- INTRODUCTION: THE NEED TO CLARIFY THE MEANING OF THE FUNDAMENTALS OF THE MARKET (OF THE BUSINESS)
- CONSIDERATIONS ON THE FORM OF INNOVATION
- THE DIFFERENCE BETWEEN THE INNOVATION MODELS
- ■ “TRADITIONAL” INNOVATION (Suistaining Innovation)
- ■ DISRUPTIVE INNOVATION – a sort of “revolutionary innovation”
- THE CHANGE OF THE BUSINESS PARADIGM
- ► MISSION / PURPOSE OF BUSINESS
- ► BUSINESS MODEL: a profound change
- THE DIFFERENCE BETWEEN THE INNOVATION MODELS
- THE GENERAL PRINCIPLES OF THE TWO FORM OF INNOVATION FORMS (SUMMARY)
- ► Principles of TRADITIONAL INNOVATION
- ► Principles of the DISRUPTIVE INNOVATION
- Comparison between Disruptive and Sustaining Innovation: the case of “electric bikes”
TO GUIDELINES TO DISRUPTIVE INNOVATION
- Guidelines : Basic Q&A on Disruptive innovation
- Guidelines : WHAT IS and WHAT IS NOT Disruptive innovation
- Guidelines : Table for Assessing Disruptive Innovation
- Decalogue of Rules of Disruptive innovation
INTRODUCTION: THE NEED TO CLARIFY THE MEANING OF THE FUNDAMENTALS OF THE MARKET (OF THE BUSINESS)
Today, most of the big Companies’ strategies are bankrupt. This also applies to companies that initially dominated the new disruptive innovation Market (as it is today for Apple’s iPhone and Airbnb).
The problem is that
today a clear awareness is lacking
what are the rules of the new market.
This unconsciousness leads to the creation of serious misunderstandings: most Companies think they are going in one direction (for example, applying a functional Innovation to the current Market) and instead they are going in the opposite direction (they apply principles that lead to the failure of their strategies ).
Paradoxically, the problem affects those who try to apply a Disruptive Innovation. While those who consciously continue to apply the strategies of the previous Market correctly (pre-disruption), at least in the medium-short term, continue to prosper.
These misunderstandings stem from the fact that
TODAY WE TEND TO
ANALYZE A RADICALLY NEW SITUATION
WITH OBSOLETE CULTURAL INSTRUMENTS.
It is therefore necessary to get a clear idea of the rules of the new Market.
Below are some considerations that can be made, up to this point in the development of the Disruptive Innovation Market, on the characteristics of the new Market.
Considerations on models and roles of the new Business
Before analyzing the key point of the current problem of Innovation – that is the quality differences between strategies (products) of the Market in decline and those of Disruptive innovation – it is necessary to clarify some defects of the current Market Culture (of the Incumbents)
The need to recover the awareness of the meaning of the Business Model
One of the big problems of the current Market Culture is that it has lost the meaning of some business keypoints. And consequently Business today lacks fundamental elements to understand what is actually happening (and therefore to understand how to adapt to the emerging reality).
This happens due to the fact that the Market Culture in recent decades has been “normalized” by the Incumbents with a re-elaboration aimed at making it become functional for the development of the new strategic modes of the Financial Market (of the “Manager’s Business”). <see the financial market: a disconnection between the “management” of the society and the real needs of people>.
That is, the Incumbents have created a “simplified” Market Culture that is functional to the “easy way to the Business” of the outgoing Market (a “Culture of convenience”), for example by replacing the Law of Supply and Demand with the “creativity” of Marketing that invents “imaginary” purchase reasons.
This “Cultural Revolution” of the Market that took place around the 1950s meant a redefinition of the Business Model, which in this revolutionized typology no longer works for the Market of Disruption.
The new successful startups of disruptive innovation are therefore based on a radical transformation of the concept of business model that represents, substantially, a counter-revolution with respect to the change made at one time by financial capitalism.
One of the key meanings modified by the outgoing Market is what defines Business model and Revenue model. The problem is that two substantially different concepts in the Culture of the Market of the last decades are united by a single meaning.
And this leads, in fact, to serious misunderstandings regarding the definition of the strategies of the Incumbents: in fact if the conception of the Incumbents of such keypoints was functional to the Market today in decline, today it is for them a ruin.
The fact is that the Business model describes how the company generates value for the customer.
While the Revenue Model instead describes how the Company is able to obtain revenue or income from the Value sold with that product.
Ignoring this difference
– as the Incumbents do –
TALKING ABOUT BUSINESS MODEL AS IF THE REVENUE MODEL WAS,
LOSES THE FOCUS ON THE NEED TO DEVELOP VALUE.
