Examples of Disruptive Innovation in Enterprises

…. and how to improve at Business Innovation

While recognizing enterprises have been innovating for a long time to become large and established organizations, the nature, context and need to innovate today is fundamentally different than in the past. An example of this is the rapidly rising rate of change in the Fortune 500 where a significant number of those currently on the list were not there 5, 10, or 15 years ago. Further, the expectation is the turnover will be even greater in 5, 10, or 15 years from now. With many people in enterprises thinking they won’t be a casualty of change, or, there is a lack of concern about change, disruption and paradigm shifts – this is the basis for corporate decline. And because it can take years to become apparent, there is no moment in time to effect change – unless driven by visionary leadership or new strategic thinking about how to better position the organization for the future.

To better appreciate this challenging situation, no matter how successful the business is today, the following are instructive examples of enterprises that also thought ” We’re Good ” !!

Eastman Kodak

In 1892, George Eastman formed the Eastman Kodak Company to “make the camera as convenient as a pencil.” It was an idea whose time had come and by the early 20th century, Kodak emerged as one of America’s largest companies and Eastman one of its most successful entrepreneurs. It wasn’t just that one idea that made the company so successful, it managed to stay on the bleeding edge for over a century, pioneering impressive new advancements in photographic paper, development and image processing.

In 1975, Kodak invented the digital camera, which would lead to its downfall as a major corporation. The problem wasn’t that Kodak didn’t understand the potential, but that it became stuck in its operating model. It was so huge and so profitable, that almost any other opportunity seemed small by comparison.

Xerox

What is very instructive here is the company showed tremendous vision and amazing strategic thinking by creating Xerox Parc in the early 1970s and heavily funded the Innovation Lab (in Silicon Valley – 3,000 miles away from HQ in Rochester NY). This is all the more impressive since Xerox was a very successful copier and printer company at the time and was accomplished at innovation. The pinnacle of Xerox PARC disruptive innovations originated from the revolutionary concept in 1973 to mimic an office desk and create a personalized computer for a paperless office. Unfortunately, because Xerox management didn’t know what they had the technology languished and ended up being given away ! However, when Steve Jobs of Apple saw it he recognized Xerox PARC had invented the future. And when Bill Gates saw what Apple had, Microsoft adopted the technology for Windows. Since then many other companies utilize original Xerox style technology in their software, mobile devices, etc. – with no benefit to Xerox ! This is very unfortunate for Xerox who clearly needed to be much more business savvy and technology aware with much more enlightened leadership, strong look ahead skills, applying fresh thinking, knowing how to monetize innovation, being vigilant in protecting their IP, etc. If this had been the case, Xerox would probably be the most valuable company on the planet today !

Not having the above qualities in the company, various wrong assumptions, poor decisions, corporate politics, inability to effect meaningful change, etc., some of the issues at Xerox leading to business decline were –

1. Business / Market Changes – The company’s xerography patents began expiring in the early 1970s, and its 95% market share diminished. By 1982, Xerox had declined to 13 % of the U.S. copier business – under an onslaught of low-priced copiers from Japan.

2. Corporate Distraction – In 1979, Xerox purchased Western Union International as the basis for its proposed Xerox Telecommunications Network and soon realized that it was a mistake and sold that assets at a loss to MCI.

3. Xerox basically invented digital communication (the PC, Mouse, Graphical User Interface, Ethernet) in the 1970s, yet management not seeing important changes in the making – how any of these innovations could replace black marks on white paper, would supplant Xerox’s copier technology and core business, or enable Xerox be a player in the “office of the future ”. And since the cost of developing digital technology and making a new market was expensive, it was easier to stick with what they knew by continuing to make copiers since volumes and margins were high, and they could keep milking the cash cow.

4. Leadership and Accountability issues – While the 2 senior executives (Allaire and Thoman) believed Xerox needed to reinvent itself to succeed in the Digital Age, they blamed the other for screwing up the implementation of the strategic plan they developed together.

