Innovation – the relentless challenge and maxims for disruptive competitors
In this article, Alan Braithwaite discusses the set of maxims that disruptive competitors follow to transform their markets.
The universal characteristic of super-performers is that they have innovated in their business operations model to achieve disruptor status. Innovation is a relentless challenge because there will always be another competitor finding ways to ‘eat your lunch’ and innovations carry risk of failure and disappointment. We seldom hear about the things that did not work or analysis of why; our culture is to laud success and consign the disasters and disappointments to the bin. Our analysis* of the characteristics of super-performing business and how they have innovated to disrupt their markets has generated a set of maxims that are useful in understanding how strategies for innovation have converted to successful reality or not as the case may be.
The first big insight is that true disruptors deliver massive increases in shareholder value in short periods of time as their markets adopt the exceptional value they have created; corporate value comes as the financial institutions feed off the corresponding earnings. But that value can take years on the launch platform before take-off and it can crash and burn equally quickly. So our first three maxims are:
1. It can take years to become an overnight success
2. Super-performance is ephemeral – it can fade remarkably quickly
3. Constantly search for new sources of customer value to make your current offer obsolete
We see this in our analysis of the FT Global 500 rankings – there are big winners and losers over time as customer value is eclipsed and competitors overtake. The theme of customer value leads to our fourth and fifth maxims:
4. Compelling value is more than direct price and service – it is about the lifetime cost of ownership for the customer
5. Becoming a disruptor is about getting inside your customers’ entire value chains and transforming their economics and performance
The so-called “digital revolution” has done just that with innovative products and services like the iPhone and tablets, – they are a premium product but they save us time and increase access through Apps and markets like iTunes. Technology disruptors and the digital revolution give us our next three maxims:
6. It is not the technology that is disruptive, it is the business model that gives customers remarkable value
7. Disruptors change markets but do not necessarily dominate them – they change the rules of competition
8. Being a disruptor is no guarantee of good returns – you have to get the operating model right for profit as well as service
Getting the business operations model right is the essence of becoming a successful innovator and a disruptive competitor. It is a strategy in its own right; many businesses innovate just by how they operate. This may have a technology dimension but is more about organisation and excellence. The maxims that emerged in our research from this line of thought are:
9. Channel strategies, disintermediating established routes to market and re-intermediating them with better service and lower cost options, are an essential part of becoming a disruptor
10. Competing through doing the basics really well can make a 5% to 10% margin difference – enough on its own to be a disruptor in many markets
11. Mastering the basics is about managing out the cost-of-complexity, eliminating margin erosion through waste and markdowns and adopting lean operations thinking to aggregate marginal gains
Finally, there is the opportunity for radical optimisation where the innovation is not to try and improve within established frameworks but to change the paradigm altogether. Here the twelfth maxim for disruptors is:
12. Don’t ride the curve move it!
The difference between disruptors and also-rans is that disruptors make it happen. They grind out the development process for years on marginal returns until the formula falls into place. Our research shows that elements of luck and perseverance are found in all success stories; that insight leads to our final maxims:
13. Don’t underestimate serendipity – take your luck when it comes
14. Obstinate persistence is a quality of disruptors that is always present – it can be a benefit or a barrier
15. Treat a burning platform as an opportunity – it is never too late, until it is
Together these maxims for business innovation and disruptive competition are supported by the cases and analysis in our book. Innovators have pieced together unique customer value positions through how they configure their operations, leverage technology, organise their channels and master the basics. The Business Operations Model framework (see diagram below) is a simple tool to develop the narrative of super-performance. The results can be surprising and that perhaps is the final maxim: be prepared to be surprised at what you can do.
The Business Operations Model framework is fully discussed in Business Operations Models by Alan Braithwaite and Martin Christopher. This book provides clear insights into what makes today’s and tomorrow’s super-competitors, illustrated by case studies of leading companies, including Apple, Dell, Amazon, Aldi, and Toyota.