Big Bang Disruption: Strategy in the Age of Devastating Innovation

215 Pages·2014·4.98 MB·English

by  Larry Downes

PORTFOLIO / PENGUIN
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ISBN 978-0-69814338-8
Version_1
CONTENTS
TITLE PAGE
COPYRIGHT
INTRODUCTION
PART 1
BIG BANG DISRUPTION
CHAPTER 1
WHAT IS BIG BANG DISRUPTION?
CHAPTER 2
THE ECONOMICS OF BIG BANG DISRUPTION
CHAPTER 3
THE SHARK FIN
PART 2
STRATEGY IN THE AGE OF DEVASTATING
INNOVATION
CHAPTER 4
THE SINGULARITY
CHAPTER 5
THE BIG BANG
CHAPTER 6
THE BIG CRUNCH
CHAPTER 7
ENTROPY
CONCLUSION

ACKNOWLEDGMENTS
BIBLIOGRAPHY
INDEX
INTRODUCTION
A
ddress books, video cameras, pagers, wristwatches, maps, books,
travel games, flashlights, home telephones, dictation recorders, cash
registers, Walkmen, Day-Timers, alarm clocks, answering machines,
yellow pages, wallets, keys, phrase books, transistor radios, personal digital
assistants, dashboard navigation systems, remote controls, airline ticket counters,
newspapers and magazines, directory assistance, travel and insurance agents,
restaurant guides and pocket calculators.
What do these things all have in common?
Each has, or is in the process of becoming, a victim of Big Bang Disruption,
a new kind of innovation with the power to undermine stable businesses in a
matter of months or even days.
The speed and the dramatic impact of Big Bang Disruption are the result of
disruptive technologies that continue to enter the market better and cheaper than
their predecessors. In this brave new world, new products and services start out
life competing simultaneously on price, performance, and customization.
Thanks to ubiquitous high-speed (or “broadband”) computing networks,
standards, and the rapid deployment of over a billion mobile devices, consumers
around the world can discover these breakthroughs—the Big Bang Disruptors—
as soon as they come into existence. Marketing is led not from above, but by the
users themselves, who drive much of the buzz (and customer service) through
social networks, review sites, microblogging platforms, and other information-
sharing tools.
The often counterintuitive behavior of these new disruptors and the
innovators who create them has already redefined the rules of engagement in
highly competitive, technology intensive industries, including consumer
electronics, computing, and communications. But as the computing revolution
continues to insinuate itself into every corner of our lives, Big Bang Disruptors
are starting to appear in every industry.
For each of the items listed above, for example, the source of disruption is
the same—the programmable smartphone, a hybrid computing and
communications device with an endless number of small software apps. Apps
can be small because most of their data processing takes place elsewhere, in
what is known as cloud computing. This combination of hardware, software, and
distributed computing have quickly replaced a wide range of devices, products,
and services; some very old and others relatively recent innovations themselves.
Well beyond individual products and services, the very process of innovation
is being disrupted. The companies and entrepreneurs that build Big Bang
Disruptors don’t practice business as usual. Instead of developing their products
in secret, they work in the open, letting early users test and extend each iteration
of their design. Rather than relying on proprietary technologies and research
methods, they simply combine increasingly cheap off-the-shelf hardware and
software components, and then release the result into the market.
If they fail, they fail quickly. If they succeed, the early users become
collaborators and even investors, jump-starting the leap to mainstream markets.
Once the disruptors arrive, there’s little chance for a competitive response.
The supply chains of mature industries offering goods that are suddenly
yesterday’s inferior alternatives are suddenly destabilized, even devastated. If
you haven’t learned to see the disruptors coming long before your customers do,
it’s game over.
For incumbents and their carefully constructed strategic plans, Big Bang
Disruption is the innovator’s disaster.
This book will help you avoid that disaster.
But first, an introduction. Separately and together, we have been studying
the evolution of disruptive innovations most of our careers. Big Bang Disruption
builds on our previous books, including Unleashing the Killer App and Jumping
the S-Curve, which looked at the impact of new technologies on the strategies
and processes that drive modern enterprises.
Killer App was an early look at how the Internet and other digital
technologies moved from back office to front, driving strategic change rather
than simply supporting it.
Jumping the S-Curve similarly explored the ever-shrinking gap in time
between one wave of disruptive technologies and the next. It offered crucial
advice for business leaders determined to survive the increasingly traumatic
transitions between them.
The heart of Big Bang Disruption, however, is our continuing multiyear
study of the changing nature of disruptive innovation, analysis we are
conducting in conjunction with the Accenture Institute for High Performance.
This research looks at the nature of competition and strategic change in over
thirty different industry segments, with over a hundred detailed case studies—
many recent but some historical.
We have cataloged dozens of Big Bang Disruptors that have appeared
seemingly without warning to devastate the plans of some of the best-known
companies in the world, sometimes fatally. And we have conducted in-depth
interviews with entrepreneurs, investors, and executives in businesses old and
new. We have learned their secrets for spotting potential disruptors sooner than
their competitors, and for finding the fastest and least expensive ways of
experimenting with them to determine whether, or when, they are ready for
prime time.
Many of the most dramatic examples, not surprisingly, come from some of
the most admired technology innovators of the new century—including
companies such as Google, Apple, Samsung, Sony, and Microsoft. Others will
come from enterprises you may not have heard of until recently, if at all,
including start-ups such as Airbnb, Uber, Kickstarter, and Udacity.
Still others come from incumbent companies that have learned the
techniques of Big Bang Disruption, delivering dramatic new products and
services that leverage their existing assets and abilities. Some aren’t even
companies at all—just experiments that turned into dramatic success stories
