disruptive innovation

  • March 2, 2018
  • Disruptive innovations change our lives for the better. They expose long-standing needs and signal that there’s a solution at hand. Moreover, the solution involved is usually less expensive than the status quo. The lower cost aspect makes adoption inevitable and therefore disruptive.

    Document management is like that. Decades ago for many enterprises the cost of capturing documents as electronic images vastly improved on the costs of managing file cabinets. Labor and printing costs still make up a significant cost for some organizations but generally, as document management becomes ubiquitous, a business saves a lot of money.

    But disruptions don’t remain disruptive, they commoditize and become mainstream and on the way they become less costly and even more ubiquitous than their inventors had expected. Really successful disruptions follow this path to ubiquity without skipping a beat but other times vendors try too hard to extract value from their old disruptions. This still works when customers are deeply invested or it’s hard to convert to the competition. The term “walled garden” was coined to describe such situations.

    In a walled garden you might expect a vendor to tightly monitor license use and to oppose commodity licensing options like site or corporate licenses. Some vendors have gone so far as to audit use within a client enterprise and to charge back for uses assumed but not necessarily verified.

    These policies might work when a disruption is fresh and a vendor wants to penetrate an organization. But later both the customer and the vendor have an interest in making the solution ubiquitous because all or nearly all people in an organization can benefit from the solution. Those who can’t benefit won’t use the solution and for them a full license doesn’t make a lot of sense.

    Walled gardens can fail, especially when conversion isn’t as hard as the disruptive vendor might think. Further, as time goes on the principal attribute that a vendor displays has much less to do with wiz-bang technology because the competition has caught up. The reason dominant vendors remain so is because they’ve managed to engage with customers and engagement drives loyalty.

    In my experience, which includes writing books on the subject, keeping customers for the long term begins with engaging them on all levels with your whole product, a term from a few decades ago that’s still valuable. Whole product includes the core product but also all of the policies, procedures, service interactions and more that tell customers you care about their success.

    In “Stop Trying to Delight Your Customers” a 2010 article from the Harvard Business Review the authors say, “…loyalty has a lot more to do with how well companies deliver on their basic, even plain-vanilla promises than on how dazzling the service experience might be.”

    The essence of that delivery is simplicity, which includes the user experience as well as the experience with the vendor’s policies and procedures. But in multiple situations we see the opposite of simplicity today, which some customers view as hostility. The best example of this is the software audit.

    Whether it’s database companies or document management companies, auditing customer use of a product, along with hefty chargebacks is becoming a bone of contention between customers and vendors. No doubt vendors think audits are necessary but as a customer engagement strategy it lacks a lot.

    My two cents

    At some point in the commoditization process the driving force of the vendor-customer relationship transitions from the awesomeness of a product to how easy a vendor is to work with and that’s the whole product wrapped up with a bow. The user experience, the buyer’s experience, technical features and pricing all have a role to play in the whole product description. Vendors who forget this may find that after many years customer attrition becomes a problem and at that point it might be too late.



    Published: 6 years ago

    Disruptive innovations drive the economy. First there’s nothing, then something appears in the market and we all realize we’ve been missing the product or service our whole lives. We rush to buy it but soon the market is flooded, copycat products emerge, price erosion commences and the disruption becomes so commonplace that we ignore it. Important disruptions have a chance to become managed utilities, oligarchies with restraints. How can you tell where you are on this wild ride? A few pointers below.

    1. The market is suddenly full of low cost competitors that only do part of what your product does.
    2. The plain vanilla version is no longer enough. Customers want variety.
    3. You can’t keep up with enhancement requests and your service function is overloaded. Customers are getting grouchy.
    4. The glowing articles about you that once filled the media are being replaced by stories about product deficiencies and unhappy customers.
    5. Customers are delaying new orders until a product issue is fixed. Maybe they’re auditioning a competitor.
    6. Various governments want to invent ways to regulate you. None can agree on a common approach and you run the risk of becoming the little Dutch boy with his fingers in the dyke.
    7. Meanwhile your company is trying to automate the product as much as it can and to reduce the need for service. This makes customers happier and reduces overhead so that you can compete in a low margin world.

    There are more issues but you get the idea. The bloom is off the rose as the poets might say. The plain fact is that nothing is “wrong” markets do this. Say’s Law (the Law of Supply and Demand) says, “Supply creates its own demand.” But what they never tell you is that’s only true in new markets. There’s such a thing as oversupply and when that happens prices drop. Your success breeds competition which breeds commoditization, and downward price pressure.

    You might not see all of the symptoms in the short list above because products differ. For example, if you’re lucky enough to have invented something that the world, or a good part of it, can’t live without and it’s so successful that it discourages competition, your customers might not boycott or refuse to reorder. Instead they might take their complaints public.

    That’s a particularly nasty problem for social media companies and other tech vendors today as customers are rethinking their use. Ten years ago social media was hailed as a great new thing that could link people around the world and offer new possibilities for business and even world peace. Today not so much.

    Last week the New York Times ran a story about technologists dismayed by their creations. In “Early Facebook and Google Employees Form Coalition to Fight What They Built” reporter Nellie Bowles writes,

    A group of Silicon Valley technologists who were early employees at Facebook and Google, alarmed over the ill effects of social networks and smartphones, are banding together to challenge the companies they helped build.

    They’ve organized the Center for Humane Technology http://humanetech.com whose home page says the group aims at “Reversing the digital attention crisis and realigning technology with humanity’s best interests.”

    This isn’t the first time people deeply involved in tech have sounded a warning and introduced course corrections. Many like Gabe Zichermann have attributed our uneasy relationship with modern tech to what Zicherman calls the addiction economy, an outgrowth of the attention economy. Gabe Zichermann is the cofounder and CEO of Onward, a mobile app that uses machine learning to help people strike a balance in how often they use technology.

    A decade ago, before social media really got going, frustrated customers would find creative ways to pillory vendors. One popular approach was to start a website with the company’s name and “sucks” appended to it. The gods of the internet naturally collated those sites last in searches but if you knew what to look for you could find untold horror stories told from the customer’s point of view.

    It got so bad that I invented a metric, the Sucks Score and I wrote about it in a book. It was a simple calculation of the number of hits you got when searching. I haven’t looked for those signs and symptoms in years simply because social media has taken all of the (minimal) work out of the process. Today we can flame anyone on social media and it takes no special skill. Even a septuagenarian businessman can effectively leverage the technology.

    But what happens when the go-to technology of social interaction becomes the disfavored and disrespected? That’s when you really know that your 15 minutes are almost up. What to do about it?

    First, take a breath, then another. Knowing this kind of thing happens all the time is no help when it’s happening to you. But things could be worse—your brainchild could have been bought and chopped up. Time to take a look at your business model. If it’s the same one you started the business with, think again. A recent article in the MIT Sloan Business Review points out that some of the most successful models involve incorporating partners and their capital into a grander scheme of entrepreneurship. Business models are coming back into vogue and there will be more in a future post.



    Published: 6 years ago