Research in Motion / BlackBerry

In the late-2000s, the Research in Motion (RIM) BlackBerry smartphone was seemingly everywhere. In 2009, Fortune named RIM the World’s Fastest Growing Company with earnings growing at 84% YOY. Time stated “The device was so ubiquitous on Wall Street and Capitol Hill that it earned the nickname CrackBerry.” The BlackBerry was the first device to “push email” – enabling people to received emails when they were sent rather than having to check email constantly. The BlackBerry computer-like QWERTY keyboard was the first on a hand-held device and allowed for much faster typing than the old numeric keyboard which all other mobile phones had. BlackBerry also had enormous ecosystem as millennials loved the chat function BlackBerry Messenger (BBM) and one could only BBM with other BlackBerry devices. At 21 % worldwide phone market-share in 2009, BlackBerry really was the first successful smartphone. However, by the end of 2013, BlackBerry’s market share had fallen off a cliff to under 1%.

On the flipside, as BlackBerry crumbled, Google Android and Apple iPhone came to dominate the smartphone market. By the end of 2016, Android held a 85 % market share while iPhone held a 14 % market share. In September 2016, Blackberry announced it was exiting the hardware business to focus on software. At that time, Blackberry had neglible smartphone market share with just under 208,000 devices.

The main factors contributing to BlackBerry’s demise were –

1. RIM lost touch with the evolving market. BlackBerry incorrectly believed that the corporate world rather than the consumer world would drive smartphone adoption. BlackBerry focused on attributes such as security and keyboard ease of use to come to dominate the corporate market. Focusing on its corporate users, BlackBerry insisted on creating phones with full keyboards, despite seeing the feedback from the majority of users that they preferred touchscreens. BlackBerry saw its devices as email-enabled mobile phones, rather than the powerful mobile computers which Google and Apple envisioned. While BlackBerry was focusing on the keyboard, Google and Apple were focusing on entertainment attributes such as better cameras, speakers, and video viewing.

2. RIM failed to meet increasing User expectations and the BlackBerry did not take advantage of the consumer-focused application economy which drove massive adoption to iPhones and Androids. Both iPhones and Androids encouraged third-party developers to build applications to be sold in their marketplaces. Applications changed phones from email-enabled mobile phones to full-fledge mobile entertainment hubs. Once droves of users started trading in their BlackBerry’s for iPhones and Androids not being able to operate in these environments expanded BlackBerry’s problems. For example, BlackBerry Messenger only worked between BlackBerry’s and so became less and less applicable. Similarly, users of iPhones and Androids interacted with each other via applications which were not available on the BlackBerry.

3. RIM Management, like many organizations who struggle, were not able to – update the vision , redefine the organization and the market, move to a new business model, get past internal issues and distractions, leverage internal and external competencies to create new opportunities and synergies to increase the rewards from innovation and better manage the risks associated with change to improve outcomes and be a business of the future.

When BlackBerry tried to launch a consumer-focused device with a touchscreen rather than a keyboard in 2015, the device did not stack up well against the capabilities and sophistication of the Android and the iPhone – which were by then both several generations ahead in terms of ease of use, visuals, and having an extensive ecosystem with Apps and other services. As a result of not changing to become much more consumer oriented and prior to many people becoming familiar with the re-defined smartphone – paved the road for BlackBerry’s demise.

IBM

IBM has made some layoffs recently in its AI division. This has occurred because IBM is finding it difficult to turn its ‘ cognitive computing ’ initiative into a viable business. While not encouraging, it’s not unusual for enterprises and startups to have periodic false starts or need to do a pivot to move forward. Interestingly, one of the reasons mentioned by a former Watson engineer for IBM’s struggles is – “ Smaller companies are eating us alive – they’re better, faster, cheaper ”.

This is an example of why IBM revenues declined from $107 billion in 2011 to $79 billion in 2017. The company is painstakingly working to transform itself, investing in artificial intelligence and cloud computing, while trying to evolve the organization and shed businesses in mature sectors of the technology industry that isn’t strategic to its future or where IBM isn’t competitive. Having gone through a similar wrenching change in the 1990s due to a dated business model, much nimbler competitors, the emergence of new markets (ie: the PC, Internet, Analytics, BI, etc.). Further, companies like Microsoft, Intel, Google, Cisco, SAP, etc. redefined and expanded the industry. From this IBM is discovering the importance of the need to be good at innovation and great at execution to realize success – even as markets change, to meet rising Customer expectations, being agile, delivering great value, etc.

