Disruptive or incremental innovation?

‘Radical’ or ‘disruptive’ innovation is a prominent topic for many
companies. Innovations that fundamentally change or create new markets
are both emotionally attractive and fundamentally appealing. Whether
from the perspective of the organization that takes on the status quo
to reinvent the marketplace or from the point of view of an incumbent
who needs to preempt potential disruption, identifying potential
opportunities for high-level innovation is a real challenge. Spurred on
by a range of high-profile disruptions, more and more companies seek to
be the next disruptive innovator in a major market. In order to start
on this ambitious journey, many are looking for a better understanding
of who are today’s emergent disrupters and what are their key areas of
innovation focus. In order to highlight these current disrupters, this
article will focus on three types of disruptive innovation: those which
are driven by technology, business model and consumer value.

Here we examine those companies that redefine their markets

Technology-driven disruption

Technology
As the worldwide obsession with constant connectivity continues, it
seems no sector of society will be excluded from this trend. Children
in emerging regions and rural Chinese communities are becoming target
markets for corporations such as Intel, Lenovo and Dell. These
companies are involved in designing
extremely rugged products, so energy efficient that they can be powered
by hand cranking and each costing less than $200 once all extraneous
components have been removed. With vast investment from Intel’s ‘World
Ahead’ program, basic PC skills will soon be attainable in even the
most remote of communities. In the developed world, WiFi is about to
reach the final frontier of travel, as Aircell prepares to launch its
air-to-ground based broadband solution on American Airlines’ Boeing 767
planes. This technology will allow passengers to access email and the
Internet on a fee-paying basis, just as if they were sitting in their
local Starbucks.

Healthcare
There are many disruptions with a technology-induced starting point,
but most capitalise on the improvement of an existing idea. In
evaluating the top technology trends of the future, one of the
strongest opportunities lies in the use of electronics in the medical
world. While advances in electronics can certainly allow for improved
treatment of patients, equally exciting is the work being done to
assist medical diagnosis. SmartPillCorporation has created a digestible
device the size of a vitamin that can be swallowed by the patient.
Information about the patient’s digestive system is then transmitted to
a data receiver as the patient goes about their daily business. The
device also enables the data to be downloaded at a later date, when the
patient returns to the doctor. As common digestive disorders are not
only widespread but also difficult to diagnose and treat, the potential
impact of the device on the medical industry and patient relief is
substantial.
Business model disruption

Media
In addition to breakthroughs in technology, there are also a number of
disruptive innovators that have adopted new business models to shake up
the market. Blykoffers a totally new proposition to both its customers
and retailers in the form of a mobile network funded entirely by
advertising and aimed solely at 16-24 year-olds. Customers receive
similar benefits to those of a standard mobile phone package -including
a certain number of free calls and texts every month -all the while
opting to receive targeted SMS ads based on their specified
preferences. By April 2008, Blykhad already signed up 100,000
customers, six months ahead of schedule. The business model employed by
Blykoffers a total win-win to both customers and advertisers, allowing
the latter direct access to the youth audience they seek to target.
Subscribers with the correct profile for a brand are targeted using
text messages, usually with a question to which they need to respond,
such as asking if they would like to receive more information about a
particular product. The response rate is an extraordinary 29% on
average, which, when compared with an average direct mail response rate
of 2% or online banner response rate of 0.5%, makes this a remarkably
efficient and successful form of marketing -one that is likely to
revolutionise mobile advertising.

Technology
Silicon Valley start-up Ribbit has developed a platform-based web phone
that effectively acts as a one-stop shop, providing its users with a
single number for all incoming and outgoing calls, regardless of
whether these are received via a mobile handset, fixed line or even
through Skype. Although similar services are being offered by Google’s
GrandCentral, Lignup and Ifbyphone, Ribbit is differentiated by its
open platform approach to developers. By making its APIs available to
developers, Ribbit allows them to design new applications to merge
voice with a web-based front end, opening up a host of new innovations
in voice-ware applications and their integration with the web. Through
this model, developers can do more than just design new applications:
they have the opportunity to sell them as well, creating a symbiotic
business model for Ribbit and its developers through which both are
able to capitalize. Another company to
watch in the move towards wireless is FON -a Spanish company building
up a global community of hotspots by tying together home broadband
connections already in place. The company sells customers a wireless
router, which -once connected -acts as both a private and public access
point. Customers who share their broadband with other public users get
free access to all other FON hotspots, as well as receiving part of the
proceeds generated from access sold through their own FON connection.

