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Marketing Viewpoint by Ruth Winett

Are You Ready for Driverless Cars?

Your Business and Disruptive Innovations

Which innovations will help your company grow? Clayton Christensen, Clark professor of business administration at the Harvard Business School, studied well-managed disk drive and minicomputer companies to discover why they eventually failed. Christensen identified two types of new technology products: disruptive innovations and sustaining technologies. Of the two, only disruptive innovations lead to true growth. When seeking disruptive innovations, identify your target market, and consider their needs and their ability to take advantage of your offerings.

Disruptive innovations generate new customers.

As disruptive innovations are often faster, simpler, and cheaper than the products they replace, they appeal to a broader customer base than existing products. Although disruptive innovations do not initially perform as well as the products they replace, eventually they often supersede them. They "kill sustaining technologies from below," concludes Christensen. Disruptive innovations convert non-consumers to consumers. For example, early cell phones were heavy, and they had poor reception and limited range. Over time, they improved in quality. In India and other developing countries, people who never before had landline phones now have cell phones.

Sustaining technologies help companies retain existing customers.

Sustaining technologies are "replacements" for existing products. Sustaining technologies are simply existing products made better. Companies create new models or new versions to boost revenue and retain existing customers. Software companies stop supporting old versions to force customers to upgrade. Frequently, the new software lacks desirable older features and is harder to use because it is overloaded with unwanted new features. Creating disruptive technologies leads to growth, but churning out a succession of sustaining technologies merely maintains the status quo.

Disruptive Innovations and Sustaining Technologies

  Disruptive Innovations Sustaining Technologies
Description Faster, simpler, cheaper (lower margin) new products Better performing versions of existing products. (Replacement products)
Customers New customers (non-consumers); new niches Existing customers
Impact Growth Retention
Limitations Market may reject new products Eventual loss of customers

eBooks, eMagazines

Airbnb and Uber

Print books and magazines

Hotels and taxis

Sources: C. Christensen, The Innovator's Dilemma; Harvard Business Review Press: 2000 and Winett Associates.

Successful innovators are mindful of customers' needs.

To succeed, companies with disruptive innovations should take into account the specific needs of the prospective customers and the customers' ability to use and pay for the disruptive innovations. For instance, Innosight, Christensen's company, and Godrej & Boyce of Mumbai formed a disruptive innovation team that created ChotuKool, a $69 refrigerator that meets the needs of poor people in India. Over 100 million rural families in India earn $5 a day, live in tiny houses without electricity, and must buy food every couple of days. ChotuKool is compact, and it uses a thermo-electric chip, a fan, and a battery, not an electricity powered compressor, to keep food cool. Importantly, input from rural Indian woman shaped the design of ChotuKool.

In contrast, the One Laptop Per Child (OLPC) initiative, which provided $200 laptops to students in developing countries where teachers and books are scarce, did not achieve its goals in Peru. First, OLPC assumed children could learn by themselves, and second, OLPC's promoters assumed villagers would have access to the Internet! Ultimately, researchers concluded that investing in teacher-training would have been more effective. It is too early to tell whether driverless cars will be successful disruptive innovations.

Copyright © August, 2014 Ruth Winett. All rights reserved.

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