Overcoming Common Challenges to Disruptive Innovation
3 April, 2024 / Articles
Recommended article from Harvard Business Review
It has been nearly three decades since Clay Christensen first introduced the concepts of disruptive innovation in his classic HBR article, “Disruptive Technologies: Catching the Wave,” followed by his seminal book, The Innovator’s Dilemma. While he initially defined disruption as an innovation or new technology that comes in at the low end of an existing market at a lower price and with some performance tradeoffs, Christensen eventually broadened the concept to include innovations with the potential to create a new market or reinvent an existing one.
It is safe to say that these core concepts have gained traction. Today, disruption is everywhere, with startups and incumbents alike working tirelessly to create innovative products and anticipate shifts that will upend industries and remake markets.
But so too are the failures, as many companies keep coming up short in their efforts to harness the techniques. Instead of evolving into a widely adopted set of practical management methodologies like Six Sigma, the execution of strategies that aim to proactively drive disruption remains something widely discussed and studied — yet difficult to master.
This struggle spans a broad array of industries. Automakers and mobility companies invested heavily in autonomous vehicles, yet widespread adoption remains on the distant horizon. Electric vehicle growth has slowed, and carmakers are scaling back production. Utilities and energy companies retreated from renewables. Even tech giants fall short. After rebranding itself Meta, Facebook pivoted away from the metaverse after that unit racked up huge losses — more than $51 billion in 2019 through 2023. Google’s parent re-structured its “X” unit dedicated to moonshots.
Many of these companies established what, in theory, are the building blocks for success. They developed a vision of the future, structured a roadmap with milestones, committed resources, even significantly funded separate divisions such as Meta’s Reality Labs and Google’s X units. So, why is disruption so hard?
Based on our research and work with companies, the root cause of failure often comes down to practical challenges of execution that are linked to culture, organization, and market development. These obstacles are often glossed over in more idealistic, retrospective versions of how disruption happens but, in practice, play a crucial role.
To beat the odds, companies need strategies to overcome four common challenges.
Navigate the fog of disruption.
Disruptive changes produce complexity and uncertainty, especially during the nascent stages of a market. Most successful companies are wired for efficiency, so when they encounter complexity, they attempt to simplify it. In practice, this can lead them to reduce vast amounts of information and perspectives into a tidy narrative that reflects a small set of assumptions and not fully comprehend the messier array of risks that will influence how the market evolves.
Such a process can result in overconfidence in ultimately flawed strategies. For instance, power companies invested billions of dollars in offshore wind farms, assuming that, with time and greater scale, the cost of producing this renewable energy would fall, approaching grid parity and enabling the displacement of fossil fuels. Instead, surging interest rates, supply chain disruptions, and inflation drove costs higher. As a result, utilities are retreating from these massive investments, despite government incentives and a need to decarbonize their portfolios.
Companies should instead seek to rewire their organizations, developing an end-to-end process for managing uncertainty. The first step requires taking an expansive view and assessing all the market influences that can be identified, followed by the development of a portfolio of opportunity areas that create options, which is especially important if uncertainty is high. Equally important is the final step: to manage that uncertainty over time by monitoring and tracking key forces and adjusting investments and choices based on how the market evolves.
One global energy utility recognized that it needed a more comprehensive strategy to navigate demands to decarbonize its power-generating sources while still meeting expectations for reliability and affordability. It identified a portfolio of sustainable opportunities, like investing in solutions to enable its largest commercial and industrial customers to switch to electrification from fossil fuels, and others more uncertain, such as providing renewable electricity generation for desalinization facilities.
It chose to focus on customer electrification because it realized it couldn’t wait for its customers, who were struggling with barriers to act on their own. So, it made significant investments in building capabilities to deliver these solutions and engaged with its larger customers to speed their adoption of more sustainable power sources. It also created options in its portfolio by beginning to make strategic investments in companies developing new areas of carbon-free electricity.
Focus on market development.
Developing a killer product does not guarantee success. Just because you build it, doesn’t mean customers will come. Yet companies repeatedly come up short in developing a market for their disruptive products.
Consider the plant-based meat industry, which expanded rapidly only to see demand for its alternative products plateau and begin to shrink. Market leaders like Beyond Meat, which went public in 2019, developed a niche with early adopters but then struggled as they scaled and tried to compete in more mainstream markets, forcing them to slash prices and the variety of their offerings while focusing on improving the quality of their products to better compete with conventional meats.
There is a rich playbook for avoiding such a fate. For instance, companies should establish market footholds where there are lower barriers while identifying customers willing to accept tradeoffs. Other steps include sufficient investment in distribution and marketing capabilities to drive category creation at scale. Companies should also account for factors like switching costs and customer risk aversion while identifying and connecting with the right stakeholders, who may be different from existing buyers.