(Value for the Customer)
(value-really-useful for the Customer)
IT IS AT THE BASE
OF THE BUSINESS OF THE DISRUPTIVE INNOVATION.
Today, financial-driven business has replaced the real value of the product, thanks the induction techniques for the purchase of impulse products that are of little or no use to the customer
It is necessary to remember that the disintegration of the Market (the new Demand) arises precisely because the Customer, frustrated by a market policy that for decades has forced him to use products that do not solve his real needs, have an urgent need for a new generation of products (among other things, they, with an extremely low spending, can no longer afford to buy products of the current generation).
Business today must therefore change radically
the business model we have applied in recent decades,
paying attention to the Value to be develop for the Customer
Overcoming the concept of Leader and follower
Another feature of the incoming market of disruptive innovation is that of overcoming the position of the Followers, as qualified in the market of the 20th century, it nevertheless becomes a Leader, as in the case of the Japanese for cars and motorcycles (for example, Honda and Toyota). [the concept is deepened in the next chapters]
The following chapters are:
■ CONSIDERATIONS ON THE FORM OF INNOVATION
– The sustainable (“traditional”) innovation, which serves to support existing Business. At the present time it is a Tactical Innovations, serves the Incumbents to gain time. But it lacks the fundamental elements of disruptive innovation, and is therefore destined to succumb.
– The “Revolutionary” Innovation, the Disruptive Innovation. With it, both the product and the business exchange methods are revolutionized.
■ THE CHANGE OF THE BUSINESS PARADIGM
In the new Market, the meaning of innovation in itself changes. But also the Business Paradigm: we move from the current business driven by the business to the Purpose driven business.
In other words, the conception of key points such as Value proposition, Market segment and the product development / production / distribution system has changed substantially.
■ THE GENERAL PRINCIPLES (META-RULES) OF THE TWO FORMS OF INNOVATION
An analysis of the general principles of the two Market forms: disruptive innovation and sustainable innovation.
Evaluating the problem of the fallibility of disruptive/sustainable hybrid innovation (in which a part of the “old rules” is introduced in a radically new, disruptive strategy).
CONSIDERATIONS ON THE FORM OF INNOVATION
The most important point to clarify seems to be that of the meaning of Innovation: Market Disruption has indeed brought the need to redefine the meaning of innovation in itself.
In essence it is necessary to clarify the difference between the form of innovation of the Market of the last decades (Sustaining Innovation), and the new form of innovation – Disruptive innovation – functional to the new Demand.
Innovation is simply the basis of the Business: in the Market to always innovate means to create something that meets the needs of some people, and then bring these people to buy the product (and innovate means being able to enter the Market with a better product than the existing one, in order to be able to capture the competitors’ customers).
We tried to stick to the meanings of the terms proposed by the current sectorial literature, although some terms seem to be a bit “forced”.
THE DIFFERENCE BETWEEN THE INNOVATION MODELS
Substantially the innovation currently practiced on the market differs in:
● a “traditional” Innovation; and
● a “Revolutionary” Innovation, the Disruptive Innovation.
Today there is a great deal of confusion about the difference between the two forms of innovation: a confusion that leads to the failure of the Incumbents’ strategies (and allows the few successful disruptive Startups to dominate the Market undisturbed).
“Traditional” Innovation is an innovation that can be defined as “tactical”, useful for continuing to develop its competitive advantage. But it lacks a strategic vision, so that in the long run those who adopt it are destined to succumb to those companies with a broader vision.
The second – Disruptive innovation – is a “strategic” innovation based on a more general vision and therefore allows the competitive advantage to be maintained in the long term (among other things, Disruptive innovation is difficult to copy).
■ “TRADITIONAL” INNOVATION (Suistaining Innovation)
The innovation on which the market has been based in recent decades is
UNA SUSTAINING INNOVATION,
which serves for
SUPPORTING BUSINESS ALREADY STARTED
Which is based on an increase in product performance (based on technologies).
Paradoxically, Sustaining innovation turns out to be un-sustainable (in the medium-long term) both for those who develop it and for the Customers.
Sustaining innovation is
a Tactical Innovations,
which is used to take time.
With it we temporarily improve the situation, but we do not rely on a more general adaptation of the strategies to the requests of the new Demand (and therefore problems will emerge in the medium-long term).
In general this innovation is based on technology: the “technical” performance of the product is improved; for example we deal with the “digitalisation” of mechanical products (cars, work tools, etc.); or them become “Smart” products (like appliances), and connect them with the Internet of Things (and in the most “radical” cases the Companies integrate their products into Platforms, which increase the value of the product).