without necessarily intending to. In the pages that follow, you will meet
academics, artists, and even one high school student who have managed, if only
by accident, to create Big Bang Disruptors whose arrival unsettled the strategies
of large public companies.
We did not, of course, begin our work with a clean slate. There is already a
vast and growing literature on the impact of disruptive technologies on the
formation and execution of business strategy, including books to which we have
contributed. While there’s little point to reviewing this work in detail, much of
what has been written, particularly the work of Joseph Schumpeter, Peter
Drucker, and historian Thomas Kuhn, remains not only valid but essential
reading. (Researcher Carlota Perez, we should also note, made slightly different
use of the term “big bang” to denote revolutionary technologies—the kind that
attracted killer apps.)
But our findings on the process of Big Bang Disruption have also opened a
wide rift with older views of strategy and competition. We want to describe
briefly the source of that break.
Over the course of the last twenty-five years, academic thinking on
disruptive innovation has evolved through three distinct eras.
Before the information age, conventional wisdom held that new markets
were created from the top down. Innovators create differentiated goods targeted
to customers who could afford to pay more and were willing to do so. Often
earning the title of “luxury goods,” thanks to learned efficiency and economies
of scale these goods would later trickle down to mass markets in the form of
similar if scaled-down versions sold at lower prices.
Think of all the one-time options on automobiles that were once considered
luxuries but which now come standard on most cars—power steering, locks,
windows and brakes, high-end sound systems, even sunroofs. Yet the real cost of
an entry-level luxury car today is well below the price for an average vehicle in
the 1950s.
According to Harvard Business School professor Michael Porter, companies
can achieve competitive advantage only by innovating along one of three
“generic” strategies, each of which implements the top-down approach in a
different way. Companies are urged either to differentiate their market offerings
with special features that justify a premium price, or to optimize production
efficiencies and sell at a lower price than competitors. Porter’s third generic
strategy is a variation on the first two, focused on serving just one segment of the
market extremely well. Low cost and high value, however, just don’t mix.
But in his important 1997 book The Innovator’s Dilemma, Clayton
Christensen challenged the top-down view of innovation, and argued
persuasively that disruptors often work from the bottom up. In this, the second
era of disruptive innovation theory, disruptive technologies start life less
valuable and feature rich than those the current market supports, but at a
significantly better price—at least for customers who will accept lower quality.
In one famous example, Christensen demonstrated how excavation
equipment based on new hydraulic actuators ultimately displaced older cable-
driven machinery. Early hydraulic diggers were cheaper, but were too weak to
handle big jobs. So their makers created a niche market by selling small
backhoes that could excavate the basements of suburban homes.
That was a market that was too small for producers of heavy-duty shovels to
care about. But over time, as hydraulic technology improved, the abilities of the
smaller machines improved to compete for the business of every customer
segment of the incumbents. Eventually, hydraulics could do everything the cable
machines could do, and at a better price. The disrupters displaced many of the
older companies, and became the industry’s new leaders.
To avoid the “innovator’s dilemma,” Christensen urges incumbents to watch
for disruptive technologies in the form of lower-quality substitutes that enter the
market first by picking off the least-profitable customers and then, as the
technology improves, moving up to become competitive with market leaders. In
this model, executives who see the early signs of disruption are believed to have
plenty of time to respond by testing the new technology and preparing to shift
when price and performance make it acceptable to mainstream customers.
In the third stage of strategic thinking on innovation, W. Chan Kim and
Renée Mauborgne, the authors of Blue Ocean Strategy, update the bottom-up
view of gradual disruption with examples of innovators who stop thinking about
traditional products and traditional competitors altogether. Rather, these
disrupters tap into new and unmet needs in existing, even mature, categories—
coming at them more or less sideways.
By understanding the range of values customers place on different product
and service feature combinations, according to this view, innovators can offer
more of some and less of others, targeted at a particular segment of the market.
Cirque du Soleil, the authors explain, adopted many of the features of a
traditional circus, but lowered costs by cutting out star performers, animal
shows, and multiple show arenas. It then added features such as artistic
choreography and unique venues. Cirque du Soleil created a “blue ocean,”
commanding far higher prices than the average circus, enjoyed by a group of
customers who might not otherwise be interested in circus acts at all.
We have entered a fourth stage of innovation—the era of Big Bang
Disruption. The new disrupters attack existing markets not just from the top,
bottom, and sides, but from all three at once. By tying their products to the
exponential growth and falling costs of new technologies, their offerings can be
simultaneously better, cheaper, and more customized. Not just for one group of
users, but for all (or nearly all) customers. This isn’t disruptive innovation. It’s
devastating innovation.
The suddenness with which Big Bang Disruption can occur presents an
insurmountable obstacle for traditional academic approaches to strategy. The
meticulously prepared strategic plans of Porter can be neutralized in an instant.
The relatively leisurely pace of response recommended by Christensen, and even
the clever search for blue oceans no one else has yet navigated, can each be
catastrophic. Expecting markets will stand still while you innovate selectively to
improve quality or price is a very dangerous assumption.
Your new competition operates without any of your constraints and doesn’t