From this, it’s important to realize that as business and technology life cycles continue to shrink, there are significant challenges for an enterprise to adapt and grow ! Since this not only applies to companies in the technology sector, all enterprises in all industries would do well to get better at disruptive business innovation to better position themselves for the future.

For additional insights, see – https://www.zdnet.com/article/ibm-still-failing-after-all-these-years/

General Electric

The failure of GE’s Digital Transformation and decline in corporate valuation has been epic. While then CEO Jeff Immelt attempted to achieve adequate growth at General Electric long before the issues emerged, nothing prepared GE’s investors for the precipitous collapse of the company’s market value in the immediate aftermath of Immelt’s retirement. This included the demise of GE Capital, industry changes, greater competition in various GE markets, poor investment decisions, bad capital allocations, challenges with execution on new initiatives, and a decline in GE’s vaunted corporate culture – despite GE claiming to be an industrial leader of the digital revolution. It was to be a major player in software and putting sensors on its powerful equipment. Immelt’s successor, John Flannery, isn’t backing away from GE’s digital strategy. But he is scaling back its software aspirations and no longer using the flowery language Immelt’s team favored to describe GE industrial hipness. With many external and internal shifts in the business landscape since 2000 (ie: the financial meltdown in 2008), major problems in the making at GE prior to and in the early years of Immelt being CEO – it’s now clear GE Management didn’t do enough things right.

As we are seeing with GE, like with IBM, when the original businesses were declining faster than the new ones were scaling – it’s a challenge – even with an emphasis on innovation to transform an enterprise !

For additional insights, see – http://theweek.com/articles/761357/fall-ge , https://www.bloomberg.com/news/features/2018-02-01/how-ge-went-from-american-icon-to-astonishing-mess , Who Killed the GE Model?

Yahoo !

Once the world’s most popular website, Yahoo! missed the opportunity to purchase Google twice, had a failed bid to acquire Facebook, and also experienced a data breach to 500 million of its users. In fact, it failed to focus on its users in general, with a lack of interface innovation and intrusive advertising. If you want to read the full story, google it…

MySpace

One of the first social media platforms of the early 2000s, not only was it overtaken by Facebook’s superior product offering, but its attempt to compete was hamstrung by News Corp’s US$580 million acquisition. Bogged down by the corporate politics and revenue demands of the media giant, it lost its nimble and creative roots. News Corp sold it to Time for around US$35 million in 2011.

Nokia

The Finnish giant overtook Motorola in 1998 as the world’s largest mobile phone maker. It had already released the first internet-enabled mobile phone and a touchscreen prototype. Like BlackBerry, though, Nokia failed to embrace the Android revolution and stuck with a keyboard. After realising it had misjudged the market trends, the reaction with its own Symbian system arrived too late to catch Apple and Samsung.

Insights to Improve at Business Innovation

As the above examples highlight, innovation and effecting real change in an enterprise is a huge challenge. This is why many enterprises have failed and numerous current organizations are struggling to meaningfully transform themselves.

To move forward today, the need has never been greater to successfully innovate with an emphasis on –

monetizing value creation (with new products in new markets as well as evolving current products in current markets)
being more sophisticated in managing the risks associated with change

…. in an age of ” Digital Platforms ” and ” Delivering a Great User Experience “.

A recurring theme with this is for the enterprise to bridge the gap between ” Innovation – moving to the new business ” and ” Operations – with a focus on the current business and being trapped in the P & L“.