These innovative technologies – such as IoT – although they are typical elements of Disruptive Innovation, do not make the Product disruptive. As we see in the next chapter,
if you don’t change, upstream of everything,
the Business Model,
you are not able to create attractive products
for the nascent Market,
There are two methods of “traditional” innovation (Sustaining Innovation):
► LINEAR product innovation (routine innovation):
In this case the products are improved by offering services that in reality are not useful to most customers (for this reason the Marketing is committed to “creating” an “image” of the product with expedients such as fiction – advertising – and styling “fantasy” – see cars with futuristic lines, or that reflect the style of “cartoons”, such as the Beetle or the Fiat 500).
The problem is, in fact, that this type of innovation today does not provide practically any useful value for the Customer (certainly not sufficient to justify the high price).
The fact is that the Incumbents, besides placing the focus on Styling, almost always base their strategies on Developing technologies.
The problems of the Developing technologies are, among others:
● them are, by definition, technologies yet to be developed, and therefore cannot be used immediately.
This is a big problem of Time to Market, since in the current phase of rapid evolution of the Market if one senses a need of the Demand, it is necessary to act immediately by developing a solution (with the level reached today by “low-tech” it is not necessary to wait for the mature phase of developing technologies).
● them require high investments, and therefore product prices must be very high (in a phase of the market where Customer spending is very low).
The basic problem is that of over-serving: today the customers are
Over-serverved in terms of technical performance,
but they are
UNDER-SERVERD FROM THE POINT OF VIEW
OF THE QUALITIES REALLY USEFUL TO THE CUSTOMER
► RADICAL product innovation (breakthrough innovation)
More and more often the Incumbents push themselves, in the wrong idea of developing a Disruptive Innovation, to radically innovate their offer without changing, and this is the problem, the essence of their Business.
In this wrong mode, usually not only a radical innovation of the Product is developed, but the whole range of Products is innovatively integrated so as to be able to offer the Customer an entire “system”.
But even in this case, while introducing them in their offer the characteristic of the “eco-system” typical of Disruptive innovation,
the Incumbents create
a Hybrid between the two forms
of Disruptive and Sustaining innovation
that is not at all Disrutpive innovation.
Significant is the case of John Deer who has transformed a catalog of products in their own right for farming (tractors and accessories) into an integrated system of “intelligent” elements (IoT) that has significantly increased the value of the offer.
■ DISRUPTIVE INNOVATION – a sort of “revolutionary innovation”
In Disrutpive Innovation everything changes profoundly (as in the various Revolutions that took place in history).
In other words, it is an innovation that is totally different from the previous ones:
both the product
and the ways of developing the Business
In this “Revolution”:
● the product is developed from scratch (that type of product does not yet exist), and goes to cover niches of non-consumption, and
● the value creation and revenue models are completely different from the previous ones.
● there is no longer a focus on improving technological performance; that is, the value of innovation is not due to digitization, but to the shift in the focus of design on the human factor.
These changes create
a totally new Market,
with completely new rules,
illustrated in the next chapter.
It must be clear that
it is not the Business that creates the Disruption:
it is the Society that has entered a phase of disruption
(which is due to the fact that people are intolerant towards the quality of the products of the Market and public services, and they begin to organize themselves, with New Practices supported by specialized Social Networks, to satisfy their needs – the so-called non-consumption).
And this disruption forces the Market to follow the trends developed spontaneously by the Crowd.
THE CHANGE OF THE BUSINESS PARADIGM
The change that the new Demand requires to the Business is therefore radical, “revolutionary”: it is necessary to redefine the ways of innovation in itself (the conception of product).
But it is also necessary to adopt a completely different Paradigm of Business.
In the new phase of the Market,
in the so-called disruption,
CHANGE THE CONCEPT OF INNOVATION DEEPLY,
and change consequently,
THE WAY IN WHICH BUSINESSES ARE OPERATED.
That is to say, today it changes:
► the MISSION / PURPOSE of Business
The change of business Purpose is so radical that, among other things, the earnings come paradoxically from a lower focus on earnings.
► the BUSINESS MODEL
The new Demand requires a completely new type of product: and consequently requires new operating methods of the Company.
► MISSION / PURPOSE OF BUSINESS
In the functional market for disruption, some fundamental characteristics of the original Market are recovered (the one prior to the overturning of the Principles operated after the 60s by the Financial Market):
we shift from the current one
FINANCIAL DRIVEN BUSINESS,
PURPOSE DRIVEN BUSINESS.
