Disruptive Innovation and Digital Transformation

21st Century New Growth Engines

Marguerite L. Johnson

• Publisher: Business Expert Press
• Year: 2020
• ISBN:
  9781952538933
• Topic: Business
• Subtopic: Business Strategy
• Index: Business

Disruptive Innovation and Digital Transformation: 21st Century New Growth Engines is for executive leadership, senior management, innovation catalysts, and digital marketing teams tasked with transforming businesses by accelerating growth through disruptive innovations and digital capabilities.

It is a practical guide with concise insights for understanding the applications of disruptive innovation and how to iteratively apply them to projects and opportunities. It garners insights from the best minds across relevant disciplines— from its original theory and latest updates—to arrive at new insights on digital transformation.

The author evolves key approaches to disruptive innovation theory to reveal new digital applications and tells leaders what to look for– major categories of customers' expectations in an escalating pattern to understand in what context digital plus disruptive innovations must be aligned with consumer preferences, environments, and the jobs-to-be-done, which is modeled in a new theory, Disruptive Innovation Customers' Expectations (DICE).

DICE provides methods to use to lead digital disruption across products, services, and business models. DICE translates the vague parts of disruptive innovation by simplifying them down to what-to-do. DICE takes away the elusive nature of disruptive innovation by advising leaders: how to scan, to track, and to detect disruptions.

This book provides leaders with the right lenses to fillter markets, giving order to complexity, and making disruptive innovation simpler.

PART I

It’s the Background

INTRODUCTION

Digital Was Missed

Disruptive innovation and digital transformation are the two capabilities qualified to tackle the new growth challenges facing all companies in the 21st-century—regardless of size, industry, market, or sector. This statement best describes the current business environment. They collaboratively work together to power growth. The disruptive innovation approach informs what companies look for in order to accelerate growth. Digital transformation informs which mediums and how they are used to achieve growth. “If you don’t understand disruptive innovation, your digital transformation efforts could all be for nothing” (Jefferies 2019). This book defines “disruptive innovation” as the process of creating new products, services, business models, and/or platforms that redefines customers’ expectations, changes consumers’ behaviors, and creates a new standard for customer value. The process involves customer intimacy, the detailed insights that come from understanding how a customer’s needs translate into a customer’s expectations. The work in this book evolves decades of research on disruptive innovation to prepare business leaders for new growth in the 21^st-century. Digital plays a significant role in all future innovations, but it propels disruptive innovations in news ways—not before discussed.

This digital collaborative approach to disruptive innovation is a very different approach than most companies deploy today. “Much of today’s innovation relies on the SIP [Structural Innovation Paradigm] that is focused on fulfilling customer needs with one goal in mind: delivering a product or service that is better, faster and cheaper than the customer can get from any competitor” (Simanis et al. 2009). Companies relying on the SIP approach to innovation have an intentional focus on maximizing their operating profits while simultaneously increasing the performances of their products. Their business operating models focus on increasing efficiencies and improving performance. However, in the 21^st-century profitability—from these levers—has reached its limits. Consequently, accelerating along these paths will not generate the new growth companies need in the future.

The new growth engines of disruptive innovation and digital transformation are focused on effectiveness in creating customer value—not strictly on productivity gains. Companies will need a different set of levers for future profitable growth. They will need to engage with customers to understand where to innovate. This shifts away from the SIP innovation approach. This will be hardest for large enterprise companies that are built around legacy assets and operations. This book demonstrates how to engage customers of all types (current, latent, and future): current customers defined as engaged in brand loyalty and/or consuming products and services; latent customers defined as new consumers from existing markets with unmet needs or unrealized expectations; and future customers defined as nonconsumers who previously relied on disparate solutions or alternative substitutions to meet their needs. This book helps companies uncover disruptive innovations that can only be understood by tapping into customers’ expectations and unlocking capabilities through digital transformation.

Why Is Digital So Significant?

In addition to a different approach to innovation, companies will need to understand and to accept that customers have access to complete information. In the digital future, customers can draw from a broad network of information and sources (Rogers 2016). Customers can act on that information to access and to purchase from a company’s competitors, alternatives, and substitutions. No longer will companies have an information advantage over customers. The speed of developments in technology and science, the pace of change in innovation, and customers access to an abundance of information means companies cannot debate whether to focus only on strategic customers, fitting their operating model, or to innovate in new markets. They must do both.

The world has been evolving toward a digital future of connected devices for nearly 30 years. “According to research from Gartner, approximately 26 billion objects would be linked together in the [Internet of Things] IoT by 2020, 33 billion in laptops, PCs, and smartphones were added” (Collis 2018). Connectivity and data transfer for all of these devices were made possible nearly 47 years ago in 1973: “the U.S. Defense Advanced Research Projects Agency (DARPA) initiated a research program to investigate techniques and technologies for interlinking packet networks of various kinds” (Leiner et al. 2017). The standardizations (or communication protocols) that were developed allowed “networked computers to communicate transparently across multiple, linked packet networks” (Leiner et al. 2017). The result was the “Internetting project and the system of networks which emerged from the research was known as the ‘Internet’” (Leiner et al. 2017). A host of other protocols followed: “TCP/IP Protocol Suite, after the two initial protocols developed: Transmission Control Protocol (TCP) and Internet Protocol (IP)” (Leiner et al. 2017), the “Netscape browser” enabled by Hypertext Markup Language (HTML), and universal resource locators (URLs) (Anthony et al. 2017). The end result was the start of digital information spreading.

