Countries like the United Arab Emirates are quickly transforming their economies from oil based to knowledge based economies. The numbers leave little room for doubt; knowledge based industries and services have grown in economies like the UAE’s from 32.1% in 2001 to approximately 37.5% in 2012. These transitioning economies are making it all the more important for companies to consider disruptive innovation. Countries like the UAE have established themselves as key players in various sectors including real estate, tourism and aviation, prompting businesses to adapt as external innovation and creative outputs are being localised.
Defining Disruptive Innovation
A theory that was first coined by Harvard Professor Clayton Christensen, disruptive innovation explains the phenomenon by which an innovation transforms an existing market or sector. This occurrence typically happens when the introduction of simplicity, convenience, accessibility or even affordability challenges a market where complications and high costs are the status quo. Disruptive innovation commonly takes place in niche markets that initially appear as unattractive or inconsequential to industry incumbents but are gradually redefined as a result of the new product or idea.
How to manage for disruptive innovation
As experienced management consultants that have frequently helped our clients with market studies that have included competition bench-marking and market research, we often encourage our clients to use them to their full potentials; magnifying the significance of the research and information gathered to manage for disruptive innovation. Unfortunately it is not uncommon for companies that don’t aim to manage disruptively to be left behind. An all too familiar example is Nokia, a company that once dominated the cellphone industry now lags behind as companies like Apple and Samsung toppled the entire industry by disruptively innovating and outperforming them.
Managing for disruptive innovation usually involves a couple of simple steps that are as follows:
1. Identify your company’s key markets
Reach a consensus with senior leaders on your firm’s priority markets. Whether abundant with opportunities or plagued with risks, priority markets need to be initially established and then segmented.
2. Decide on which market segments are of utmost importance
Once the segments are identified they may need to be redefined based on the segmentation criteria that is established.
3. Analyse industry structure
After the most important segments are defined, it crucial to further analyse each one based on Porter’s 5 forces- the segment clients, suppliers, potential entrants and substitution products need to be identified and addressed.
4. Identify what makes each player powerful
It is then crucial to analyse each of the players in the industry. When looking at suppliers for example, the concentration of supplier in the industry as well as the switching costs and differentiation are all analysed. The same strategy has to be applied to each constituent of the market forces.
Value streams need to be identified, it is important to estimate how value is transferred from one player to another. Ultimately, the important question that needs to be answered is: who is paying whom for what and how much? Public data can often reveal the intricate relations between each player. This should help reveal who is capturing the larger share of industry value.
5. Hypothesise on ways to disrupt the status quo
This section aims to establish methods or ways to understand how a dominant player’s claim to an industry’s value can be decreased or increased. Whether it is suppliers, clients, substitution products or potential new entrants, it is crucial to understand how each player’s relative power can be influenced.
Various team members need to thoroughly understand the industry’s structure. Once they understand how value is really created in the industry, it will create a framework for more focused team work. Ideas for disrupting the industry in favourable ways should be gathered as well as ideas for new products, solutions, services or even clients. As the ideas are funnelled, the most important ones can be selected to form the basis for innovation projects that can be eventually launched into action.
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