The two types of Business, in a nutshell, consist of:
● Financial driven approach, in which the financial profit comes first of all (including product quality); and the focus is on the short-term strategies (and results).
● Purpose driven approach: the Market of the “Social impact” recovers Values and Principles of the “original” Market (prior to the turnover made by the financial system).
Basically the values of the traditional Society of Man return: the urge to interact with others with “community spirit”. Approach based on perception which is more gratifying (and effective) to satisfy problems in collaboration with others.
The new (but “original”) Business is therefore based on the ability to perceive – empathetically – the needs of others. And then on the recovery of the entrepreneur’s primary capacity (until now replaced by managers) to empathically tune into demand.
It underlines how this is the original business setting; that is the approach of the Business of the Craftsman of the past whose products represented, in part, an “affective” component (not strictly “economic”).
This is the Product component defined by many Sociologists as a “gift component” of the Product. “Without the gift cycle, our companies simply could not exist” Market and markets – Serge Latouche – 12/18/2005
It is to consider the different context in which this “business activity” developed. At that time most people lived in traditional “Villages”. In which:
1) from the Customers (who were the “extended family” of the Village) a form of profit was expected that was much more “subtle” than the current one (it must be considered that in any product the Craftsman “put his face”).
2) the “Economy” of the time was minimally based on money: at that time the exchange – at the base of any Market – was not mostly referable to money, since barter was in force – which in rural communities is based on now on performance and not on objects. And barter offers important “intangible” advantages.
In this context everyone was gratified by the perception of being important for the proper functioning of the social community.
Today we talk about a Missionary business, in which profit becomes almost a by-product of this drive to satisfy people’s needs (paradoxically, in the Disruptive Innovation Market, focusing on profit brings lower profits compared to new strategies that give priority to to product quality <see Towards a new (real) sustainability: the mistake of focusing on the low price>)..
The new Business is based on the qualities of the so-called Social Impact: of the Sharing ecomony, of the “Compassionate Communities”. (features that are the basis of the businesses that changed the market – from Yahoo! to Airbnb).
One of the problems of the current market is replacing the natural impulses to the socialization of man with an ideological dogma <vedi ‘The misunderstanding on the Social Impact’ and Disruptive innovation: religion, scam or necessity for those who want to stay in the market? >
► BUSINESS MODEL: a profound change
Today the new demand requires a new form of innovation of Product, the Disruptive innovation. And the Business paradigm itself becomes the object of disruptive innovation:
is totally “revolutionized”.
That is today the concept of Value proposition, Market segment, and the product development, production and distribution system changes.
■ VALUE PROPOSITION
This is the Value that, with the Product, is offered to the Customer.
The value linked to the product has tangible and intangible aspects.
Tangible Value: in the tangible aspects there is the “Value of use”, which represents the “practical” benefit that the Product brings to the Customer (it is the ability to satisfy its need – which in the new dimension is also “Job-to-be-done ”of the product).
Job-to-be-done: the concept of work that every person in life has to do to improve his life. In this case, the product is “hired” by the Customer for that job.
The product in this case must therefore be able to perform a real service. That is, it must offer a “service component” that is both in its hardware parts, and in the software parts (Smarness, IoT, etc …).
In the dimension of the Disrutpive innovation greatly improves the actual value of use of the product (the tangible value).
Value intangible: with Disruptive innovation the intangible Values of the Product constantly change, which cease – for the most part – to be linked to the current lifestyles (induced by the Marketing of super-consumerism).
The intangible values linked to the emotional dimension are abandoned (of the Ego) developed by the current form of Marketing. Among other things, it replaces the gratification of material wealth (and the search for the appearance, of the Status symbol), to move to traditional Values/Vitues on gratifications coming from the quality of human relationships (gratification based on more empathic relationships with the people, with the community and with nature).
As mentioned, in tune with this Mega-Trend, it is a new type of Business, the Business Purpose, which is based precisely on a high capacity to tune in empathically with the real needs of the People. Then follow the new Trends like Social impact, Sharing “economy”, Solidarity, Caring, etc …
The concept of “style of life” is overcome, which in itself is a concept based on appearance. And new ways of living (at a substantial level) are created largely on the New Practices.
The new form of innovation is a value-oriented innovation.
It is necessary to understand that the new Value offered is substantially different from the Value currently offered, because:
● the new Value is generated by the same Customer: in the new Market Customers are offered a tools with which him himself generates value (new utility forms of Value). In the new mode, Customers therefore “invent” ways of using the product.
