Disruptive Innovation in the Enterprise

When I heard that Clayton Christensen was giving a talk at PARC, I knew I had to go. Having read some of his work during my MBA, I had developed a considerable admiration for his ideas. His work continues to inspire and educate- hence, given this chance, I leaped at it. Christensen coined the term “disruptive technologies”, by which he means an innovation or technology that creates a product or service for a new market by applying a new set of values, serving a different set of customers and lowering prices in the existing market. As our startup is attempting something similar, I wanted to learn how this could be done better from the mouth of the master.

In his talk, he started with highlighting the differences between sustaining innovation and disruptive innovation. Sustaining innovation improves an existing product and its performance for the current market. Companies which make/manufacture the product create sustaining innovations for their present customers. However, disruptive innovation emerges on a separate curve, and serves the needs of a new/emerging market. And it does so in a much more affordable manner.

Christensen talks about how new entrants typically win at disruption, while incumbents dominate sustaining battles. According to him, the pursuit of profit drives companies’ up-market. Moving towards affordability and accessibility seems less profitable. The disruptors enter the market with a lower cost business model, such that technology that is expensive and inaccessible becomes available to all. He talks about how entering the market at a new level allows for a more democratic access to technology.

It is this democratization of technology that will lead to the greater good of a greater number of people. For example, he talks about the decentralization of healthcare, and how empowering pharmacists and nurse practitioners can lead to more accessible healthcare for a larger population; healthcare which is just not affordable by a vast majority right now. He draws a similar parallel to American education, and how online education is making education more affordable and accessible. He gave the example of Harvard Business School (HBS), where he currently teaches. The cost of an HBS MBA is about $150,000 per year. And then he compares it to the University of Phoenix. He recently recorded some lectures for them, and he was told that those lectures would be broadcast to all 135,000 business students at the university!

Competition can be on two levels, by improving functionality and reliability, or by improving speed, responsiveness and customization. The former approach is mostly adopted by incumbents, while the latter is the disruptor’s approach. The disruptive approach usually inches up the performance ladder slowly, moving from satisfying the requirements of the new market to the existing market.

Disruptive technological forces are very much at play in the enterprise software world. Mobility is ubiquitous and no longer a choice for most technology companies. The cloud is rapidly making technological access easy and endless amounts of data are being generated at alarming speeds. The consumption and comprehension of big data results in its own unique challenges, which are being addressed by what is now commonly termed Fast Data.

In his article on the upcoming App revolution in Enterprise software, Tiernan Ray argues that these disruptive innovations are and will rapidly change the enterprise software market. (http://blogs.barrons.com/techtraderdaily/2012/03/29/sap-orcl-to-ride-wave-of-apps-revolution-says-credit-suisse/?mod=yahoobarrons). He quotes Phil Winslow, who talks about a paradigm shift in enterprise architectures. Winslow says that this new application revolution will create both a new market and a new generation of enterprise software companies, who are riding this crest of disruptive technology. Winslow goes on to add that incumbents (to borrow Christensen’s terminology) might face potential problems, but this transformation of the enterprise ecosystem will bring with it an expanded user base (Christensen’s democratic access) along with smaller, faster providers.

This challenge of change can be either a threat or an opportunity. With this opportunity comes the chance to do good work, drive technological innovation, and in some way, do greater good for a larger people. Reach out and touch and make a difference in more lives, maybe for the better. In a way, is this not what all startups want to do? Isn’t this the ultimate aspiration? Dreams of fame and fortune aside, the changes we make are all that matter. As somebody once said to me, people only remember us for the contributions we make to the world.

You can see the complete talk here: http://www.parc.com/event/1646/innovation.html