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Column: Embrace Innovation, Minimize Disruption

Writing recently in the New Yorker, historian Jill Lepore contends that the prevailing theory of business change — known as “disruptive innovation” — is grounded in poor research and circular logic. While it’s true that talk of disruption is thrown around carelessly (the meaningless advertising phrase “new and improved!” has been replaced with “disruptive and innovative!”), it’s equally obvious to any teenager with a month-old smartphone that the pace of business disruption is accelerating. But there are some misconceptions.

∎  Disruptive innovations begin as inferior replacements for existing products.

Harvard business professor Clayton Christensen, the focus of Lepore’s article, argued in his 1997 book, The Innovator’s Dilemma, that successful companies can be upended by new technologies that first appear as cheaper products with fewer features, but improve quickly and ultimately take over. Think personal computers vs. mainframes.

But not anymore. Our research shows that especially in industries dominated by digital technology, the disruptors now arrive better and cheaper than existing goods, right from the start — think free integrated smartphone navigation apps vs. stand-alone GPS devices. “Disruptive innovation” is increasingly “devastating innovation,” or what we call “big bang disruption.” Businesses that wait for the disruptor to arrive before figuring out how to incorporate it in their products — as Christensen recommended — are already too late.

Companies can compensate for the increasing pace of change by watching for the early signs of emerging technologies while they’re still in the lab. Then they can start experimenting before it’s too late. Or, almost as good, before their competitors.

∎ The further you are from the technology industry, the safer you are from disruption.

It would be comforting if only industries at the center of the information revolution — computing, communications, media, entertainment — felt the pain of disruption.

But with computers getting faster, cheaper and smaller over the past half-century, it has now become cost-effective to embed computing capability in nearly every product or service. Even the most non-digital industries — such as heavy manufacturing, transportation, energy and education — are feeling the pressure of digital technology as entrepreneurs look for the biggest opportunities for disruption.

In health care, for example, cheap sensors, cameras and displays (made cheaper by economies of scale, thanks to the sale of more than 1 billion smartphones and tablets since 2007) are being combined in wearable devices that can track a range of vital signs — baby steps toward giving patients access to their own health information and bringing spiraling medical costs under control.

What is true is that the more regulated an industry, the harder for the disruptors to enter. But those industries — health care, energy and transportation are good examples — are often the most inefficient, making disruption by better and cheaper technology irresistible. And often, when innovators finally break through, the disruption is all the more explosive. Recall how email turned the U.S. Postal Service from a profit center to a financial black hole.

∎ The best innovations come from proprietary R&D.

In the past few years, we’ve seen a wave of new companies — Oculus, WhatsApp, Instagram — acquired for billions of dollars, sometimes before they’ve even launched a commercial product. It’s not as crazy as it sounds.

What these start-ups have in common is that each quickly built a devoted audience of millions of consumers, often by giving away its experimental products and encouraging users to collaborate with developers. Cloud computing, reusable software and globally sourced parts make experimenting easy. Using crowdfunding platforms such as Kickstarter and Indiegogo, early users can even be recruited as funders, voting with real money for the products and services they’d most like to see in industries far from computer hardware and software, including food, clothing and industrial design.

Experimenting in public, of course, gives away the element of surprise that traditional forms of research and development treasure. But in exchange, the entrepreneurs not only build excitement for their future products, they also harness the power of the crowd to get it right — or wrong — quickly, at much lower cost and risk.

One important side effect of this experimentation: It’s a great source of free intelligence for incumbents looking for disruptors coming up fast in their rearview mirrors.

∎ Once disruptors gain enough consumers, there’s no way to slow them down.

Markets experiencing deep disruption are often characterized by “winner take all” behavior, with consumers moving as a group to the better, cheaper new products and services they like best. (A series of TV commercials for the new HTC One smartphone tweaks that phenomenon by urging users to go “ask the Internet” rather than just listening to the ads.)

But even if existing companies miss the disruptors’ arrival, they can still slow the inevitable transformation of their business by engaging the legal system. Firms that are constrained in their own ability to innovate by regulatory restrictions, for example, can urge their regulators to force the disruptors to play by the same rules, a strategy that has tripped up start-ups including Uber, Airbnb and Tesla.

Patents and copyrights can also be deployed to delay the impact of disruptive innovation or even bring it to a dead stop. This past week, the Supreme Court ruled that Aereo, a service that allowed users to remotely record over-the-air television programs and replay them later over the Internet, was violating a complex web of TV-related copyright laws.

Whatever the scruples of relying on the courts, using them to slow disruption fails in the long term. But it can buy incumbents some time — time they often fail to use wisely.

∎ Markets are so complex that no one can predict what innovation consumers will want.

The future, Lepore concludes in her article, is “unreadable.” The few entrepreneurs who pick the right new technologies and business models and hit it big are merely lucky. Winning the lottery doesn’t make you an expert on lotteries.

But our research on disruptive innovation revealed something interesting. For every major transformation, we found seers who had predicted it all, often with remarkable accuracy. Science-fiction writer Isaac Asimov’s 1964 vision for 2014 — including ubiquitous video communications, self-driving cars and flat-panel televisions — have proved strikingly accurate. George Lucas and James Cameron, likewise, saw the potential of digital filmmaking decades ago and waited until it arrived before making the movies that were in their heads all along.

For the rest of us, the best way to embrace innovation while minimizing disruption is to find those seers. Of course it’s hard. They’re often the most passionate and difficult employees. But learning to listen to them, especially when their future doesn’t match the one we’re expecting? That’s the kind of leadership that leads to real transformation.

Larry Downes and Paul F. Nunes are co-authors of Big Bang Disruption: Strategy in the Age of Devastating Innovation. Downes is a research fellow with the Accenture Institute for High Performance, where Nunes serves as global managing director.