The Crazy Ones: An argument for disruptive innovation

Remember the story of David of Israel and Goliath of Philistine at the battle field of Gath? This story is one of the most remarkable tales of how a seemingly infinitesimally insignificant entity is able to challenge and successfully defeat a humongous entity. In strategy parlance, the process by which a smaller entity (product, brand or company) overtakes the market leader is called Disruptive Innovation. It is amazing how from nowhere, a seemingly negligible entity enters into the market with a seemingly inferior product, gradually builds sophistication and eventually topples the so-called “big-boys”. There are tens of cases on this phenomenon. In this post, I intend through the eyes of the theory of Disruptive Innovation make a case for the under-dogs. It is my hope that the propositions of this theory will propel that local upstart to reach for the stars.

Let me begin by asserting the contributions of Professor Clayton Christensen and his forerunner, Joseph Schumpeter. These two academics are arguably the most profound thought leaders in the field of innovation. Indeed, it was Joseph Schumpeter’s earlier work on creative destruction that provided an initial framework for the work of Harvard Professor Clayton Christensen. Both “Creative Destruction” and “Disruptive Innovation” are one of the same; they provide a coherent set of satisfying conditions why market leaders lose their controlling stakes to new entrants. It is worthy of note to also state that the contributions of other scholars like Professor Micheal Porter provide additional inspiration for understanding the dynamics of market. The Porter five model forces remain relevant even today.

Classic Examples of disruptions:

Personal Computers (PCs) replaced Mainframe computers. In the 1990s, with the internet revolution in full gear, the market for IBM’s mainframe computer disappeared. Sales plummeted significantly. Powered by breakthrough Intel microprocessors, internet, Graphical User Interface, the mouse and sold for the right price the new kid on the block (PC) ended the era of mainframe computing. 

Nucor and other steel mini-mills disrupted the integrated steel-mill giants. The mini-mills began by attacking at the lowest end of the market- steel reinforcing bar, or rebar- and step by step moved up toward the high-end, to make sheet steel- eventually driving all but one of the traditional steel mills into bankruptcy.

Netflix killed Blockbuster. Now bankrupt, Blockbuster was the darling of its category. Formed in 1985 as a small, flashy video-rental chain in Florida. Businessman Wayne Huizenga bought Blockbuster in 1987 and began a series of acquisitions that eventually made Blockbuster the world’s biggest video-rental company. In a Tsunami that was long coming, Netflix, an underdog using a superior business model gained traction sufficient enough to kill Blockbuster.

The above cases are but a few of classic instances. What is important to look out for are the factors responsible for the outcomes. There is no question at all that disruptive innovation is a repeatable business phenomenon. It is possible to set out to disrupt a market. There was a time when being a typist was a profession. Today, you’d think twice before you announce to anyone that you are one. In the humorous words of Leke Alder, “like artifacts, typists can now be found at Igbosere magistrate court”. 

There are four factors responsible for disruptive innovation. These factors must congregate for disruptive innovation to occur. 

1.  Sophisticated technology that simplifies. 
2.  Low cost business model.
3.  Economically coherent value network.
4.  Regulations and standards that facilitate change.

Applying this theory to the market, it becomes very clear that the seemingly “inferior” attributes of underdogs indeed qualify as a major recipe in the disruption soup. In the case of Nucor Steel Mill, it appeared that Nucor Mill (a mini mill) was grossly miniaturized playing at the lower end of the market. This turned out to be decisive. All an underdog has to do is get a niche market. A foot in the door and only time will tell.  

Do the market leaders decide to get killed? 

This is a question worth asking especially when in most cases, the “big-boys” could have easily sorted out the new entrant. In most cases, the challengers don’t appear to be going for the juggler but as it always turn out, the inevitable happens. The late Steve Jobs was fond of saying “If you don’t cannibalize yourself, someone else will”. According to Clayton Christensen in How Will You Measure Your Life, it has been discovered that marginal thinking is responsible for most cases of disruptions. 

The theory of marginal thinking is based on the thinking that sunk cost aren’t relevant in decision making. This explains why for instance IBM President; Thomas Watson Sr in 1943 said “Maybe there is demand for five personal computers”. Same goes for the traditional steel mill companies. The Chief Financial Officers didn’t see any sense in replicating the designs of the mini mills when there was excess capacity in the current installations. Myopia is the very reason why the big companies get killed. Under-estimate the new comers at your own peril.


The coming Tsunami 

According to Clayton, “There will be wholesale bankruptcies in the traditional universities”. If the traditional universities don’t take seriously the changing landscape in the sector, they will suffer the same fate as the traditional steel mills. The Massive Online Open Courses (MOOCs); a new business model driven by low-cost business model and superior technology are the challengers. A few examples are www.coursera.com, www.khanacademy, www.udacity.com, The new comers are fast gaining credibility and unless the traditional ivory towers consider the threat by tapping into this new value network, only time will tell. It important to state that there is an entire world of new pedagogy and methods that support this phenomenon. The value chain around this is highly organic. It is a moving train.

There’s is no reason why TECNO and others like it cannot topple the established players if they so choose to. Disruptive Innovation is a repeatable business phenomenon. Listen to the penguins. The iceberg is melting. Without playing to the gallery, competition remains a panacea for growth but disruptive innovation is a bigger calling. In the age of singularity, tomorrow is not promised.

Your start-up can be the next big thing. Challenge the status-quo.

Image Credit: Google