Customer Value disruption

Retail
While the concept of leasing is nothing new, “temporary ownership” is
now beginning to come into its own, with companies like Streetcar and
Zipcar offering to hire out a car for as little as an hour at a time.
The temporary ownership idea has even expanded to a greener
alternative. Bike sharing schemes are springing up in international
cities; Paris, Seville and Copenhagen all offer schemes that allow
citizens to pick up a bike at docks situated around the city, with the
option to return the bike to a different location once their journey is
complete.

Taking the concept a step further by tapping into celebrity trends,
Handbag Hire HQ offers customers the opportunity to rent designer
handbags -at a fixed monthly rate -for as long as they are wanted or
needed. Similarly, paperspine.com allows its customers to build a
wish-list of books that can be kept for as long as the customer wants
prior to return.  The temporary ownership concept offers many consumer
advantages, allowing customers the freedom to use or ‘own’ something
that they might be unable to afford, or that might be thrown away in
today’s disposable society.
As people begin to think more about environmental issues and consider
their personal social responsibility, short-term ownership effectively
means never having a host of things to throw away once they are
finished or go out of fashion, while the environmental benefits of car
sharing and cycling are clear. The city bike schemes have gone a step
further by helping to reduce street crime, thanks to a fall in bike
theft. All in all, the financial and environmental benefits of
temporary ownership make it a very valuable customer proposition and we
should expect to see more schemes like this in the future.

Finance
In a society that increasingly values speed and overall ease-of-use,
Barclaycard’s OnePulse is a trail-blazing precursor to the future,
where contact-less and mobile payments are likely to become the norm.
OnePulse combines the traditional debit/credit card with the
contact-less Oyster card function for use on the London transport
system, as well as Visa’s ‘PayWave’ technology, which allows users to
pay for items up to £10 in value simply by waving the card in front of
a reader at any participating retailer.

Barclays have managed to negotiate a three-year exclusive deal with
Transys -the transit operator responsible for Oyster -giving them
access to more than six million Oyster-carrying customers. While
Barclays obviously stands to gain from the deal, the consumer is also
likely to enjoy greater convenience, with one single card capable of
paying for both goods and travel in seconds. The product has already
encountered strong success in the capital, as increasingly numbers of
retailers introduce ‘Wave and Pay’ points by the till.  Beyond these
benefits, OnePulsere presents just the beginning for contact-less
payment, with the technology likely to move to the mobile phone in the
future. In short, this could be the beginning of the end for payments
as we know them.

Disruptive innovation, the new business Holy Grail ?
For organizations that desire to be ‘Disruptive Innovators’, it is
critical to recognise the real scope of disruption in order to specify
the approach, business model and partnerships that may be required in
order to deliver the product or services.

Many successful disruptors have profited by transposing existing
business models and proven technology from another sector into their
own. Currently, this is more likely to result from the perspective of
consumer need ‘pull’than it is from a technology ‘push’. The key is to
identify exactly what and where the real consumer unmet need is, how it
can best be met and at what premium versus the alternatives.
Disruptive innovation is clearly an area of major interest and rightly
so, given its potential ROI impact when delivered effectively.

While incremental innovation dominates many corporate product
portfolios, organizations are increasingly seeking to add to the share
of potentially radical innovations being nurtured. Consideration of
various methods of disruptive innovation, as well as the specific
examples outlined here, may help to provide focus ahead of action.

Damien Duhamel is Managing Director Asia Pacific at kae:marketing
intelligence, a global marketing and Innovation strategy consultancy.
www.kae.com