Innovation is essential to business success and sustainability. In the current landscape, the ability to develop, launch and scale innovations can make or break an organisation. Companies are advised to be a disruptor to avoid disruption. Sometimes, however, disruption can wreak havoc—not only on the companies and industries being disrupted, but on the disruptors themselves.
Innovation without disruption can be a more viable alternative in some cases, since it is a positive-sum approach to innovation and growth.
Non-disruptive innovation or creation happens when a new market is created where there wasn’t one before, so there’s no displacement of established players of markets—for example, online dating or men’s cosmeceuticals.
“Microfinance, created by Grameen Bank, is a prime example of non-disruptive creation,” says Kim. “While today it’s a multi-billion-dollar industry, Grameen Bank did not disrupt or displace any established player or market when it created the microfinance industry, which continues to change the lives of millions while earning solid profits and growth for companies.”
The creation of microfinance demonstrates that innovation is not a synonym for disruption. Companies don’t have to choose between disruption and failure.
“Market-creating innovation is actually a two-sided coin, and disruption is one side—such as Uber’s disruption and displacement of taxicabs,” Mauborgne says. Many companies tend to focus on that one side; in fact, this is what Mauborgne refers to as “innovation myopia.”
“Non-disruptive creation is often overlooked, even though it creates powerful new markets that don’t lead to shuttered companies, lost jobs and market displacement. By treating innovation as synonymous with disruption, organisations overlook the broad opportunities this other side offers, which no organisation can afford to do,” Mauborgne explains.
Disruptive vs. non-disruptive innovation
Disruptors may not care about the potential carnage they leave behind, but there is something they should care about. For disruption to occur, two criteria must be met.
“First, a substantial amount of market share needs to change hands from established companies to disruptors,” says Thales S. Teixeira, co-founder of Decoupling.co, a digital disruption consultancy, and author of “Unlocking the Customer Value Chain.” By “substantial,” he means anywhere from 10% to 40%.
“Second, this change of hands of market shares needs to occur in a relatively short period of time, such as a few years—generally less than a decade.”
But there’s a downside when disruptors fast-track their ascent into market leadership.
“They often lose significant amounts of money in the form of continued losses,” Teixeira says. “Uber has lost a total of $10 billion in order to achieve market leadership in ride-hailing; in 2018, WeWork lost $1.9 billion on a revenue of $1.8 billion.”
Compare that to a non-disruptive approach to innovation.
“When BMW launches an innovative new car, it can steal, at most, a few percentage points of market share from its competitors,” Teixeira says. Next, Audi may respond with something comparable or more innovative to regain a few fractions of a percentage point. Then, Mercedes likely responds, and a few market share points change hands again. “It is rarely a negative-profit game and this is why large publicly-owned companies have done it for decades.”
Non-disruptive innovation is a slow and steady process, and when companies in an industry compete on one dimension of merit for an extended period of time, differentiation becomes harder.
“The benefit of a disruptive innovation is that by redefining the dimension of merit, companies create a temporary monopoly situation for themselves,” according to Nicolaj Siggelkow, professor of management at the Wharton School and co-director of the Mack Institute for Innovation Management. “The risk of changing the dimension of merit lies in the often-unpredictable behaviour of customers.”
It’s easy to predict how customers will respond when you’re innovating along the dimension of merit.
“[Customers] like more fuel-efficient cars, phones with longer battery life and more effective medication,” Siggelkow says.
With non-disruptive innovations, companies experience less competition from existing firms.
“However, the disadvantage of a non-disruptive innovation is that the demand is extremely uncertain,” Siggelkow explains. “You see a ‘blue ocean’ where no one is operating, but there might be a good reason that no one is there: there is either no demand or it is prohibitively expensive to serve this market.”
Another advantage of non-disruptive innovation is a reduction in conflicts and disagreements with a variety of entities.
“When organisations create new markets that displace existing industries and established players, social interest groups and governments are often lobbied to intervene,” says Kim. “The short- to medium-term social disruption that occurs can be very painful in terms of lost jobs and falling earnings, as we have seen in the case of the taxi industry versus Uber and other ride-hailing services,” says Kim.
Non-disruptive creation, which requires identifying and solving new problems or taking advantage of new opportunities, results in new markets that produce new jobs without replacing existing jobs or companies.
“So, the interest of governments and organisations are in solid alignment, causing less friction and smoother sailing,” Kim says.