

There are always more potential projects than available resources. Well run companies have well developed systems to allocate and assign resources, most notably money and people, to the projects that have the highest payback. The best companies have systems that give priority to projects that take advantage of the core resources and competencies of the company and align with the largest and most profitable market segments.

These companies know their markets, their customers, their resources – and themselves. They have a laser focus on excellence in execution and predictability. A learning company will continuously improve their processes and products. They are well aware of the adage “it is easier to keep an existing customer than to capture a new customer”. They dedicate themselves to keeping their customers, making customer service a top priority and seeking more ways to deliver value to their customers.

“But” proclaim the believers in an unproven and immature technology, “this new technology will revolutionize our industry and put us out of business if our competitors have it and we don’t!” As shown in the Gartner Hype Cycle they are joined by analysts and the press in proclaiming how everything is changing and you have to fully commit now!

There are a couple of sayings to keep in mind: the noted economist Paul Samuelson observed “the stock market has predicted nine of the last five recessions.” Also “even a blind squirrel finds a nut once in a while.”

We know that disruptive innovation happens and that it can greatly impact even – or perhaps especially? – the best run companies. What can we do about it?

1. Invest in every new potentially disruptive technology. This will divert critical resources from sustaining innovation in the short term and cause the company to become uncompetitive.
2. Ignore disruptive technologies. This approach works – until it doesn’t.

Some industries experience disruptive changes every few years. Other industries go decades without disruptive changes. The risk is that disruptive changes build up slowly and then hit with such speed and impact that it is too late to respond when they do happen.

Fortunately this is a false dichotomy – there are choices between “everything” and “nothing”. The next article will begin to explore these alternatives.

Next: False Dichotomy