A generation ago, incumbents that struggled to respond to disruptive innovations had an excuse. The pattern that simple, convenient, low-priced solutions would grow from humble beginnings to create and transform industries had not yet been identified. Managers at companies like General Motors, Sears, and Eastman Kodak simply didn't have the tools to spot and respond to would-be disruptors.
Today's leaders have no excuse. Harvard Professor and Innosight cofounder Clayton Christensen alerted the world to the pattern of disruptive change almost two decades ago. Academics and practitioners have built on Christensen's work to develop robust frameworks that can help leaders to spot disruptive developments early and respond appropriately.
Sifting through this work highlights three seminal moments in any disruptive innovation's development:
- Conception. When a disruptive idea is first born, typically far away from the market's mainstream. In these early days, there typically are a range of companies experimenting with a new model, fighting to figure out a sustainable business model.
- Coming of age. When at least one of the would-be disruptors crosses from the fringes to more mainstream applications.
- Crossing over. When the disruptor becomes the mainstream. Sometimes this shift results in the whole-sale replacement of the previous market leader; sometimes it creates a completely parallel market (which typically ends up being larger than the previous market due to the democratizing power of disruption).
For example, Google ultimately emerged as a disruptive force that has transformed pieces of the media business. Search as we know it today traces back to the early 1990s, with early offerings carrying names like Archie and Gopher. Search began to come of age in the late 1990s as Yahoo, AltaVista, and Google emerged, but the real coming out party was when Google honed its business model tying search results to paid advertising that companies purchased through its AdWords auction. By the mid-2000s Google had become a reasonable force in the advertising industry, and by the end of the decade its revenues dwarfed those of most traditional players.
In 2012 a number of disruptive innovations came of age. One of the giants of collective consumption, Airbnb, now is filling more room nights than Hilton. The enterprise was a hotspot of disruption, with WorkDay having one of the most successful IPOs of 2012, Square establishing itself as a clear leader in the race to develop disruptive payments solution, and Kiva Systems' $775 million acquisition by Amazon.com validating its disruptive warehousing solution. The New York Times called 2012 the "year of the MOOC," demonstrating the mainstream appeal of massive online open courses that make education more accessible and affordable. Finally, it was a big year, for better or worse, for unmanned aerial vehicles (drones).
What disruptive innovations are set to take similarly big strides in 2013? An unscientific survey of Innosight leaders and other friends of the firm highlighted four trends worth watching:
1. 3-D printing. If you are so inclined, you can go to a photo booth in MakerBot's retail store in Manhattan and have a three-dimensional replication of your head manufactured in real time. While it's not particularly clear why you would want to do it, it is a sign that the proverbial tipping point of personalized manufacturing nears. A slew of acquisitions by 3D Systems (a leading printer manufacturer), rapid declines in prices, the creation of accessible software, and the emergence of new materials further suggest that 3-D printing is edging closer to the mainstream. As 3-D printers and associated business models continue to get cheaper and more powerful, new disruptive businesses are likely to occur that have the potential to up-end entire industries.
2. The Internet of Things. A popular phrase for years, in 2013 connected devices and the so-called smart home finally look ready to enter the mainstream. One of 2012's most successful innovations was Nest's smart thermostat. The company, founded by Tony Fadell, who ran the teams that created the iPod and the iPhone, turned beautiful design and smart functionality to significant sales in its first year of commercial operations. Companies that offer home automation services like Control4 and Vivint (acquired last year by Blackstone for $2 billion) are surging, and the decreasing cost of sensors coupled with the growing ubiquity of smartphones, tablets, and high-speed wireless Internet is enabling a raft of new applications.
3. New healthcare business models. The healthcare industry has been evolving for years, but the forces that have affected media, communications, and financial services are beginning to effect the industry as well. The growing ubiquity of mobile phones has led to highly innovative business models, such as Medicall in Mexico, which allows consumers to access personal care physicians for a low monthly fee. Behavior tracking and modification devices like the one produced by Fitbit have the potential to serve as powerful means to help with wellness and chronic disease management. And new business models like Medtronic's Healthy Heart for All are making healthcare more affordable in markets like India. Expect disruption to continue its multi-front assault against a healthcare system that badly needs it.
4. Low-cost, online, competency-based learning universities. Innosight Institute Education Executive Director and Disrupting Class co-author Michael Horn noted this one. He said, "We'll see UniversityNow and others rise up and get more attention as their ultra-affordable degrees (no government dollars or loans needed) that are aligned to real work-force needs gain increasing traction in today's market. Some will take the best from MOOCs and mash them up with teachers, tutors, coaches and more to give students a complete learning experience." Horn also suggested that companies like Code Academy and DevBootcamp will increasingly provide face-to-face mechanisms that complement MOOCs.
Others mentioned included further mainstreaming of electric cars with Tesla's Model S and business models that accelerate video-seeking consumers "cutting the cord."
It is still early enough in the development of any of these areas that market leaders in respective sectors have sufficient time to formulate response strategies. They should be doing much more than watching and analyzing however — they should be actively experimenting in the disruptive space, either through organic efforts or through investments and partnerships.
Market leaders also should ensure that they monitor a set of metrics that help them identify the acceleration or deceleration of a particular trend, because response windows can close quickly.