Around 1986, a number of “backbone facilities” were created to transfer large packets of data between networks. This was critical infrastructure added by the U.S. National Science Foundation (NSF) NSFNET, the National Aeronautics and Space Administration (NASA) NSINET, and the U.S. Department of Energy (DOE) ESNET (Leiner et al. 2017). “In Europe, major international backbones such as NORDUnet [NORDUnet is a network of 5 Nordic National Research and Education Networks] and others provide connectivity to over one hundred thousand computers on a large number of networks” (Leiner et al. 2017). In the 1990s, commercial Internet backbones emerged to transport packets. These backbones enabled networks to connect and to link together into a vast network of networks. The combined system is the modern-day Internet. It consists of networked networks of giant carriers. These networks are owned and operated by different companies. “The individual core networks are privately owned by Tier 1 Internet Service Providers (ISP) ... AT&T, CenturyLink, Cogent Communications, Deutsche Telekom, Global Telecom and Technology (GTT), NTT Communications, Sprint, Tata Communications, Telecom Italia Sparkle, Telia Carrier, and Verizon” (Greene 2020). The digital protocols, Internet backbone infrastructure, network architecture, and carriers are a networked ecosystem that has been fueling digital innovations over the past 30-plus years (Webb 2019).

Notwithstanding, the Internet alone is insufficient to drive new technologies. “[E]ven the most astounding new technologies can fail to gain traction in the marketplace” (Johnson 2018). Consequently, companies with a command of innovation practices, processes, talent, products, and services, as well as supporting value propositions and business models, can navigate new growth through disruptive innovation and digital transformation.

Why Should Businesses Be Concerned?

Without the insights in this book, a business leader, who understood disruptive innovation based on past readings of Christensen’s theory of disruption, could miss out on the impact of digital transformation on the future of innovation. Clayton Christensen’s Theory of Disruptive Innovation (hereinafter referred to as “the original theory”) began as a narrowly focused theory of B2B markets. Christensen’s original theory defined disruptive innovation as a “phenomenon by which an innovation transforms an existing market or sector by introducing simplicity, convenience, accessibility, and affordability where complication and high cost have become the status quo—eventually completely redefining the industry” (Christensen 2016). It focused on transforming existing markets or sectors through innovations when entrants offered products and/or services at the low-end of the market (frequently through lower pricing) to customers of incumbent companies and then advance upmarket. Christensen did not address the abilities of incumbents to create new markets with an offensive strategy of disruptive innovation. He would later acknowledge this in a book he wrote in 2016 (Christensen et al. 2016). He primarily considered market creation as an outcome of entrants innovating in markets that incumbents ignored. Albeit narrow, the original theory offered the business community a way to describe a scenario—B2B markets shifting and disappearing as the result of innovative new products and services.

The original theory has had “a profound effect on academic literature and management mindset” (Reinhardt et al. 2011). Disruptive innovation has been extensively covered, which could make the phrase appear overused. Despite the widespread use of the phrase, the books, and the many articles written about disruptive innovation, I struggled with the practical aspects of the theory to find new growth potential for the 21^st-century. Consequently, I reread old books and read new books, articles, research studies, and industry reports that followed Christensen’s work, searching for additional insights. I was able to detect several reasons to reopen the discussion on disruptive innovation—mainly around digital, which Christensen admitted to missing in his original theory—likely do to the timeframe when his original theory was published in 1997 (Christensen et al. 2015). Although the world’s digital infrastructure was well underway by then, the impact of digital would not demonstrate its full dominance until 2007. Thomas Friedman wrote about this inflection year in a chapter of his book, Thank you for Being Late, What the Hell Happened in 2007? (Friedman 2016).

Since his first published works, Christensen answered to critiques of his original theory in a 2015 Harvard Business Review article, “What Is Disruptive Innovation?” It covered the ways in which he modified his original theory. For instance, he clarified: “Entrants that prove disruptive begin by successfully targeting those overlooked segments, gaining a foothold by delivering more-suitable functionality—frequently at a lower price” (Christensen et al. 2015). He reinterprets the success of entrants, tying it to overlooked segments by incumbents. Later, in a 2020 interview with MIT Sloan, Christensen added technology as an enabler.

Disruptive innovation describes a process by which a product or service powered by a technology enabler initially takes root in simple applications at the low end of a market—typically by being less expensive and more accessible—and then relentlessly moves upmarket, eventually displacing established competitors (Christensen 2020).

Fundamentally, Christensen alerted the world to a new phenomenon. His peers and industry leaders acknowledged his works, and fellow authors contributed to enhance and to advance his original theory. There have been several key subsequent theories that expanded upon Christensen’s original theory. One of those books was written in 2015...

Table of contents

• Cover
• Half-Title Page
• Title Page
• Copyright
• Acknowledgments
• Preface
• Part I It’s the Background
• Part II It’s the Framework
• Part III It’s Mastery
• Part IV It’s Control
• Part V Epilogue
• References
• About the Author
• Index
• Backcover