An example of this is the case of Airbnb, which was created to rent an “air mattress” to those who have to go to a specific location and cannot afford a hotel; but the Product – also thanks to low-cost flights – has been transformed by the creativity of customers, for example, into an opportunity to visit places that are not yet affected (informal tourism).
This evolution of the business took place both thanks to those who offer the rooms that have learned to present their offer better – from a tourism point of view – and from the end users of the service.
● the new Value is generated by an interaction of the product with an ecosystem of Market offers and non-consumption practices (as in the case of the connection between Airbnb and low cost flights).
■ MARKET SEGMENT (non-consuming niches)
In the disruption of the Market, the current Market segments also disappear, as
● a Market segment in which to enter is no longer identified, but a new Market is created.
The revolution operated by Disruptive innovation is such that customers of a segment are attracted without entering into it (see Airbnb that has captured Customer from the Hotel sector)
● the Market in which one enters is no longer delimitable to specific segment the product arises as something much less defined from the point of view of the Target (and with the contours that change over time); in a transversal way compared to those that are the current sectors.
(see the Airbnb case, which became an informal tourism tool).
there is no longer a target Market,
since this type of target no longer exists.
The target becomes a type of non-consuming (the new practices that Crowd develops to self-satisfy its needs).
■ PRODUCTION AND DISTRIBUTION SYSTEM
By radically changing the Product, the whole architecture of the Business must be “revolutionized”: structures, B2B and Customer relationships, forms of automation, etc. .… [These themes are developed in the next chapters]
In the Disruptive Innovation Market, for example, the core concept of the Value chain changes, which turns into Value Web, which is not only “branched” and flexible. But in which, thanks to a Disruptive innovation of this aspect of the Business, the same Customers also become part.<see Beyond the Value chain >
THE GENERAL PRINCIPLES OF THE TWO FORM OF INNOVATION FORMS (SUMMARY)
The change made to the Business from the new Market (from the new Demand) is therefore radical, so much so that it is necessary to redefine the methods of innovation in themselves (the conception of the product), and it is necessary to adopt a completely different Paradigm of Business. [topics addressed in the previous chapters]
In this chapter we see what are the general Principles of the two Market forms: Disruptive Innovation and Sustaining Innovation.
Let us remember that one of the problems is the fallibility of Hybrid innovation (Disruptive/Sustaining): that is when, in a radically new strategy only a part of the “old rules” is introduced, creating conditions for this strategy to be a failure.
Let’s see then what are the general Principles (the meta-rules) of the two types of Business (of the two forms of Innovation)
● “Traditional” Innovation, and
● Disruptive Innovation. So that we are able to clarify, case by case, which businesses are destined to decline over time; and which ones can be successfully developed in the new Market.
the Disruption of the Market,
which forces the Business to adopt new Rules,
is something inevitable.
In fact, these rules were not decided by anyone (as was the case for the declining market rules). But them have emerged spontaneously with a new attitude of the Customers that on one hand can no longer afford to buy the products of the “traditional” Market (because they are not able to satisfy their real needs); and on the other, seeing the potential of the new IT and IoT, they develop expectations of new Practices.
The problem produced by the old Rules derives from the fact that even when Disruptive Innovation Principles are used to develop product strategies, but aspects of the declining Market Business Model are used, the effectiveness of such strategies is undermined at the root.
This is because the old Rules are in conflict with the new Market: substantially the previous Business is used to defining strategies in top-down mode, and is unable to fully grasp the needs to be satisfied (it cannot be attractive for the new Demand, which presents complex and radically new needs).
This does not mean that those who follow the meta-rules of the declining market are doomed to failure.
Indeed probably for an Incumbents the best way to achieve sales success is to apply the “old school” rules.
The problem is that this way, sooner or later the Incumbents can be attacked by a competition that enjoys the enormous advantage brought by Disruptive Innovation.
If the Incumbents want to successfully enter the new Market, they must follow the path of the spin-off: make a fresh start in order to overcome their inability to renew themselves from within them <see The great Firms are not able to develop disruptive innovation within them>
► Principles of TRADITIONAL INNOVATION
Let us remember that the current one (of the Incumbents) is not the original concept of the Market: indeed
the Disruption is bringing the Market
towards its original dimension.
That is, the current Market is a “distortion” of the original Market. The Market that was observed by Adam Smith, who was based on the Law of Supply and Demand (Business thrived with satisfaction of real people’s needs). A Market that was born with the human being, and still in force a few decades ago.
Substantially the Market in decline, whose substantial novelty is to have been taken over by the “Financial Capitalism”, is based on a transgression of the laws of S&D (that is, it stopped following the needs of the Customers to create artificial needs, based on a emotional level).
