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Disruptive innovation and prospects for a prosperous 2018

Wednesday, January 03, 2018

There is hardly anything more frustrating than an individual, a company, a Government, or a country with obvious potential that has run out of ideas of how to rise above mediocre performance to attain excellence. Jamaica is the textbook case of a country that continues to underperform economically and socially relative to its rich human, natural and other resources. No amount of New Year's resolutions or wishful thinking is going to change that. We need a New Year's revolution.

As humans continue to push the boundaries of science, particularly neuroscience, to unlock the secrets to the working of the brain and the mind, the field of management has from time to time thrown up catchphrases that attempt to capture the state of the knowledge at a particular point in time. We have gone through positive thinking, creative thinking, and thinking outside of the box, to name a few. People have largely paid lip service to these concepts while remaining patently dinosaur-like and timid in their thinking; preferring to hold on to the old and familiar than grasp the new and exciting or to enter uncharted territory.

A new generation of concepts and theories has begun to emerge. It's difficult to fake these, for they embody a strategy which quickly exposes opportunistic practitioners to be less than sincere or committed in their application. One that is being bandied about these days with little understanding of its meaning or application is disruptive innovation.

Writing in the December 2015 Harvard Business Review, Clayton Christensen, Michael Raynor and Rory McDonald, who first coined the term in 1995, had this to say: “Unfortunately, disruption theory is in danger of becoming a victim of its own success. Despite broad dissemination, the theory's core concepts have been widely misunderstood and its basic tenets misapplied. Furthermore, essential refinements in the theory appear to have been overshadowed by the popularity of the initial formulation.”

In its general use, disruptive innovation is taken to mean breakthroughs in product design, service delivery, methods, and approaches that cause a shift in market dynamics or behavioural norms prompting a response by competing entities. This limited understanding and the human tendency to adopt a label without taking time to grasp the essence have led to US President Donald Trump's claim to being a disrupter when he is nothing more than disruptive. He is not alone in this tendency.

So, what then is disruptive innovation and how can the concept and theory open new vistas of opportunities in 2018? Disruptive innovation is best described in the context of established companies with entrenched or dominant market positions and new entrants or upstarts trying to get a foothold. As mature companies dominate a market segment they inevitably, as if out of a sense of entitlement, move up the value chain in search of more demanding and profitable customers — in the process leaving behind those customers who made the brand, product, or service great in the first place. This opens the opportunity for a new entrant or smaller company with fewer resources to target the ignored segments with innovations that provide a superior value proposition often at a lower price point.

Inevitably, the innovator, who may be a new entrant, moves upmarket to capture value-seeking mainstream customers while holding on to the market that drove its early success. Disruption is said to occur when the mainstream market starts to adopt or acquire the alternative solution in volume; forcing a response from the blindsided entrenched market leader.

Uber, the phenomenal transportation company that uses a mobile application to connect people who want transportation services with private citizens who own cars, is almost without thinking crowned as the classic disruptive innovation for turning the traditional taxi service on its head in the United States and several large cities around the world. To be convinced, the originators of the concept would look to see if it meets several criteria.

Three of these are:

1. Disruptive innovations start in underserved, low-end, overlooked or new market segments.

2. Disruptive innovations break out to enter the main market only after quality meets the demanding requirements of that segment.

3. Disrupters usually rely on business models that are fundamentally different from those of incumbents.

 

If Uber, by these exacting criteria, does not qualify to be considered a disruptive innovation, are there any Jamaican examples that would pass the test? How about Sandals, which popularised the all-inclusive concept to save the local tourism industry at a time when Jamaica faced the threat of being labelled an unsafe destination? Or Digicel, that cut the ground from under Cable & Wireless by making mobile technology available and affordable to every Jamaican? Or Jamaica National that primarily serves the low-end market, but now through the recently introduced commercial banking services is attracting mainstream customers in droves? Or Knutsford Express that gave the upper market segment a reason to park their cars and take the bus? Or University College of the Commonwealth Caribbean and Hydel Group of Schools, which proved that private educational institutions can simultaneously and viably meet the needs of the top and bottom of the market?

The purist may come to a different answer than the reader concerning whether these examples qualify as disruptive innovations. Suffice it to say, there are examples aplenty of the level of thinking and type of approach the Government and its agencies, private, and non-profit sector organisations, and individuals must adopt if 2018 is to be a happy and prosperous year not just in the recitation of well-rehearsed reflexive words, but deeds and results.

 

hmorgan@cwjamaica.com