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Overview

Recent years have seen considerable progress in identifying important variables that affect success with regards to innovation. Clayton M. Christensen's article "The Rules of Innovation" boils innovation down to four main points. They are: Taking Root in Disruption, The Neccessary Scope to Succeed, Leveraging the Right Capabilities, and Disrupting Competitors, Not Customers.

Taking Root in Disruption

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A company that adopts a sustaning strategy has about a six percent chance of success. A company that adopts a disruptive strategy, however, has a 33 percent chance for success, therefore; when a company nurtures and strengthens current products and adopts a disruptive strategy they have a 27 percent better chance to succeed.

One of two tests must be passed in order to determine whether or not a market can be disrupted. If both tests are passed the chance of success are even better.

The first test is, “Does the innovation enable under skilled or poorer customers to do for themselves things that only the wealthy or skilled could previously do?”

Even if an innovation cannot do all the things exisiting offerings can, when this condition is fulfilled potential customers; who may not have had access to the existing market, tend to be pleased. As an example, the first PCs were slow and limited in processing power but when the they came on the market they were a better alternitave than no computer.

The second test is, “Does the innovation target customers at the low end of a market who don’t need all the functionality of current products? And does the business model enable the disruptive innovator to earn attractive returns at discount prices unattractive to the incumbents?”

By taking on the low end of the market and then moving up, a new company attacks, step by step, the markets established companies become motivated to exit. For example, Wal-Mart started selling brand-named products up to 20 percent less than department stores and still earned decent profits because of its high inventory turn over.

Picking the Scope Needed to Succeed

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When the fuctionality of products has overshot what customers can use, companies must compete through improvements in speed to market, simplicity and convenience, and the ability to customize products to the needs of customers in ever smaller niches. Highly integrated companies make their own products, while non-integrated companies tend to out-source the manufacture of the products they sell. This means the more integrated a company is the more adaptable to customers needs they are, and in turn, more likely to succeed.

Leveraging the Right Capabilities

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Managers can determine their innovation limits by asking themselves three questions: (1) Do I have the resources to succeed? (2) Will my organization’s processes facilitate success in this new effort? and (3) Will my organization’s values allow employees to prioritize this innovation, given their other responsibilities?

Many innovations fail because managers assume that the same strategies and customer needs that exist in stable markets will apply in a disruptive one. By making this assumption they close themselves off to opportunities to discover what customers really find useful in new, disruptive products.

There are two important considerations managers fail to take into account. They are: Innovators must not avoid money nor leave the money to be dealt with by the corporations. And the second being, Innovators should be patient about the new venture’s size AND patient for profits.

Having a limited budget means an company must listen to the customers needs, and not the company's corporate model of budgetary allocation. Managers should never over exceed the new innovation's limits. To much pressure is put on an innovation to become large and profitable immediatly. This is not always the case. An innovation should grow organically.

Disrupting Competitors, Not Customers

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In order for an innovation to succeed it must minimize the need for potential customers to reorder thier lives. If an innovation helps a customer acomplish something they are already trying to do but more simply it has a high probability of success. If, however, the innovation helps them do something they are not trying to do it will ultamitly fail.

A good example of this is iTunes. Customers want the ability to own a song but they do not always want all the songs on an album. iTunes alows a customer to purchase a particular song at a cheaper price than the CD or even the single. It also is compatable with the most popular mp3 players. Thus the customer gets the product they want, at an affordable price and the process of downloading it to their mp3 players is streamlined.

References

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The Rules of Innovation, Christensen, Clayton M.