And we emphasize that the Disruption is developing spontaneously in the Market precisely because of the problems created by the “revolution” operated some decades ago by the outgoing Market (in a sense the current radical change is a counter-revolution compared to that practiced in the past from the outgoing Market).
The problem for Incumbents is that
the Principles of the current Market (in decline),
if they allowed them to prosper for several decades,
now in a Market Disruption phase,
BECOME STRONG LIMITS FOR THEIR BUSINESS.
The problem is compounded by the fact that the current big Companies of the Market have been formed with a mindset and structures that now prevent them from changing to adapt to the incoming Market. <see The Company Immune System: why the big Companies cannot develop real innovation >
Among the Companies that develop “traditional” strategies it is easier for followers to arrive at success based on low-cost strategies (a feature which, in itself, is not at all disruptive), but they do not attempt to develop a Disrutpive innovation: in that way them manage to circumvent the problem of the extremely reduced spending of the Customers (due to the Economic Crisis).
Disconunt Supermarkets and Ryanair belong to this category. Or, in general, “Chinese” products.
Recalling that the purpose of this article is to identify the characteristics of the two Business modes, that of the declining Market (Sustaining innovation) and that of the new Market of Disrutpive innovation, here below are identified some keypoints.
See the summary table of the keypoints of the two different forms of innovation, with which it is possible to assess which forms of innovation are present in each Business Comparative table of Keypoints of Disrtuptive at Sustaining Innovation Comparative table of Keypoints of Disrtuptive ad Sustaining Innovation
In this case – that of Sustaingng Innovation – the Keypoints of Market strategies are substantially “tricks” with which the Big Business players have been able to circumvent so far a fundamental rule of the Market: the Law of Supply and Demand. These are expedient based on psychological strategies aimed at inducing behavior in the Customers; “non-proper-correct” moves towards competition (from the point of view of the dominant ethics); and agreements with the Government (to obtain laws in their favor), etc.
We also remember that the basic problem of the Incumbents is that these Rules come into conflict with the request of the new Demand (of Disrutpive innovation), and therefore irremediably lead to the failure of the strategies based on them.
This is because the new Demand that cannot be circumvented by any “expedient” (this for many reasons, the most important of which is that the current crisis has enabled the Customers to no longer be able to spend on buying products – “designed in abstract” by Marketer – who are absolutely unable to meet their real problems – and who have too high purchase and operating costs).
For customers, the negative qualities of this type of strategy are, for example,
1. Over-developing of products (and therefore high costs) <see The Over-serving/Under-serving problem of the Incumbents>
2. Planned obsolescence, which requires the Customer to change products after a few years because they can no longer be used. <see Beyond the Planned obsolescence, towards a long/endless durability>
► INDUCTION AT THE EMOTIONAL PURCHASE
The strategies of the Incumbents are based precisely on the “overcoming” of the Supply and Demand Law. In the last decades
the Demand was brought to adapt to the Supply.
That is, they succeeded in inducing the Customer to purchase products that did not offer real utility for it (but moved him to buy at an emotional level)
In this way the Companies have developed a mindset that has impoverished the ingenuity of the people inside the Companies (starting with the CEO); and now they are no longer able to follow the new Demand (which requires the satisfaction of complex needs).
► MONOPOLY (Cartels)
Keep in mind that today the Monopolies are mostly Cartels (“a group of independent market participants, whose goal is to improve their profits and/or Market position by reducing their mutual competition.” Wikipedia).
After millennia of the “competition” regime, in recent decades the big Companies have followed the “easy way”: try to eliminate the competitor. With with various “war” expedients, such as () the strategies of dumping towards competition (“price policies”: keeping prices low to make the other Companies go bankrupt), ● imposing conditions on suppliers (their life depends on Monopolist).
(The perhaps most significant example of Monopoly is that of Amazon, which for many years has been at a loss, but then reached a position that seems unbeatable – an important Cartel today is the Automotive one)
Some of the problems created by the Monopoly:
● Competition was an essential driver of innovation: the traditional Market, creating Monopolies, also created the conditions of the current crisis (and the drastic decrease in sales of the Monopolists).
In fact, people have stopped buying products without real useful qualities created for them with the typical philosophy of the Monopolies CEOs, who are not interested in the real needs of the Customers.
