Innovation is complex and in order to bring success two elements should be considered:
1. Disruptive Innovation &
2. New Business model
1. So, what is disruptive innovation ?
Disruptive innovation consists in introduction of new product or service, totally different from existing. We can oppose disruptive innovation to incremental innovation where an organisation improve or provide new functionalities to existing products. As example we can compare the continuous improvement of car engine to reduce fuel consumption with disruptive Tesla’ s innovation car model where engine is fully electric and includes free power outlet network to empower their cars.
2. Disruptive innovation must always be supported by a business model.
New product or new service is not enough. Business Model is a key component. A business model is the way, for an organisation to create value for their customers and generate revenue. In order to build a valuable business model, the organisation should focus on the Customer needs (back to Design Thinking Approach) and consider organisational resources, processes and value (Back to Agile Culture and Approach)
The innovation becomes disruptive when the organisation develops a brand new business model. Let’s take the example of Nespresso where the new business model consists in targeting high-end customer selling a coffee machine at an attractive price with high margin capsules in their own boutiques and online property. Historically, Nestlé has been selling coffee in supermarkets to mass consumers, where Nespresso targets a customer niche (High-End customers). Traditionally Nestlé has been leveraging is own sales team to negotiate attractive pricing with resellers where with Nespresso, Nestlé sales is own coffee and machines directly to the end consumer, short cutting the traditional supermarket distribution channel. In order to achieve this approach, Nestlé has totally reviewed his business model to become a coffee maker, a machine maker (or partnering) and a retailer with new distribution channels (Nespresso boutiques and nespresso.com). Instead of reusing existing process and products only (Coffee making), Nestlé had to be totally disruptive in other business aspects requiring new expertise in producing coffee machines, marketing and distribution.
Generally with disruptive innovation models, existing organisation tend to compete themselves. Nespresso is a good example where it competes with traditional distribution channels it continues to leverage.
Another great example is Kodak the CMOS patents.
Kodak invented the CMOS. But because Kodak was traditionally competing with Fujifilm on silver film market. Kodak didn’t invest sufficiently in developing this innovation. At that time Kodak was not equipped and should have massively invested to transform from a silver film supply to a camera supply organisation. Other players as Canon or Nikkon where better positioned to leverage Kodak CMOS patents. Per that example what is a disruptive innovation for one can become an incremental innovation for some others.
Disruptive Innovation and Business Models are intimately linked together to success in innovation. In order for an organisation to be able to change their processes / cultures, it needs to be Agile enough and implement Agile processes to evolve fast enough to deliver the value proposition expected by their customers.
In my next post on Innovation, I will deep dive the case of Kodak and why disruptive innovation implementation tends to fail in organisations.