The sustainable packaging industry, which is attempting to increase the recyclability and biodegradability of traditional packaging, is confronting a similar set of opportunities and challenges as alternative meats. Despite enthusiasm and significant backing from venture capital and existing industry players, companies have only begun making inroads in the $1.2 trillion global plastics industry. These products struggle to compete with the existing plastic standard, which is significantly cheaper, more versatile, and better able to withstand pressurization.
One materials company fashioned a strategy aimed at overcoming these steep barriers. After developing a particularly strong and versatile polymer coating for its paper packaging applications, it analyzed the industry’s ecosystem and made the development of strategic relationships with food and beverage companies its priority in order to drive adoption of an alternative. It also began working with fast-moving consumer goods companies that influence new trends, along with critical players in the packaging ecosystem such as paper mills.
The company unveiled its innovative food- and beverage-packaging products in Europe, where corporate and consumer support for recycling and sustainability efforts is much stronger than in the United States. It also began collaborating with consumer brands, giving it an opportunity to strategically participate in market development, while establishing new corporate roles, such as value chain managers, to put people in charge of thinking strategically about the development of this ecosystem.
Master stakeholder buy-in.
Disruption can be unsettling and scary to stakeholders. Investors may be impatient and skeptical; employees may perceive such strategies as threats to the core business and their jobs; and longtime customers may have questions about the company’s focus.
Organizations can more effectively manage disruption by developing a clear communication strategy that aims to ensure that different audiences, with various concerns and questions, get complete information about the strategy. Without their buy-in, these powerful stakeholders can undermine efforts by taking their money or focus elsewhere. Disruption can also be polarizing, with different groups taking extreme positions about change — for example, the best path to sustainability — that can stymie more practical solutions.
Company leaders can navigate this by learning to talk about today and tomorrow at the same time, framing problems and solutions in a way that shows a path forward.
Ford offers a compelling example of this in how it managed its transition to producing electric vehicles. While it and other automakers now face challenges as demand for EVs slows, the company has cultivated crucial stakeholder buy-in, specifically by highlighting the importance of EV and internal combustion engine (ICE) technologies and communicating the value of focusing on both. For example, with a portfolio of EVs and ICE vehicles, Ford is able to meet the demands of different consumers and circumstances, which is critical as many customer segments face practical barriers to EV adoption, which Ford’s stakeholders understand.
The automaker announced its strategy in 2022 when it unveiled the Ford+ Plan, detailing how the newly created Model e division would lead in EVs, while the Ford Blue division focused on ICE products. It assuaged investor and employee concerns by showing how the growth and development of each business is of equal importance, with Model e accelerating innovation by developing technologies for all Ford products, while Blue drove growth and profitability through its incumbent business.
Ford detailed how synergies between the two divisions would benefit all stakeholders and that the core capabilities in manufacturing and hardware engineering would be relevant for developing both EVs and vehicles with internal combustion engines. It also showed how new capabilities incubated in the Model e division, such as software and vehicle connectivity, flow back to Ford Blue. By having a synergistic strategy that balances both areas of the business, the company positioned itself to be able to adjust as market conditions change.
Create a disruption-ready culture.
Most successful companies are designed for efficiency, not to drive disruptive change. As a result, they will often appoint a new leader to spearhead the disruptive effort and separate the new business from the core business to protect and ensure it gets the right resources. These are important steps, but they don’t scale on their own. That requires directly addressing cultural challenges.
To succeed, disruption must be embedded across operations. While culture is unique to each enterprise, all organizations can proactively define and develop one friendly to disruption.
Changing culture is challenging. Companies that are successful embrace a few principles in practice. Rather than attempting to change culture broadly, they focus on changing behaviors that support specific business outcomes, drawing a clear connection between the two. They also methodically identify underlying obstacles to these behaviors and use multiple interventions to encourage them — from formal organizational changes like incentive schemes to more informal “nudges” that encourage behavior in direct ways.
SpaceX, which was established by Elon Musk in 2002, provides a good example. The company has revolutionized the aerospace industry, opening the door to a new generation of exploration by providing cheaper and more frequent access to space. At its core, SpaceX is driven by a unique culture, oriented around an ambitious but increasingly attainable long-term vision to make humanity a multi-planetary species by colonizing Mars.
All employees know how their work fits into this mission, which is predicated on making space travel more accessible and affordable. The organization actively encourages creating friction, which elevates the standard of work, and keeps its organizational structure flat by deemphasizing titles. It seeks to group together its most highly skilled employees while promoting applying to hardware a software mindset of continually improving the product.
By embedding these and other behaviors into the organization, it creates a high-achieving culture. In fact, a recent survey of over 1,200 SpaceX employees shows the most frequently discussed cultural values are agility and execution.
While detractors have criticized the company’s culture for encouraging burnout, what it has achieved with the same talent available to other aerospace companies is notable. It was the first privately funded company to send a commercial spacecraft to the International Space Station, and its engineering feats include developing reusable rockets, which significantly changed the economics of satellite launches.
The promise of disruption is immense. But a great strategy isn’t enough. By being clear-eyed about the challenges of executing disruption, companies can avoid the pitfalls and improve their chances of success.