● The Big Companies Monopolists have “armored” the Market against Innovation (also thanks to Cronysm – see next point). Now the walls of their fortress have become the walls of their prison: they are unable to innovate neither their products nor their structures. <see The amrored Market: the resistance to change by the Incumbents has created an armored market with respect to innovation >
● The “war” approach (eliminating competition instead of trying to create products that meet the needs of the customers) of the big Companies has created a mindset in them because of which they no longer have the ability to reason in terms of understanding of the real needs of the Customers (they are not really able to develop the quality necessary to enter the new Market: Empathy with customer). Consequently the big companies are not able to develop strategies based on the new Caring/Sharing Economy that is the basis of Disruptive innovation.
► CRONYSM – “synergies” with the Government
The big players of the market (the “Financial level” that currently rules the Market) understood that the “synergies” with the Government (with those who make the Laws) can guarantee them a competitive advantage that is not affected, thanks to the possibility of obtaining laws for industry protection, financing, etc …
Paradoxically, this has contributed to creating the current poverty of the Citizens (the Government’s actions in favor of the Market are in fact paid by the Citizens with taxes) is the sales crisis (it is the question of the blanket too short).
The case of Tesla is typical: a Company closely linked to the political power that lives on subsidies.
Tesla’s property receives funding for more activities – bankruptcy activities – typical of the chronysm, such as solar panels, or missiles to reach Mars (note that the Government also favors Musk by avoiding investigating, as it should do according to the rules, the rocket explosions).
► aim to COLLECTION OF MONEY, GO ON THE STOCK EXCHANGE, ENTER “SUBSIDIZED MARKETS”
The current “financial” mindset of the established Companies (profit above all, regardless of the quality of the product) ensures that all the steps taken by them are aimed at take money home.
(today the “problem” of the quality of the product does not arise: indeed the Marketer’s slogan is “not to taste the product of the company you work for, as this could distract you from your task of creating an” image “of it”).
In this perspective, the following key strategic points are developed, among others:
● enter “subsidized Mrkets”, ie in Markets where profits do not depend on the choice of their product by a Customer, but in which the games are already decided upstream.
These markets are in fact created by agreements between big companies and the Government (in particular by institutions globally). In this market substantially revenues derive from public financing.
For this reason, the Incumbents today seek to convert to enter “subsidized markets” such as “Ecology“, “Third World” and Public Health (where the costs for products and services almost entirely cover the State).
● enter the Stock Market, which notoriously
– is based on profits completely disconnected from the actual quality of the product, an approach that constitutes an insurmountable barrier for a Company with a mindset linked to the Stock Market, because in it there are no people able to develop empathies with the Customers (ie in able to develop Disruptive Innovation).
– leads companies to be subject to the will of shareholders, who are not interested in the product at all, but to take money immediately (which does not allow us to make Company innovation plans).
● receive substantial financing from the Financial Capital: since the establisched Companies are unable to improve their product, the only sensible way to survive for them is to get finance (this is the situation that Amazon has experienced for years, then managing to create the condition of Monopoly that allowed it to obtain the current success – now it’s Tesla’s situation).
Also in this way the Companies place themselves in the position of having to adapt their strategies to those who are not interested in the quality of the product, but think only in terms of profits.
► Technological development
From a more strictly operational point of view, one of the Principles of “traditional” innovation (Sustaining innovation) is to base innovation on improving technologies incorporated in products.
Which is substantially incompatible with the development of Disruptive innovation.
The principles illustrated above are indeed a winning choice in the current Market, which is experiencing a transition phase in which some strategies of the Incumbents Business. But the success achieved in this way cannot last long due to the progress of the Disruptive Innovation Market.
► Principles of the DISRUPTIVE INNOVATION
The new Demand
requires product quality
WHICH ARE COMPLETELY DIFFERENT
FROM THOSE TODAY OFFERED BY THE INCUMBENTS.
In a nutshell, we move from an almost exclusive focus on profit, to a primary focus on satisfying the needs of the Customers (a change that, paradoxically, guarantees greater profits than those guaranteed by the previous Business mode).<see Paradoxically putting the focus on profits the profits end up ending>
Substantially in the current phase of disruption the success is reached by whom:
1) the goal is to improve the quality of life of people with new products, going to satisfy needs not yet satisfied by other products.
2) adopts a decidedly new Business model, which radically transforms the approach to Business.
However, it is possible to enter the Market and achieve success with the adoption of Sustaining Innovation strategies. But this is a condition of Follower – the offer of cheaper products than those of the Competitors – which guarantees only temporary success, while waiting for Startups to emerge with a Disruptive offer for that sector.
The principles of disruptive innovation are developed in various documents, such as:
Here we report a very brief outline of these Principles, followed by a specific example of application: the case of the Electric Bicycle.
The basics of Disruptive Innovation
► radical innovation and not improvement performance of existing products.
