Disruptive Innovation is Not Always the Right Answer

We all know innovation is important to a company’s success. Maxims like “innovate or die” and “obsolete yourself before your competitors do it for you” have been around for decades. You may think that if your company is not pursuing innovations that completely transform the market, you will be left behind. But there are different forms of innovation, and not every form is appropriate in every situation. In today’s post I will show how being “innovative” can actually damage your company if you don’t do it in a way appropriate for the situation.

Let’s start by understanding two of the major types of innovation: incremental innovation and disruptive innovation. Incremental innovation focuses on improving existing products. In automobile manufacturing, for example, improvements such as antilock brakes or airbags are incremental innovations. They make older cars less attractive, but the new cars that have these features are still familiar to customers. Such improvements don’t completely turn the market upside down and drive existing manufacturers out of the business.

Disruptive innovation focuses on bringing something entirely new to the market. Think of the locomotive manufacturing business. In the first half of the twentieth century, steam locomotives dominated the market. But after 1949, not a single US railroad bought a steam locomotive. Every new locomotive was diesel powered. This was such a disruptive innovation that no manufacturer of steam locomotives survived the transition.

You might think that introducing a disruptive innovation is always the best way to win a market, but that is not always true. Imagine you are already the market leader in a steadily growing market. Competitors have seen how well you are doing and want to capture some of your business. They are introducing products roughly similar to yours in an attempt to win share by taking it away from you.

You have two options . The first is to incrementally improve your current product so it is more attractive to your customers. The second is to follow the route of disruptive innovation and develop an entirely new product that completely replaces your current product.

Disruptive innovation may not be the best choice in this situation. Here’s why. If you innovate incrementally, you continue to provide customers with a product they know and understand. Your new product may offer more features, but it will be something customers are comfortable with. If you replace it with an entirely new product, they no longer have that familiarity. They will have to adapt to something new regardless of whether they stick with you or move to your competitor. When you are already the market leader you don’t want to give your customers that option. (This is not intended to disparage the concept of disruptive innovation. As we will see below, there are many times it is the right approach. But not always.)

Here's an example from my own experience. A couple of years ago I served in a consulting role for one of my clients in high tech. Their business was to manage and maintain the IT networks of their small business customers. My client used Remote Monitoring and Management (RMM) software from an outside vendor to assure their customers’ networks were running smoothly, their computers, servers, and network equipment were up to date with software patches, that customer data was being backed up, and that robust cybersecurity protection was in place.

My client had been using RMM software from a market-leading vendor for nearly twenty years. One day, this vendor announced that the software they had been shipping for all that time was getting close to end-of-life. Their plan was to completely replace it with an entirely new software tool within two years.

This was disruptive news for my client. Even if they remained with their current vendor, they would have to switch to the new RMM tool and figure out how to migrate all their existing customers onto this new platform. Moreover, the vendor said that while the new software would have all the features that most clients needed, it might not include some less used features, at least not at the outset.

This triggered my client to make a key decision. As long as they would have to evaluate their vendor’s new RMM software anyway, they might as well also evaluate competitive products that had come onto the market more recently. My client asked me to help lead the technical evaluation of these products.

From a starting list of eight possible vendors, we soon cut it down to two: the current vendor and one new vendor. We wanted to evaluate both options but quickly ran into a problem. The current vendor was still over a year away from introducing their new product, and they did not even have prototype software for us to test. The new vendor’s software was already up and running, and they gave us a complimentary version to put through its paces. We were impressed with how well it worked and how proactive their team was in responding to our questions. While the new vendor's software didn’t have every feature that was in our current software, it had everything on our “must-have” list. And the vendor had a clear roadmap for introducing additional features. We realized the best answer was to drop the vendor we had been using for twenty years and go with the new vendor.

Our current vendor could have avoided this whole situation with a better plan. By announcing a disruptive change to their product line well before they were ready to deliver, they opened us up to looking at alternatives. What should they have done? Three things. First, they should not have announced their new product until they were ready to at least offer well-tested prototypes for us to evaluate. Second, they should have continued with incremental improvements to their current software to keep it relevant until they were ready to announce the new product. Third, they should have made the new software backward compatible with their current software. That could have convinced us that even though the new software was built around entirely new code, we could insert it into our environment without having to change anything we were already doing to manage our customer networks. This would have had given us far less incentive to look at alternatives.

Here's another example. A well-known consultant once told me a story (possibly apocryphal) about how 3M held off introducing a disruptive new product for several years until the time was right. Originally, their Scotch tape used a thick, highly glossy cellulose backing. When you applied it to paper, you could easily see where it was. But in 1961, 3M introduced what they called Magic Tape. It used a thin, matte-finished backing that was nearly invisible when applied to paper—even today it dominates the market. According to the consultant, 3M kept this disruptive innovation secret for several years. Not only did they wait to introduce it until after their original patents had expired, but also until after competitors had invested millions of dollars in factories designed to compete with the original Scotch tape.

The common theme in both of these examples is that the companies were already the leaders in their markets, and competitors were just trying to catch up. This is not the time to do something disruptive that will cause customers to rethink their choice. Certainly you should still staff projects that could lead to disruptive innovations. You should still patent aspects of technology that will protect your status. But as market leader you don’t need to be first to put a disruptive technology on the market. You must, however be prepared to respond quickly if a smaller competitor does so.

In my book, Winning through Innovation: Lessons from the Front Lines of Business, I share more insight into the types of innovations that best align with the phase a market is in.