There is much talk about innovation — and there are many approaches to creating new things, from the famous “open innovation” ideas of Henry Chesbrough to the ever popular notions of Clay Christensen about “disruptive innovation“. Whether it was the popisicle, invented by accident by Frank Epperson when he left his stirring stick in a mixture of soda water powder and water on a porch over a particularly cold night that yielded the prototype of this frozen confection which inspired Frank to build a business of making popsicles, or the invention of the universal credit card by Frank X McNamara in 1949 who went out to lunch with Alfred Bloomingdale, the grandson of the founder of the famed Bloomingdale’s store, and did not have cash on hand to pay for the meal, so he vowed to never be in the same situation again — the story of innovation comes in many shades and hues.
One question I often get from senior executives is: how important is innovation to me? The answer for new industries is clear: innovation wins the game. In mature industries, like PC software or home construction, executives must ask themselves: is my industry in danger of dematuring? By dematuring, I mean does a stable industry with known competitors begin to be dynamic and new again? If your industry is dematuring, the chances of you getting hit with a disruptive innovation are much greater and established players lose their hegemony while value in the industry can move to entirely new players or parts of the value chain.
An industry is in danger of dematuring if two or more of the following four things happen simultaneously:
- customer’s core requirements change;
- the core technologies used to produce the product or service change;
- the number of large competitors interested in the same market is on the rise;
- significant regulation, deregulation, or re-regulation is coming down the pike.
Just one of these shifts is unlikely to change up the status quo; two or more is more likely and three or more is almost certain to spell increase dematuring and thereby great potential for disruption in your industry.
Here are some industries current undergoing disruption:
- Publishing: including newspapers, magazines, and books;
- Telecommunications: including the provision of access as well as the end consumer devices themselves;
- Software: both at the consumer and enterprise level;
There are some industries which are not undergoing this type of fundamental change:
Here are some industries that may “de-mature” soon if different, promising technologies begin to become mainstream.
- Automobiles. If electric cars take off the entire set of attributes and core technologies will change radically and allow new entrants to join the fray;
- Insurance. If telemetry enables any asset to be tracked and traced, the pricing and use of insurance may change radically;
- Energy. If any of the future bio-diesel or photovoltaic technologies that have a very different cost curve come onto the scene, then there could be a wholesale reconfiguration of what people buy, how they buy it, and who provides it — not to mention the new regulations and incentives that might be part of a disruptive transformation.
Companies that sit in industries that are dematuring must have a vigorous approach to scanning for new potential competitors from traditional and non-traditional sources. Further they need to be willing to invest much more in more transformative innovations — such as Comcast’s Fancastic effort to stream new video content to their end consumers — a large and risky adventure.
Companies in mature industries such as construction need not look so vigorously at innovation, except as it helps them to incrementally reduce cost or differentiate their product. Toll Brothers construction should be more worried about lobbying congress for new home-buyer relief than investing in innovation.
The trickiest are those companies that may demature — because they need to monitor carefully, and be ready to act, but not jump in too quickly. For example, in telematics, leading insurance companies like Progressive and Allstate have been experimenting with new services and pricing. They need to have the capability to move quickly in the marketplace if these new modes of customer demand come to fruition. With the advent of the open mobile phone platform of the iPhone and the Android, we might have an “on-demand” insurance application at any moment and if it goes past the tipping point of adoption, these giants will need to respond and quickly.
So, is your industry dematuring and do you have the right approach to innovation to deal with it?