The competitive advantage of the Product is no longer in improving the current types of products, but in radically new products (“new thing”).
► recovery of the human factor – of the utility Value of the product (the product is “Product a service” – to Job-to-be-done).
With an empathic relationship with the Customer, the Startup is able to grasp its real needs.
► beyond the technological factor
We use Consumer Technologies – not Hi-techs – which, despite being extremely cheap and easy to manage in the design and production phase, allow us to satisfy the new needs of the Customers.
► crowd driven business
We pass from the mass product to the co-developed product with its User. The Consumer becomes a proactive Consumer.
► radical transformation of the ideation/production/distribution process
● Product aspects: – scalarity of the solution (gradual upgradability) – durability – management/manteinance costs – integration in an eco-system – customizable/evolving products
● aspects of Production: Proximity Business, Value Webs, etc. The new form of production is radically different from that defined Industry 4.0 <see The misunderstanding on Industry 4.0: towards Manufacturing 4.0 >
Comparison between Disruptive and Sustaining Innovation:
the case of “electric bikes”
let’s see the example of the electric bike sector, a sector in which today it is possible to follow two different paths:
■ technically developing new electric bikes in the traditional way: the appeal is due to the use of hi-tech that offer “super” performance. This is the declining Market mode (which still allows some Producers to thrive).
(example: the current electric mountain bikes)
[Disruptive mode] (Tricycle as Urban Vehicle)
It is thought that an “electric bicycle” that really becomes an Urban Vehicle of the near future, in order to serve the Customer in the best way, must be a Tricycle, which can cover some of the qualities of the Cars: it has a “trunk”, it can be covered, etc …
In Disruptive Innovation it is necessary:
to develop bicycles in which
DO NOT IMPROVE ANYTHING FROM THE TECHNOLOGICAL POINT OF VIEW.
BUT WE OFFER QUALITY WHICH CHANGE THE LIFE OF CUSTOMER.
This is the possibility offered by Disruptive innovation: inventing new qualities that, while maintaining the product in the low-cost range, improve the life of the Customer.
The product features of a truly disruptive new generation are:
● THE PRODUCT MUST CARRY OUT A TRUE AND RIGHT SERVICE FOR THE CUSTOMER. this quality is possible thanks to the Smartness of the product, and its being part of the IoT.
The new generation “electric bike”, for example, must allow the elderly or relative to be kept under control. And it must be integrated into a multi-modal Mobility system.
● the service provided by the product MUST CHANGE THE QUALITY OF CUSTOMER’S LIFE LITERALLY. This improvement must affect the entire community in which the vehicle is moving (even for those who do not buy the product).
For example, this product must allow a service similar to that of the car to be performed for those without a driving license (see next point).
● INTEGRATION OF THE PRODUCT IN AN ECO-SYSTEM: the vehicle must be integrated into a system of accessories developed ad hoc; but also to integrate with the existing elements of “traffic” (and with pedestrians).
The vehicle must be able to interact safely with cars: it must have, for example, high lights that allow cars to detect them from afar. And project on the asphalt – with laser lights – images that anticipate his arrival.
The vehicle must also be protected by cameras and sensors of various types, which in the event of an accident clearly indicate the faults of the car. The proximity sensors of a car that follows can activate a rear panel that signals to this car the transgression of the safety distance rule.
Sensors and cameras become a deterrent for cars (increasing the safety of the electric vehicle) as these devices are connected with institutions that regulate traffic: they can get to impose fines for speeding, for not respecting distances by cars , etc …).
<see Extra-urban bus Anti-collision System – An inexpensive Optica Lighting System that allows vehicles to warn people traveling in the opposite direction of their presence.>
<see A real direct car notification system – The Solution is based on one real car 2 car connection (what is lacking in the Mobility sector today)>
● the product must be disruptive, ie it MUST REDEFINE THE PRODUCT TYPE AT THE BASE.
For example, we no longer need to think in terms of a traditional bicycle: the tricycle is probably much more useful than a two-wheeled bicycle: it is more stable, therefore better for the elderly and the disabled; allows you to carry considerable loads in the rear “luggage rack”; eventually allows to bring a second person; etc …
In this way it is possible to create a vehicle which, in an urban area, can replace the car.
● the MACRO-SECTOR IN WHICH IT OPERATES MUST BE REDEFINED: it is not only necessary to redefine the typology of the Product, but it is necessary, more generally, to redefine the scope of intervention.
In this case it is necessary to think of the bicycle (tricycle) as an element of the urban Mobility system (it must be integrated into a multi-mode Mobility Network, it must be prepared for sharing, etc.).