To bridge the gap you need to –

See Innovation In 3 Horizons

Innovation is never one thing or one event. In fact, it usually takes about 30 years to go from an initial discovery to a significant market impact (as was the case of digital photography). So we need to look at innovation in multiple dimensions in order to understand it properly. One of the useful frameworks described in the book, Mapping Innovation is the Three Horizons Model, which groups opportunities based on how they relate to current markets and capabilities. The first horizon is focused on your enterprise’s current activities, while the second and third horizons focus on adjacencies and completely new activities. The three horizons require vastly different perspectives. The first horizon is much like traditional strategy and rewards sound analysis and execution. The second horizon is more uncertain and requires some iteration to work out kinks. The third horizon is largely dependent on exploration and the willingness to charge boldly into the unknown. The trap that many firms fall into is mistaking excellence in one horizon for excellence in another. Kodak, for example, excelled in the first horizon, but failed to iterate and explore new markets as digital photography reshaped the marketplace.

Get Outside the Corporate P & L

Kodak had a uniquely profitable business. Because of the decades it spent innovating image processing, it thoroughly dominated the market for developing photos, which was highly lucrative. Everyday, millions of people would come to one of their retail locations to get their prints, creating a constant revenue stream. The digital photography business paled by comparison. It’s not that Kodak ignored the technology — its EasyShare line of cameras, printers and software were top sellers — nevertheless, the new revenues did little to replace the processing business, which was far more profitable. Every successful business eventually faces the same dilemma. Second and third horizon opportunities are rarely as profitable in the beginning as first horizon innovations. So it’s easy to get trapped in your P&L, choosing to focus on markets and capabilities you can quantify, rather than investing in more uncertain opportunities. That’s how good companies get stuck, by focusing solely on first horizon opportunities, you end up getting better and better at things that people care about less and less. That’s what happened to Kodak. They remained dominant in the market for developing photos, but that market was disappearing. It was a burning platform.

Identifying the “ Hair On Fire ” Use Case

Another problem that enterprises have in pursuing second and third horizon opportunities is that traditional business logic gets flipped on its head. When you are launching a conventional, first horizon product, you look for the largest possible addressable market in order to get the best possible return on your investment. Yet in the second and third horizon, where things are more uncertain, that can spell disaster, because you lack understanding of what your customer’s needs are. What might seem perfectly reasonable when you are reviewing a market analysis in the boardroom often fails utterly once it hits the reality of a real market with real stakeholders. That’s what happened to Google Glass, which launched with great fanfare in 2014 as an augmented reality consumer device for hipsters that could deliver a completely hands-free computing experience through conventionally looking glasses. It fared so poorly that people started calling those who bought the product “glassholes.” Yet today, Google Glass is gaining traction as an industrial device that can assist professionals in a work environment. From factory floors to operating rooms, the product is proving effective at improving productivity, safety and documenting procedures and an impressive ecosystem is forming to support Google Glass. When you’re developing a product that’s truly new and different, what you want is not a large market, but a “ hair on fire ” use case where the customer needs the product so badly that they are willing to overlook minor glitches. So you need to build for the few, not the many. Once you establish a foothold, you can scale the business up from there.

Recognize Strong Operational Competencies Often Leads to Innovation Failure

To operate in a competitive market, you have to plan effectively, run a very efficient operation, produce results according to a schedule, have structure, do lots of reporting, etc. As well, enterprises need to hire the right people for the right task in the right quantity, invest in physical capital, equipment and marketing, etc. If your estimates are off, you will either waste money, have excess capacity, or miss out on sales because the company can’t satisfy demand. While good in operations, this style of thinking often hinders the ability to innovate. Why ? Because the next big thing always starts out looking like nothing at all. So by instituting financial targets, processes and controls for a business that you don’t fully understand, you almost guarantee that your second and third horizon opportunities end up getting scaled back to a first horizon ideas. And despite the best intentions, you end up trapped in your P & L. To address this issue, some companies have created separate units (ie: Google X ) with an Innovation Lab that is set up specifically to pursue opportunities separately from the operational divisions. With this approach failure rates tend to be much higher than would be tolerated in normal business practice – but the payoffs tend to more than offset them. And you’re getting a window into the future that should be beneficial to evolving the current business.

The Bottom Line

Because every business is eventually disrupted, it’s absolutely essential enterprises be able to look beyond the current business by meaningfully exploring new horizons / opportunities –